August 7, 1996
The economy continued to expand in June and July, though in some areas the pace of growth has moderated since the last report. A number of districts report tight labor markets, especially for entry-level workers; however, wage pressures remained subdued. Retail sales slowed in most districts, particularly for non-auto durables. Many districts report continued expansion in the manufacturing sector, and a number have seen a pickup in hiring. Most manufacturers and retailers report that inventories were roughly on target. Housing markets remained fairly strong in most districts, though a few areas report a slowdown; a number of districts note particular strength in the multi-family segment. Commercial and industrial real estate markets continued to firm in almost all districts. A number of districts note brisk tourism activity-especially on the east and west coasts.
Crop conditions have generally improved since the last report, although late plantings across the Midwest raise the potential for damage in the event of an early frost. While there are scattered reports of rising commodity prices, most districts report that input prices, as well as prices for finished goods, were essentially flat. Most districts report increased demand for commercial and industrial loans, but softer demand for consumer and mortgage loans.
Consumer Spending
Retail sales softened in most districts, though sales were generally
up from a year-ago. Boston, New York, Philadelphia, Cleveland,
Richmond, Atlanta, Chicago, and Dallas note some weakening since the
last report. However, contacts in Minneapolis, Kansas City, and San
Francisco say that sales remained strong. Retail inventories were
generally on target.
Demand for non-auto big ticket durables-such as home furnishings, appliances and electronics-was particularly soft in several districts (New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and Kansas City). Auto sales were mixed; most districts report steady sales, but Kansas City reports a pickup, while Dallas notes some softening. New York and Chicago report that unusually cool weather may have contributed to weakness in seasonal items, such as fans and air conditioners. Apparel sales were fairly good in the New York, Atlanta, Kansas City and San Francisco districts, but were weak in the Boston, Philadelphia, and Dallas areas.
Manufacturing
Manufacturing activity continued to expand in most districts.
Boston, New York, Philadelphia, Minneapolis, Kansas City and San
Francisco report that conditions firmed. However, Richmond, Atlanta,
and Dallas note some softening. Cleveland and Chicago also report
some recent moderation in growth, but add that the sector is still
strong. Most districts report that inventory levels were in line,
although they were a bit high in Richmond. However, auto-industry
suppliers in the St. Louis and Chicago districts report lean
inventories, and this has hindered light truck assemblies.
Conditions in high-tech industries are very strong in Minneapolis but weak in Dallas; San Francisco notes increased activity in research and development, but some moderation in growth of computer manufacturing. Dallas reports increased demand for energy-related products.
Real Estate and Construction
Residential real estate markets remain fairly strong in most
districts. Some slowing was observed in the Richmond, Atlanta,
Chicago and St. Louis districts. However, Boston, New York,
Cleveland, Minneapolis, Kansas City, Dallas, and San Francisco
report continued improvement. Boston, New York and Atlanta noted
particular strength in the multi-family housing market.
Commercial real estate continued to firm in almost all areas. Tight markets and declining vacancy rates are cited in Boston, New York, Richmond, Chicago, Minneapolis, Dallas, and San Francisco. St. Louis and Atlanta report mixed conditions, with the latter mentioning strong demand for office and industrial space, but softening demand for retail space.
Nonfinancial Services and Tourism
Service activity continued to expand in districts that report on
this sector. A monthly survey of service sector firms in the
Richmond district shows increased activity in July. Temporary
employment firms and contractors in the Philadelphia and Richmond
districts report brisk business. San Francisco reports a pickup in
software development activity.
Tourism has been notably brisk in the seaboard regions-Boston, New York, Richmond, Atlanta, and San Francisco. Minneapolis reports that tourism is below expectations, but roughly on par with last year. The Olympics have clearly attracted large numbers of tourists to the Atlanta area, and other parts of the district have benefited as well-large numbers of Atlanta residents reportedly visited Florida during the games. However, some of the district's other traditional destinations report disappointing traffic.
Financial Services
Banks in virtually all districts report that demand has softened for
consumer and mortgage loans but strengthened for commercial and
industrial loans. The New York, Cleveland, Richmond, Atlanta,
Chicago, St. Louis, and San Francisco districts report increased
demand for business loans, while Philadelphia and Kansas City report
steady demand. However, consumer and mortgage loan activity weakened
in the New York, Richmond, Atlanta, St. Louis, and Kansas City.
Banks in New York, Philadelphia, and Chicago indicate some increase
in loan delinquencies, while Cleveland reports that delinquency
rates have leveled off. Insurance companies in the Boston district
report mixed sales of insurance products but increased mutual funds
sales.
Agriculture and Resource-Related Industries
Crop conditions were mixed but generally improved since the last
report. Contacts in St. Louis, Minneapolis, and Kansas City report
that crops were generally in good condition; conditions were below
normal but improving in Cleveland and Chicago. Late crop plantings
in the Cleveland, Chicago, St. Louis, and Minneapolis districts
raise the potential for crop damage in the event of an early frost.
A severe drought in the Dallas district-and parts of the St. Louis
district-has caused extensive damage to corn and other crops,
although recent rainfalls have helped somewhat. Hurricane Bertha
caused some moderate crop damage in the Richmond district.
The energy industry has picked up in the Minneapolis, Kansas City and Dallas districts, with contacts reporting increased drilling activity. The strength is largely attributed to high crude oil and natural gas prices, while Minneapolis also cites new seismic and drilling technologies as a factor.
Employment & Wages
Labor markets remain tight, but there has been no widespread
increase in wage pressures. Contacts in virtually all districts
outside the Northeast cite tight labor markets and scattered
shortages of both skilled and entry-level workers; most report that
wage pressures remain subdued, though San Francisco reports that
"wage inflation pressures are evident in some areas". Businesses in
Atlanta, Kansas City, and Dallas mention limited availability of
entry-level workers; contacts in Philadelphia and Richmond report
increased demand for temporary workers; Chicago reports shortages of
construction workers and professionals.
Prices
Despite scattered reports of rising commodity prices, most districts
report that both input prices and costs of finished goods were, on
balance, flat. Manufacturers in Boston and Richmond report stable to
declining input prices; those in New York, Chicago and Kansas City
report some rise in materials costs. Other districts report mixed
trends in raw materials costs; steel prices reportedly increased in
Chicago and Kansas City but declined in Cleveland and Dallas. Prices
for finished goods were generally flat in the New York, Atlanta,
Chicago, St. Louis, Minneapolis, and Kansas City districts, and up
slightly in Boston and Richmond. Contacts in Philadelphia and
Atlanta attribute the difficulty of raising prices to intense
competition. Cattle farmers have been pinched by weak cattle prices
and rising feed prices. Corn and soybean prices fell sharply in late
July, after surging in preceding weeks.
Some areas report an escalation in real estate costs. Contacts in Boston, New York, Richmond, Atlanta, and Dallas note upward pressure on commercial rents. Boston and New York also report some firming of residential rents. St. Louis mentions a pickup in new home prices, driven by rising costs of both land and construction materials.