December 7, 1994
Reports from the twelve Federal Reserve Districts suggest economic activity generally is continuing to expand at about the same pace as in recent months. Retail sales in most districts have improved, with nearly all districts reporting strong sales early in the holiday season. Manufacturing activity is increasing further in most districts, especially in durable goods industries, and the service sector is continuing to show strength. While single-family homebuilding continues to slow across most districts, commercial real estate markets and nonresidential construction have picked up in many districts. Loan demand is up in most districts, led by consumer loans and commercial and industrial lending. Farmers have harvested large crops in most parts of the nation but face generally low prices, as do cattle and hog producers. Energy activity in regions producing oil and natural gas has picked up somewhat. Prices of raw and intermediate materials continue to advance, with reports of some increases being passed through to final product prices. Labor markets in most districts have tightened further and more districts are reporting increasing wages in selected occupations.
Retail
Retail sales have strengthened in most districts. While sales
reports for October and early November were mixed due to
unseasonably warm weather in some regions, Thanksgiving weekend
sales were robust and year-over-year sales during the holiday season
generally are expected to be strong. Retailers in the Boston
district are the least optimistic, expecting moderate holiday sales
growth. Retailers in the Chicago, St. Louis, and Kansas City
districts report strong activity recently and high expectations for
holiday sales.
A wide range of merchandise apparently has been selling well, with some regional variation. Retailers in the New York, Philadelphia, Richmond, Atlanta, Chicago, and Kansas City districts report either recently improving sales of apparel or expectations of improving sales during the holidays. In some of these districts the improvement is a rebound from soft sales of seasonal apparel during warm-weather spells in October. Furniture in the Atlanta, Cleveland, and Kansas City districts has been selling well. Seasonal items such as snowblowers and car batteries have been selling well in the Chicago district. Retailers in the Philadelphia and Richmond districts expect strong sales of consumer electronic goods during the holidays. Auto sales have held up well in most regions, except where dealers continue to have difficulties obtaining popular models.
Manufacturing
Manufacturing activity continues to increase in almost all regions.
Many districts report growing shipments and high levels of capacity
use. One exception is the Richmond district, where indicators of
factory activity remained unchanged in October from September.
Nonetheless, manufacturers there expect shipments and employment
levels to increase in the months ahead.
Durable goods industries over the past month have been the strongest performers. The strongest industries in the Boston district were consumer durables and new types of computer equipment. The electronic components industry has been strong in the Dallas and San Francisco districts. Factory activity in the Philadelphia and Cleveland districts has been boosted by increased production of durable goods such as steel, other metal products, and machinery. The Cleveland, Atlanta, Chicago, St. Louis, and Minneapolis districts report strength in the production of automobiles and related products. While the Atlanta and Dallas districts note some slowing of orders for building materials, this industry remains robust in the San Francisco, Boston, Chicago, St. Louis, and Minneapolis districts.
Examples of weak industries are much less common. The aerospace industry continues to damp manufacturing gains in the Boston and San Francisco districts. And, the apparel industry remains weak in the Boston, Philadelphia, and Atlanta districts.
Services
Service activity continues to expand in all districts that report on
this sector. Business services such as accounting, legal, computer,
and temporary-help firms have seen their business grow in the
Chicago, Dallas, and San Francisco districts. Temporary-help firms
in the Chicago district report labor shortages across a wide range
of service businesses. Tourism is generally operating at high levels
of capacity and expanding in the Atlanta and San Francisco
districts. Even the sluggish Florida tourism market appears to be
improving. The San Francisco district, however, reports that the
health care industry has been restrained by uncertainty about
industry restructuring.
Construction and Real Estate
Single-family homebuilding continues to cool across most districts.
The Richmond, Atlanta, Kansas City, and San Francisco districts
report decreases in homebuilding or sales activity. Homebuilding is
mixed across parts of the St. Louis district and appears to be
leveling off in the New York and Minneapolis districts. Homebuilding
in the Dallas district remains strong, although builders expressed
concern about higher interest rates. Multifamily housing markets
have tightened in the Atlanta and St. Louis districts.
Commercial real estate markets have picked up in many districts. The Boston, New York, Atlanta, St. Louis, Minneapolis, and Dallas districts all report robust commercial real estate activity with a surge in sales and construction in most markets. In the Richmond district, activity was steady but commercial vacancy rates declined. In the New York, Atlanta, and Dallas districts, commercial real estate activity has been boosted by tightening markets for office space. Retail and industrial leasing was cited as an additional factor contributing to the strength in the Atlanta and Dallas districts.
Banking and Finance
Loan demand is up across most districts. Commercial and industrial
loan demand has been rising in most districts, although the New York
and Richmond districts are notable exceptions. Consumer lending
continues to grow in many regions, led by new automobile loans.
However, the Atlanta district reports steady overall consumer
lending with a decline in auto loans, and the Richmond district
reports a sharp drop in consumer lending. Residential mortgage
lending and refinancing activity remained flat or declined in many
districts. Lenders in several districts report intensifying
competition, which has reduced interest rate margins. The Boston
district notes an outflow from bond funds, although employment
levels at asset management rums in the region remain stable.
Agriculture and Resource-related Industries
The fall harvest of most crops is complete except in parts of the
Richmond and Dallas districts where wet weather slowed the harvest.
Grain crops are reported to be large across most regions and are
pushing prices to low levels. The Minneapolis and Kansas City
districts report less favorable conditions for livestock producers
due to low prices for cattle and hogs. The San Francisco district
reports some improvement in agricultural conditions due to
relatively strong prices for wheat and cotton and an uptick in
prices of fresh fruit.
The Dallas, Kansas City, and Minneapolis districts report stronger energy activity, despite weak oil and natural gas prices. In the Minneapolis district, mining and forestry industries continue to boost output in response to strong demand.
Prices and Wages
Most districts continue to report rising prices of raw and
intermediate materials, especially paper products, plastics,
chemicals, steel, and building materials. Evidence of increasing
prices of finished goods remains much less widespread. The Boston,
Philadelphia, and Richmond districts report rising prices of
finished goods. In the San Francisco district, one large grocery
chain reports pressures on prices from higher food-packaging costs.
In the Cleveland district, furniture and petrochemical manufacturers
have been pressing for price increases, but competition at the
retail level continues to keep those prices in check. A recent
survey of business people in the Minneapolis district shows
heightened expectations that rising business costs will be passed
along to consumers. In the Dallas district, retail prices continue
to fall.
Most districts report further tightening of labor markets, but the tightening remains confined to certain sectors. In the Cleveland district, labor shortages are limited to specific technical occupations. Markets for construction workers have been tighter in the Chicago, St. Louis, and Kansas City districts. In the Atlanta, Minneapolis and St. Louis districts, retail and food service firms report difficulty in hiring temporary workers for the holiday season due to tight labor markets. In the Dallas district, labor market tightness has surfaced in technical and professional fields.
Labor market tightness has led to rising wages in more districts than reported in the last Beigebook. Districts reporting evidence of rising wages include Boston, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas. Wage increases have generally been confined to skilled construction and industrial occupations and entry-level service and retail occupations. In the Kansas City district, only a few contacts report increased wages, and those increases were limited to skilled construction workers such as carpenters. The Dallas district reports only scattered evidence of wage increases, mostly in temporary-help services, trucking, accounting, and communications. In the Richmond district, wages increased at service-producing firms.