March 13, 1996
Reports from the 12 Federal Reserve districts suggest the national economy grew modestly in January and February. Over half the districts cite moderate economic growth or continuing solid levels of economic activity. Most of the others mention recent improvements, largely reflecting rebounds from weather-related slowdowns earlier in the year.
Accounts of manufacturing activity are mixed. More than half the districts report gains in at least some industries or sub-regions, but Boston, St. Louis, Minneapolis, Kansas City, and Dallas suggest production is either level or growing more slowly than in the last report. Retail results generally improved in February, but in several districts these improvements represent only a partial recovery from weak sales during the holidays and January.
Wage and price pressures are generally described as subdued, notwithstanding observations of tight labor markets in several districts. Wages are reported to be increasing at a modest pace. Retail prices are rising only slightly if at all. Most commodity prices are said to be steady, stabilizing, or increasing very little; a few are falling.
Retail
Districts across the country report weak retail sales in January;
most, but not all, note an encouraging pick-up in February. Severe
winter weather contributed to January's slow pace, particularly on
the East Coast. February's uptick in sales was not seen in parts of
the west and mid-west, where the San Francisco, St. Louis, and
Minneapolis districts note continued sluggishness. Durable goods and
electronics are typically selling better than apparel, although some
respondents observe a rise in demand for selected clothing items,
contacts in New York and Chicago report the largest sales gains in
stores at the high end of the market.
Retailers in a majority of districts are optimistic that sales will pick up in the next few months. The outlook for those in the Cleveland, San Francisco, Dallas, and Minneapolis districts is more guarded. Upward movements in retail prices continue to be limited. Reports from Boston, Atlanta, and St. Louis indicate vendor prices generally remain stable.
Auto dealers in the Philadelphia, Chicago, Cleveland, and Kansas City districts report improved sales in February, following a disappointing January. Dallas notes sluggish sales in both months, leaving inventories larger than desired. contacts in the Chicago, Cleveland, and Kansas city districts express more optimism about this spring's auto sales than those in Dallas, Minneapolis, and Philadelphia.
Tourism
Excellent skiing conditions on the East coast boosted tourism in the
Boston and Richmond districts. Atlanta reports strong tourism and
convention business, particularly in Florida, where northerners are
fleeing to escape harsher than usual winter weather. Minneapolis
notes a drop in tourism because of poor skiing conditions in
Montana, an unfavorable Canadian exchange rate, and the temporary
federal shutdown of South Dakota's national parks and monuments.
Other Non-Financial Services
In most districts surveying business services, demand accelerated in
February from a seasonal or weather-related lull in January;
elsewhere, services continued to expand at a good pace over both
months. Dallas notes gains in accounting and transportation while
San Francisco reports growing exports of high-tech services like
telecommunications, software, and financial consulting. The demand
for temporary workers picked up in Richmond, Chicago, and Dallas,
with Chicago noting ongoing labor shortages and Richmond reporting
that temporary workers' wages rose faster than the general price
level over the last year.
Manufacturing
Manufacturing activity has been mixed but fairly flat on average.
Several Federal Reserve Banks in the middle of the country
(Minneapolis, Kansas City, and Dallas) report slightly slower sales
and orders, while the majority of districts to the east
(Philadelphia, Cleveland, Richmond, and Atlanta) indicate a slight
strengthening since the latter part of 1995 or the beginning of
1996. Only the San Francisco report has a generally positive tone
for recent months, based largely on trends for machinery and
equipment.
A number of districts report growing demand for capital goods, notably industrial machinery, with Cleveland, Atlanta, and Chicago citing a boost from exports. Sales of electronic and computer- related equipment appear to be rising, although Minneapolis reports a slowing rate of growth for computer components, and Dallas notes a drop-off in demand for memory chips and microprocessors. St. Louis and Dallas indicate robust markets for cement. Auto-related and apparel demand are widely reported to be sluggish, and paper mills are experiencing declining sales according to contacts in several districts.
Manufacturers throughout the country report little or diminished materials cost pressures. Paper prices in particular are falling, and lumber prices are either falling or have ceased to rise. Several districts note growing wage pressures or tight markets for some categories of manufacturing workers. Overall wage inflation reportedly remains moderate, however. Philadelphia and Richmond report recent declines in finished goods prices, while most other districts indicate little or no increase. Several districts attribute the modest size of upward price movements to competitive conditions in addition to the lack of cost pressures.
Real Estate And Construction
All districts report increased interest and activity in residential
real estate; most also report increased residential sales. Among
those with higher sales, Cleveland, Richmond, Atlanta, Chicago,
Kansas City, and Dallas indicate low-priced and subsidized houses
have done better than higher-priced homes. Upstate New York and
Philadelphia continue having excess inventories of housing stock.
Prices are said to be stable in most districts, but appear to be
showing some increase in the Kansas City (especially for low-priced
homes) and Richmond districts and in the San Francisco Bay area.
Richmond, Minneapolis, and Kansas City are seeing an increase in new
residential construction, and San Francisco notes increased
construction of apartment buildings in Arizona.
Commercial real estate markets have also experienced increased activity. New York, Philadelphia, Chicago, and Dallas report rising demand for commercial space. Vacancy rates are said to have dropped in the Philadelphia, Richmond, Atlanta, and San Francisco districts. Cleveland, Richmond, Atlanta, Minneapolis, Dallas, and San Francisco report increased commercial construction in their districts.
Contacts in all districts anticipate a strong and active spring season. Despite some concern about interest rates and about overbuilding in selected areas, respondents are optimistic about both residential and commercial real estate activity during the upcoming months.
Financial Services
Loan demand appears to be increasing in the majority of districts,
although it has eased in Cleveland and California. Most districts
indicate that demand for commercial loans has risen more than the
demand for consumer credit. contacts in New York, Atlanta, and
Cleveland report slightly higher loan delinquencies. Respondents in
all districts reporting on bank activity mention a surge in
refinancing activity.
Agriculture and Natural Resources
Arctic cold, drought, and fire have damaged the winter wheat crop
and pasturage in much of the St. Louis, Kansas City and Dallas
districts. In addition, in the Richmond district, parts of the
Pacific Northwest, and the eastern Dakotas, floods or heavy snows
have also hurt crops. With uncertain prospects for the 1996 harvest
and tight global inventories, grain prices are at their highest
levels in many years. While these conditions are benefiting grain
farmers in the parts of the Minneapolis and San Francisco districts
that have adequate moisture, ranchers are caught in a squeeze. With
the ratio of livestock prices to grain prices unusually low, the
Minneapolis, Kansas City, and Dallas districts report declines in
ranch profits. In Minneapolis, bankers reportedly expect a rise in
ranch liquidations. Beef exports to Canada and Asia are helping to
support producers in the San Francisco district.
In other natural resource industries, conditions are mixed. Iron mines in the Minneapolis district shipped at the highest level in over a decade, while output from nonferrous mines stayed stable. Energy prices are reportedly volatile, with natural gas and fuel oil prices fluctuating at high levels, while crude oil prices are relatively weak. Dallas and Minneapolis report strong gas and oil exploration activity, but in Kansas City and Dallas, the operating rig count remains low.