Beige Book: National Summary
May 8, 1996
Economic activity advanced at a moderate pace in March and April, according to reports from the Federal Reserve Banks. All the districts with the exception of New York indicated that economic activity expanded, and several noted that the pace of expansion had quickened recently. Both retail sales and manufacturing activity picked up somewhat. In addition, manufacturers' inventories appeared to be at or near expected levels in several districts. Activity also picked up in nonfinancial services, commercial and consumer lending, and real estate. Mortgage loan activity slowed, as did tourism in several districts, and agriculture suffered from adverse weather.
Price increases remained generally subdued and there were only scattered reports of wage pressures despite continued tight labor markets and somewhat stronger economic growth. Several District banks noted the sharp increases that had occurred in oil and grain prices, but Dallas observed that oil price futures pointed to a near-term decline.
Consumer Spending
Most districts reported gains in retail sales, but the Boston and
New York districts indicated that retail sales were mixed and San
Francisco said that sales were stable. Six districts noted that
apparel sales were up from the previous year and several attributed
the uptick to warmer weather. Retailers in several districts
expected a moderate increase in sales over the next few months. The
Minneapolis, Kansas City, and Dallas districts reported strong auto
sales, while the Philadelphia and Chicago districts reported that
auto sales were sluggish. Most districts said that retail
inventories were near desired levels and were consistent with their
contacts' expectations of increased sales.
Manufacturing
Manufacturing output strengthened by varying degrees in nine of the
twelve districts. The growth rate picked up in Boston, Philadelphia,
Cleveland, Richmond, St. Louis, and Minneapolis; Chicago, Kansas
City, and San Francisco reported that plants in their districts were
operating at moderate to high levels of capacity. However,
manufacturing conditions were mixed in New York and weakened
somewhat in Atlanta. Dallas said activity was below the level of a
year ago but that April manufacturing orders rebounded from March.
The Boston, Chicago, Dallas, and Minneapolis districts indicated
that manufacturers' inventories were at or near desired levels;
Kansas City, Philadelphia, and San Francisco reported that
inventories were edging down; and Atlanta said that inventories were
increasing moderately.
District banks reported varying pockets of strength and weakness in manufacturing. Cleveland, Chicago, and St. Louis noted increased demand for auto and auto-related products. Boston, Atlanta, and Minneapolis all reported stronger demand for electronic and computer-related equipment. Boston, Atlanta, St. Louis, and Dallas indicated that the market for building materials showed gains.
In contrast, Philadelphia noted that some of their firms which produce homebuilding products and materials saw declining demand. Dallas indicated that the growth in demand for semiconductors and telecommunications equipment had weakened in recent months. Boston, Philadelphia, Atlanta, and St. Louis reported excess capacity and rising inventories of paper products.
Nonfinancial Services
Philadelphia, Richmond, Dallas, and San Francisco reported that the
service sector was generally healthy in their districts.
Philadelphia reported strong demand for computer-oriented
businesses, while San Francisco noted an increase in demand for both
computer and telephone communication services.
An earlier Easter and colder-than-normal temperatures hampered beach tourism activity in the Richmond and Atlanta districts. Minneapolis indicated that the long winter was damping tourism activity in February and March. In contrast, Philadelphia reported that tourism was healthy in their district, with increased bookings for conferences and business meetings in the Pocono Mountain region of Pennsylvania. Spring bookings were also higher in the Richmond and Atlanta districts, and Minneapolis said that business owners were optimistic about bookings for the spring and summer.
Real Estate and Construction
Most Districts reported that residential real estate activity
increased; some contacts characterized the activity as "brisk."
Housing sales strengthened in the Atlanta, Chicago, St. Louis,
Minneapolis, Kansas City, Dallas, and San Francisco districts. The
Richmond and Kansas City districts indicated that housing starts
were steady. Kansas City reported that the stock of unsold homes was
lean, while Atlanta said that home inventories were "in good shape."
Pockets of strength in western and southern New York were
overshadowed by sluggish markets in northern New Jersey and upstate
New York; one New Jersey contact described the market there as
"listless."
Commercial real estate activity also increased in most districts. Dallas, Richmond, and Atlanta reported strong leasing activity with low vacancy rates and high rental rates. The Dallas, St. Louis, Minneapolis, and San Francisco districts noted strong growth in construction activity; Atlanta reported that several speculative projects were under way and more were anticipated. Boston indicated that its commercial real estate market improved somewhat, and New York reported a stable commercial real estate market. San Francisco, however, indicated that the market was soft in the Los Angeles area, and Chicago noted that commercial development remained slow, despite positive absorption rates and firming rents in office and retail space.
The recent uptick in mortgage rates had mixed effects on real estate and construction activity. Chicago and Richmond reported that the rise may have spurred potential homebuyers to take action. The New York district reported that the increased rates had no apparent effects.
Financial Services
Overall lending activity increased slightly in most districts with
moderate gains in commercial and consumer lending activity
offsetting weaker residential mortgage and home refinancing
activity. The demand for consumer loans was mixed across districts-
increasing in Atlanta, Philadelphia, and Dallas but decreasing in
Chicago and St. Louis. In the Cleveland, Richmond, and Kansas City
Districts, the demand for consumer loans remained steady. New York
and Cleveland reported that loan delinquency rates were unchanged.
However, Chicago reported that loan delinquency rates rose, although
overall credit quality was unchanged. St. Louis reported a slight
increase in nonperforming consumer loans.
Agriculture
Agriculture was adversely affected by the weather and high feed
costs in March and April, according to district bank reports. Kansas
City, Dallas, and San Francisco reported that severe drought
conditions had damaged the winter wheat crop; Richmond and St. Louis
said that crops there suffered from the lingering effects of
winter's severe temperatures. In contrast, Minneapolis indicated
that the wheat crop held up well. Several banks cited the small
wheat crop and tight carryover stocks as reasons for soaring grain
prices. Dallas, Minneapolis, Kansas City, and San Francisco noted
that high livestock feed costs combined with low livestock prices
were leading to financial stress among ranchers and some feedlot
operators. San Francisco and Richmond reported that fruit trees were
in worse than normal condition, and St. Louis indicated that an
early spring freeze resulted in the loss of 75 percent of the
Arkansas peach crop. Kansas City noted that spring planting activity
may be delayed by the drought; Minneapolis reported that planting
delays have resulted from unseasonably wet weather.
Employment and Wages
Most Districts reported tight labor markets but only scattered
upward pressure on wages. Tighter markets for manufacturing workers
were noted by St. Louis and Kansas City. Chicago said that labor
shortages were the main concern of businesses there, although demand
for manufacturing workers had softened. Boston indicated that some
manufacturers experienced difficulty in filling software and
telecommunication positions. The Atlanta and Kansas City districts
reported shortages of retail workers. While Dallas reported fewer
labor shortages overall, a short supply of skilled workers had
caused delays in the construction of warehouses and office
buildings. Cleveland indicated that labor shortages were occurring
less frequently than a year ago.
Districts generally reported only modest wage pressures, although St. Louis said several industries experienced increased labor costs and Minneapolis reported wage increases of 4 to 5 percent. Kansas City said that wages rose for skilled workers such as welders and machinists.
Prices
Most districts reported little upward pressure on prices other than
sharply higher prices for grains and energy-related items. Boston,
New York, and Atlanta reported that prices in their districts
changed little. Price increases in the San Francisco district
continued to be moderate overall. Retail prices were steady in
Kansas City and increased slightly in Richmond. Materials prices
rose in the Kansas City and St. Louis districts but declined
slightly in Richmond. Richmond indicated that service-sector and
finished goods prices increased slightly. Atlanta reported some
pockets of price deflation in lumber and paper, and Dallas reported
that oil prices were likely to decline soon. Contacts in the
Philadelphia district expected increases in the prices of purchased
supplies and materials over the summer.
Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco reported sharp increases in grain prices; however, the Dallas, Kansas City, and Minneapolis districts noted lower livestock prices. St. Louis, Minneapolis, and San Francisco indicated prices for fuels rose, and Dallas and Minneapolis reported price hikes in plastics.