June 21, 1995
Economic activity remains at a high level across much of the nation, although there are indications of some softening in many reports from the 12 Federal Reserve districts. Activity in interest-sensitive sectors generally remains well below year-earlier levels and continues to decline in some areas. There are regional variations, with strongest growth reported in the center of the county, but generally less favorable conditions on the East and West coasts. Manufacturers of capital goods and electronics continue to report good sales. But producers of some consumer items, automobiles and their components, and building materials report slowing demand. Residential building remains slower than last year, but strength in commercial and other non-residential construction is taking up the slack in some areas. Developments in energy and mining are favorable, but agriculture has been hurt by unfavorable weather and livestock prices. Loan demand is largely flat, with some declines reported in lending rates. Most districts report that non-auto retail sales improved in May from earlier in the year. Auto sales remain depressed, with a few indications of an upturn. Tourism is mixed, with some districts reporting slow business due to unfavorable weather. Labor markets generally remain tight, but little wage pressure is evident. Similarly, price increases for products such as paper and semiconductors have been partially offset by price declines for building materials.
Manufacturing
Conditions for manufacturers vary across the country. At the
extremes, Philadelphia and Richmond report notable declines, while
Boston, Minneapolis and Kansas City describe continued strength.
Other districts fall somewhere in between. There are some common
threads running through several district reports. Orders for high-
tech items appear stronger than for traditional products such as
apparel or home furnishings. Chicago notes that a manufacturer of
industrial automation equipment has an order "backlog of Biblical
proportions," while Dallas and Atlanta describe rising orders for
electronic products, semiconductors and telecommunications
equipment. San Francisco reports increased capacity utilization and
lengthening lead times for makers of electronics components.
Demand for capital items seems more sustained than for durable consumer goods, particularly for Chicago and Cleveland. Several districts report slowing output of vehicles and their components and a decrease in orders for building materials. Reports on consumer items are mixed; several districts, especially Boston, see weakness in this area. Atlanta notes specific declines in carpet, furniture and some apparel categories. Apparel is also don for St. Louis, but footwear is stable and furniture strong. Within this overall pattern for the manufacturing sector, several districts cite export orders as one source of strength.
Construction and Real Estate
Residential construction remains below year-earlier levels in all
districts and a few report continuing declines in single-family home
activity. But a few others, including Dallas and San Francisco,
report gains in home building, and several districts report some
degree of optimism on the part of builders with regard to the 1995
construction season. Moreover, multifamily construction activity is
buoying some regions, especially St. Louis and San Francisco.
Furthermore, in several districts, notably Cleveland, Minneapolis,
Dallas and San Francisco, commercial and other non-residential
construction is strong, in some cases fully offsetting any weakness
in the residential sector.
Leasing and sales of existing housing follows a similar checkered pattern. Eastern cities such as Boston, New York and Washington reportedly have weakening rental markets for housing and commercial property, as does Chicago. But Atlanta and San Francisco report strong rental markets in some areas.
Agriculture
Conditions are poor for farmers in several districts, largely
because of adverse weather. For Chicago, Kansas City, Minneapolis
and St. Louis, the problem is too much rain. Corn, soybean and wheat
planting has been severely delayed across most of the Midwest and
much of the Great Plains and yield expectations are dropping.
Missouri, North Dakota and South Dakota are particularly hard hit.
Dallas and Kansas City report that winter wheat is in poor condition
due to unfavorable weather earlier in the year.
Bad weather is also hurting agriculture in the Richmond and Dallas districts, but here the problem is drought and unseasonable heat. The Carolinas and southern Texas are particularly hard hit. Livestock prices remain depressed. Kansas City reports higher than normal levels of farm loan refinancing, largely as a result of losses in the livestock industry.
Cleveland, which describes producers as expecting excellent harvests, is one bright spot in the agricultural sector. San Francisco, which reports strong growth in exports of fruit and other agricultural products, is another.
In other natural resource sectors, Dallas and Minneapolis report increased oil and gas activity, but Kansas City notes continuation of a half-year decline in drilling. For Dallas, the increase is concentrated offshore, while for Minneapolis production drilling into a new formation has led to a minor boom in North Dakota and Montana. Minneapolis also reports high production in iron and non- ferrous metal mining, and good business for paper mills and loggers in spite of a price slump for lumber producers.
Financial Institutions and Credit
Most districts report flat to slight increases in loan demand. One
exception is San Francisco where growth is strong throughout the
district, with improvements in real estate and construction lending
in California. Loan demand softened somewhat in Cleveland, although
new mortgage lending and mortgage refinancing have improved with
declining rates. Loan demand is mixed in Atlanta, with moderate to
strong activity in commercial real estate, industrial and general
business lending, and slower activity in consumer lending,
especially auto loans.
Loan rates decreased slightly in several districts. Average loan rates declined at about 60 percent of small and mid-size banks in the New York district. In Richmond rates fell slightly for consumer and commercial loans and fell sharply for mortgage loans. Kansas City reports little change in rates.
General retail sales improved slightly in May compared to April in most districts. Exceptions include New York and Minneapolis where sales show moderate growth and Richmond, St. Louis and San Francisco where sales are sluggish. In Boston sales are up 1 percent to 10 percent over year-earlier levels, though retailers view the second half with uncertainty. Computers and telecommunications equipment are selling well in Cleveland, while home improvement products are moving slowly. A large retailer in Chicago reports that sales of appliances and home electronics exceeded average for May and June, while apparel sales also strengthened.
Auto sales are slow in many districts. Sales are described as significantly lower than year-earlier levels in Cleveland and Dallas, while waning in St. Louis. Kansas City dealers report flat or declining sales for the past month. Sales continue somewhat below last year's pace in Minneapolis, but there are signs of an upturn. Chicago dealers report that sales are up for May and early June, compared to April, and they expect a small gain in the latter half of 1995.
Tourism is mixed across districts. Activity for May was above April and year-earlier levels in Richmond. Tourism in Florida is spotty, but growing in the rest of the Atlanta district. Cold weather has slowed activity in Minneapolis, while San Francisco service industries report continued strong demand.
Labor Markets
Labor markets remain tight Employment growth remains robust,
Minneapolis notes, and several New York small business executives
relate difficulty in attracting and retaining skilled workers. Many
areas of the St. Louis district are still experiencing tight labor
markets, particular for entry-level positions, and have relaxed
hiring standards. One-third of manufacturing firms surveyed by
Boston have current openings or hiring plans. Help-wanted
advertising and demand for temporary workers are strong in the
Chicago district. Philadelphia, however, notes that area
manufacturers plan to trim payrolls.
Wages and Prices
Notwithstanding taut labor markets, wage pressures are muted.
Reports of wage increases remain scattered, according to Kansas
City, and recent wage agreements specify increases in the 2 percent
to 3 percent range in the Minneapolis district. Wage increases
remain generally stable, states Atlanta. Moreover, although district
labor markets remain tight, Chicago reports that a slowing of
expansion in the demand for labor may have eased wage pressures in
recent months.
While prices continue to increase, the rate of increase has recently diminished, according to Chicago, Cleveland, Dallas, Kansas City, Philadelphia and Richmond. Some of this easing relates to the letup in home-building as Atlanta, Dallas, Minneapolis and San Francisco report a softening in building material prices. Atlanta's apparel and carpet producers are having trouble passing on higher material prices to consumers. Only 10 percent of manufacturers are raising prices on their own products, according to a Philadelphia survey. Semiconductor prices, however, have accelerated, states Dallas, while Boston, Kansas City and Minneapolis report price increases for packaging materials. But according to Dallas, manufacturers of paper and corrugated boxes said that selling prices have flattened, which may signal easing cost pressures in coming months.