November 2, 1994
Economic activity continues to expand in all Federal Reserve districts, according to business contacts; there are signs of acceleration in the Chicago, Dallas, Minneapolis, and Philadelphia districts, while growth has slowed somewhat in the New York district. Consumer spending generally remains strong. Many districts report increased spending, but several districts report flat or slackening retail sales. Auto sales remain very strong. Manufacturing activity increased in nearly all districts, and demand for business services where reported, has accelerated.
Single-family construction has declined from fairly high levels across much of the country. Most districts report gains in commercial real estate activity. Loan demand is advancing at a healthy pace in most districts.
Better-than-expected crop yields have added to record-breaking crop and livestock production nationwide, and large supplies have pushed down agricultural prices. Energy activity has improved, despite relatively weak oil and natural gas prices.
Labor markets are tight or tightening in most districts, although tightness is limited to specific sectors. There are a few reports of rising wages. Prices of raw and intermediate materials continue to rise, and there are increasing reports that manufacturers are passing along these costs by raising selling prices. Most districts report no change in retail prices, although pressure is building in some districts.
Consumer Spending
Consumer spending (which includes automobiles) has picked up in many
districts and is strong in most. Auto sales continue to be very
strong across the country, and many dealers still complain that
inventory shortages are curtailing sales of popular models.
Generally, however, retailers are comfortable with inventory levels.
Retail sales were unchanged or below expectations in the Atlanta,
Cleveland, New York, and Richmond districts. Demand continues to be
strongest for durable goods, such as furniture, appliances, and
electronics. Several districts report weak apparel sales,
particularly women's clothing. Contacts in the Atlanta, Boston,
Cleveland, and New York districts suggest that unseasonably warm
weather in September contributed to slow apparel sales. Retailers
are optimistic about holiday retail sales growth in the Atlanta,
Boston, Cleveland, Kansas City, Philadelphia, and San Francisco
districts.
Manufacturing
Manufacturing activity has increased in all districts, and only
Atlanta and Richmond note a slowing rate of growth since the last
Beige Book. Demand remains particularly strong for heavy-duty
trucks, automotive inputs and parts, steel, home appliances,
electronics, furniture, chemicals, paper, and packaging. Several
districts report that pulp, paper, and newsprint inventories are
low, and food producers in the Dallas and San Francisco districts
note higher packaging costs. In most districts, manufacturers have
indicated that input prices are rising, and there are increasing
reports that manufacturers are passing these costs along to
consumers through higher selling prices.
The San Francisco district reports continued weakness in the commercial aerospace industry, and in the Boston district, demand for aircraft parts has dropped at double-digit rates. In Central Florida, defense manufacturers' ongoing downsizing and the space industry's cutbacks are slowing economic activity.
The apparel sector continues to shrink in the Atlanta district. Apparel demand is steady in Dallas, and producers are optimistic in the St. Louis district.
Services
In those districts reporting on the service sector, activity appears
to be accelerating. Demand for business services has increased in
the Atlanta, Boston, Dallas, Richmond, and San Francisco districts.
Temporary service firms continue to report the strongest growth.
Tourist activity is reported to be very high in the Atlanta,
Minneapolis, Richmond, and San Francisco districts.
Construction and Real Estate
Single-family construction continues to decline in most districts,
but activity remains at fairly high levels in the Atlanta, Chicago,
Minneapolis, and San Francisco districts and parts of the St. Louis
district. Sales of existing homes also have slipped in several
districts, but sales were reported as brisk in the St. Louis
district and strong in the city of Philadelphia. Home prices are
reported as stable or lower in the Atlanta, Boston, Kansas City,
Philadelphia, and Richmond districts.
Commercial real estate markets have strengthened in the Atlanta, Chicago, Dallas, New York, and Richmond districts, and construction is reported as increasing in many of these markets. Lower vacancy rates are reported for office markets in the Atlanta, Chicago, Dallas, New York, and Richmond districts, and markets for multifamily real estate have tightened in the Atlanta and Dallas districts.
Banking and Finance
Loan demand is advancing at a healthy pace across the country. Most
districts report solid gains in commercial and industrial lending,
but residential mortgage and refinancing activity continued to slow
or decline in many districts. Consumer lending is increasing
modestly in many parts of the country but has declined moderately in
the Richmond district. Competition among banks for loan customers is
squeezing margins in several districts, but most bankers report no
change in credit standards. The San Francisco district reports weak
bank employment as part of consolidations and other cost-cutting
efforts. The Philadelphia and Cleveland districts report that
increased competition for deposits is placing upward pressure on
funding costs.
Agriculture and Natural Resources
Better-than-expected crop yields in several districts are adding to
record-breaking crop and livestock production nationwide. High crop
yields are straining grain storage and handling facilities and
pushing prices to very low levels. Record levels of production also
have pushed down livestock prices, and the Chicago district reports
that hog prices have reached the lowest level in fourteen years. The
Chicago and Minneapolis districts expect low prices to limit farm
household income and capital spending.
The Dallas, Kansas City, and Minneapolis districts report that energy activity has improved, despite relatively weak oil and natural gas prices. On-shore drilling in the Dallas and Kansas City districts is reported to be below year-ago levels, although drilling activity was strong in the Gulf of Mexico, where the number of working rigs is the highest since 1990. Mines in the Minneapolis district are reported to be running at capacity.
Prices and Wages
Reports of labor market tightness have increased in most districts,
but they are limited to specific sectors. There are a few reports of
rising wages. The Atlanta, Chicago, Cleveland, Dallas, Kansas City,
and St. Louis districts report tighter labor markets, although wages
are not reported to be rising. In a few parts of the Atlanta
district, labor market tightness is making it difficult for firms in
the retail, service, and light industrial sectors to attract and
retain employees. Cleveland reports labor shortages in the
industrial sector, while Dallas reports hiring difficulties at
temporary and trucking firms and in large metropolitan areas. A few
manufacturers in the Kansas City district report shortages of
skilled labor, and many contacts in the St. Louis district report a
shortage of qualified workers for both permanent and seasonal work.
Labor market tightness has led to rising wages only in the Boston, Minneapolis, and San Francisco districts. San Francisco reports tight labor markets, especially for the retail and service sectors, and wages are rising at food stores and for experienced computer programmers. The San Francisco district also reports a shortage of skilled construction workers in Idaho, Oregon, and Utah, where wages are increasing rapidly.
Most districts continue to report that prices of raw and intermediate materials are rising, particularly prices of chemicals, plastic, paper, steel, and cotton. Prices of medical and computer equipment continue to decline, however. The Dallas, Philadelphia, and Richmond districts report that higher costs are being passed along through manufacturers' selling prices. A growing number of factory contacts in the Atlanta and Cleveland districts expect cost pressures to be reflected in finished goods prices soon. Most districts report that retail prices have not risen. In the Atlanta district, however, pressures are growing, and in the Dallas district, retail prices are continuing to fall but at a slower pace.