Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
September 1994
TABLE OF CONTENTS
SUMMARY
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
.........
. . .... ..
i
First District - Boston ..............................................
Second District - New York . . .
. . . . . . . . .. . .
Third District - Philadelphia . . .
.............
Fourth District - Cleveland
. .....
Fifth District - Richmond
. . .
. ...
11-1
III-1
.......
IV -1
.. . . . . . . .. . .. V-1
Sixth District - Atlanta ......
.. . . . . . . . . .. . V I-I
Seventh District - Chicago . ...
...
Eighth District - St. Louis ....
............
Ninth District - Minneapolis . . .
. .. ...
Tenth District - Kansas City . . .
.. . . . . . . .. .. . X -1
Eleventh District - Dallas .....
. .. . . .. . . . . . . X I-
Twelfth District - San Francisco
...
.. ....
V II-I
VIII-1
......
S. . . . . . . . . . . . . . . . .
IX -1
XII-1
i
SUMMARY*
Economic activity continued to expand through the summer, according to reports from
businesses in most Federal Reserve Districts. Regions that have been lagging are generally said
to be doing better while most of the stronger areas saw growth plateau. The expansion in
consumer spending is seen as healthy, albeit decelerating, and retailers' expectations for holiday
sales are generally favorable. Summer tourism activity has generally been strong, outpacing last
year's levels. Most manufacturers around the country continued to report at least moderate
strength. Single-family home sales were seen as slowing modestly in most Districts, with home
construction easing in some areas. At the same time, commercial real estate conditions were
generally described as improved. Overall bank loan demand appears to be modestly increasing,
but higher interest rates are reported to be slowing real estate lending in most areas. There are
more reports of tightening labor markets than before, though wage pressures are still described
as modest. Industrial materials prices edged up further, but businesses say that competitive
pressures continue to restrain price increases on finished goods. Farm contacts report that crop
conditions in most agricultural areas are favorable and point toward an excellent fall harvest.
CONSUMER SPENDING
Retail sales reports are mixed but generally positive. The majority of retailers report that
sales continue to grow, while some characterize conditions as slow. St. Louis retailers saw yearover-year sales growth of 4 to 5 percent, but these figures fell short of their expectations. Stores
*Prepared at the Federal Reserve Bank of Atlanta and based on information collected before
September 6, 1994. This document summarizes comments received from businesses and other
contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve
officials.
ii
in both the Atlanta and Philadelphia Districts reported that back-to-school sales were mixed.
Contacts in the majority of Districts suggested that retail prices were remaining stable because
of intense competition. Expectations for the holiday season are generally good. Retailers in the
Atlanta, Chicago, Kansas City, and St. Louis Districts expect modest increases over last year's
sales figures, while both Boston and Philadelphia contacts were hesitant to predict results for the
remainder of the year. Retailers in the Atlanta, Chicago, and Kansas City Districts say that they
are expanding inventories for the upcoming holiday season, while those in New York believe that
inventories are about right.
Automobile dealers in most Districts report that demand is strong, but those in Chicago,
Kansas City, Philadelphia, and St. Louis say that a limited supply of autos on the lot is restricting
sales. Dallas dealers report that although sales have slowed they are still above year-ago levels.
The Kansas City, Philadelphia, and St. Louis Districts expect sales to remain healthy as long as
inventories hold out.
TOURISM
Tourist activity over the summer has been generally good. In the Minneapolis District,
hotel/motel occupancies, campground, and attraction traffic were above last year's levels.
Tourism was especially strong in Boston, boosted by large conventions and international visitors.
Traffic on Mississippi's Gulf Coast was reportedly heavy because of casino gambling attractions,
but Florida tourism officials remain concerned about a sustained slowdown in visitor arrivals.
Most of the San Francisco District saw an influx of foreign tourists taking advantage of the level
of the dollar.
iv
Less positively, some industrial sectors have shown little improvement. One aerospace
supplier in the San Francisco District reports that its backlogs have increased in the past year,
but they remain well below levels seen two years ago.
Atlanta says that regional military
contractors see orders declining and are concerned about future prospects.
Manufacturing
increased at a sluggish pace in Richmond and factory orders decelerated slightly in the Dallas
region. Boston and Atlanta manufacturers indicate that orders for some types of apparel and
textiles remain weak.
On the whole, service firms saw increased demand in most Districts. Dallas reports that
demand for business services accelerated there, with temporary staffing and trucking firms noting
the strongest gains.
REAL ESTATE AND CONSTRUCTION
Contacts in most Districts note a slowdown in single-family home sales. At the same
time, the New York and Richmond Districts continue to report little change. Home prices are
reported to be on the rise in the Atlanta, Kansas City, and San Francisco Districts, while contacts
in the Dallas and Richmond Districts report prices remain unchanged.
However, in Dallas,
although home prices are steady, builders were said to be offering more discounts and incentives,
such as free pools. Home builders in the Chicago, Kansas City, and San Francisco regions said
that residential construction slowed, while those in the Atlanta, Dallas, Minneapolis, New York,
and St. Louis Districts said the pace of such construction had increased.
Nationally, commercial real estate agents report improving conditions. However, realtors
in the downtown areas of Dallas and Boston note that markets in those cities remain particularly
weak while the surrounding suburbs are improving. Construction of retail stores is dominating
MANUFACTURING AND SERVICES
Steady to improving factory activity characterized most Districts' reports and comments
on the near-term industrial outlook remained upbeat. Most firms are operating at high levels of
capacity in the Kansas City District, and manufacturing activity remains vigorous in Chicago
amid reports that capacity restraints are limiting production in some cases. Auto-related activity
has rebounded from the summer slowdown in the Cleveland District, and suppliers to that
industry note solid production gains in August. Forecasts by plant managers are generally
positive in Philadelphia, where producers of durable goods report improving conditions. Firms
in the St. Louis District note moderate growth, and those in Minneapolis say that producers of
industrial machinery, farm implements, and construction-related products are posting strong sales.
The San Francisco and Boston Districts commented on strong orders for computers, while
electronic and telecommunications equipment demand is growing in Dallas. Although factory
activity is mixed in Atlanta, most industrial contacts there expect to see increasing orders over
the next few months; activity is currently rising at paper and some textile mills. Boston, Dallas,
and Atlanta report that suppliers to the auto and light truck industry increased production in
August, and in some cases expanded operations.
A number of manufacturers of heavy equipment and building materials have announced
capacity expansion projects in the Chicago District. In the Kansas City region, manufacturers
purchasing construction materials, such as cement and lumber, are facing longer delivery times.
Dallas reports that the demand for chemicals is outstripping available capacity. Although overall
manufacturers' shipments and new orders have evidently slowed in the Richmond District,
exports have increased.
v
the markets in the Atlanta, Dallas, and Richmond Districts. Multifamily occupancy rates and
rental rates have been on the rise throughout the Atlanta and Dallas Districts.
BANKING AND FINANCE
Banks around the country reported that overall loan demand was steady or up modestly.
Business lending was the strongest, with only banks in the St. Louis District reporting softer loan
demand. Several contacts noted, however, that competition for commercial loan customers was
intense. Consumer lending was said to be stronger in the Cleveland, Kansas City, Philadelphia,
San Francisco, and St. Louis Districts, while bankers noted decreases in the Atlanta, New York,
and Richmond Districts. Real estate and mortgage lending activity is down in most areas.
WAGES AND PRICES
Labor markets seem to be steady or tightening in all areas. San Francisco reports that,
outside of California, labor demand appears to be accelerating a bit in the District. Worker
shortages are said to be growing increasingly frequent in the Chicago District and some contacts
in the St. Louis and Atlanta Districts were also having trouble finding qualified workers.
Temporary placement firms reported rising wages in the Chicago District and shortages of skilled
construction and clerical workers in several Districts are putting upward pressure on area wages.
Price increases have been reported for inputs of raw and intermediate materials. Prices of
industrial commodities and building materials continue to trend upward in the Chicago and New
York Districts. Atlanta contacts note that price increases for raw materials are becoming more
wide spread, especially for paper, metals, and building products. Respondents in Philadelphia and
San Francisco also report an upward movement in industrial prices. Boston and Dallas firms say
that prices are increasing for fiber and paper, respectively. Minneapolis respondents see little
vi
pressure on prices except for petroleum products and newsprint. The competitive environment
is holding finished goods prices down, according to contacts in Atlanta and Chicago.
AGRICULTURE AND RESOURCE-RELATED INDUSTRIES
Farm sources say crops for the upcoming fall harvest are generally in good-to-excellent
condition. Yields are expected in the good-to-record range for most plantings. Reports from
Chicago indicate that a bumper fall harvest appears to be in store for District farmers. In the
Kansas City region, corn and soybean yields are expected to approach record levels. Farmers
in the Dallas District expect production of corn, sorghum, rice, peanuts, and soybeans to be
higher than last year. However, sentiment across the country is that farm incomes will not rise
with the favorable harvest because of lower commodity prices. The forest products industry in
the Minneapolis District is reportedly being buoyed by continued strength in nationwide
construction.
Dallas reports that the decline in oil prices was expected, but contacts were
surprised at the fall in natural gas prices. Energy-related activity there, as well as the Kansas
City District, was seasonally slow and below last year's levels.
FIRST DISTRICT - BOSTON
While the First District economy continues to expand, recent
economic conditions appear to be somewhat less robust than earlier in
the summer.
Some retailers, especially apparel merchants, report
weakening sales, but hard goods and food are still selling well.
Manufacturing sales results are mixed, and prices are reported to be
stable, with a few exceptions.
Commercial real estate continues to
strengthen in most of the region, as evidenced by noticeable declines in
office vacancy rates.
Investment management companies report lower
sales in the second quarter than in the first.
Retail
Most First District retail contacts were less heartened at
summer's end than at the beginning.
Sales results ranged from 5 percent
above to 6 percent below year-earlier levels, with the gains
concentrated primarily in stores selling hardware and food.
Apparel
contacts noted flat or declining sales for all or most of the last six
weeks, and attributed the sluggishness to consumers' preference for big
ticket items and home merchandise, the effect of exchange rates on
purchases by Canadian tourists, and unexciting fashions.
Retail contacts were hesitant to predict results for the remainder
of the year, and several perceive a "general spending malaise."
Retailers of apparel anticipate sales increases of less than 2 percent
compared to year-ago levels, while hardware and food retailers expect
sales to continue growing at a steady 4 to 5 percent.
report little or no change in vendor or retail prices.
Most contacts
Lean and more
tightly controlled inventories have reportedly contributed to improved
profits this year.
This summer's tourism has been exceptionally strong.
Boston's
hotel occupancy rates were up 5 percent in the first seven months of
1994 compared to year-ago levels, and up 11 percent in July compared to
July 1993.
The growth in tourists is attributed mostly to large
conventions and international visitors, particularly those from Britain
and Germany.
Manufacturing
First District manufacturing respondents indicate mixed sales
trends from a year ago.
Solid growth is reported for computers and
semiconductor products, printed matter, furnishings, and small consumer
durables.
Half of the contacts supplying automotive products continue
to experience strong gains, while the remainder report recent weakening.
Demand for apparel and furniture upholstery textiles has fallen from a
year ago.
Sales of new aircraft are generally flat to down, although
one contact reports much stronger sales of spare parts than a year ago.
Contacts generally indicate that materials costs and output prices
are stable.
However, one contact notes that costs for fibers have
increased 3 to 5 percent, and another has agreed to fiber price hikes in
early 1995.
A purchaser of paper has experienced cost increases of 15
to 20 percent since July, but a paper manufacturer notes that prices
remain depressed relative to historical norms.
Prices of computers and
components remain on a downward trend.
Approximately equal numbers of respondents report that employment
has decreased, increased, or held steady over the last year.
A majority
expect the size of their work force to remain unchanged in coming
months, but about one-third believe that cutbacks are possible or likely
in response to lower sales volumes or cost-cutting pressures.
Most
contacts report 1994 pay increases of 2 to 4 percent, although a couple
indicate that at least some categories of employees are receiving no
increase.
Manufacturers generally foresee slow U.S. macroeconomic growth in
the coming year, which some attribute to tighter monetary policy.
Projections for individual companies vary considerably.
Commercial Real Estate and Construction
The commercial real estate market has improved in many parts of
New England, led by substantial leasing activity in the Boston area
office market.
A respondent in the construction industry expects
serious renovations on older buildings to begin in the near future, with
new construction at least several years down the road.
In Providence,
downtown office space is still plentiful, but suburban space is
difficult to find, leading a contact to predict new suburban
construction in the next couple of years.
The Hartford office market is
the exception to the regional trend, with little improvement in the
downtown office market, but some additional activity in the suburbs.
Nonbank Financial Services
Investment management companies report weaker sales in the second
quarter of 1994, following record sales in the first quarter.
Sales of
equity funds increased in July and August of 1994, but bond funds
continue to suffer net outflows of cash.
Among equity funds,
international and global funds had the biggest growth, with emerging
market funds being especially popular in the past two months.
All but
one of the respondents increased employment in the second quarter and
plan to further increase their employment later this year.
SECOND DISTRICT--NEW YORK
Reports on District economic developments were by and large more favorable in recent
weeks. Most retail contacts posted July sales results that were on or above plan and homebuilders
noted a pickup in activity after some earlier slowing. Office leasing activity showed some recent
improvement and unemployment rates declined in the District during August. Senior loan officers
surveyed at small and midsized banks reported strength in business loan demand but weakness in
the mortgage and consumer sectors.
Consumer Spending
Year-over--year sales results were generally positive among District retailers in July and
partial data indicate that the pattern continued into August. A majority of respondents reported
that sales were on or above plan with gains ranging between 0.5 percent and 6.0 percent. The
one chain with a small year-to-year decline in sales attributed this in large part to having much
less clearance merchandise on hand this July compared with last year. Items mentioned as strong
sellers were men's wear, junior apparel, women's jewelry and accessories and merchandise for the
home such as appliances and electronics. Several retailers noted some softness in sales of
women's apparel but expressed hope about the new fall fashions.
With the exception of one chain which has been attempting to pare inventories for the past
several months, retailers described inventories as both current and on plan.
Residential Construction and Real Estate
Homebuilders in the District noted a pickup in activity during recent weeks after slowing
earlier this summer. Most stated that higher interest rates have not been a major deterrent thus far
both because rates remain historically low and are spurring buyers to act before rates go
even higher. Some noted that higher new home prices resulting from increased costs for materials
such as lumber, gypsum and drywall, could have a more pronounced effect on the market than
higher interest rates. For the most part, respondents expect the overall volume of housing activity
to show little change from last year.
Office leasing activity has shown some improvement in parts of the metropolitan area.
During July the primary office vacancy rate in midtown Manhattan fell by half a percentage point
and in the second quarter, Westchester County posted its largest decrease in available office space
since the end of 1991. On Long Island, a 20-year lease was recently signed for two of the
Grumman Corporation buildings being vacated--the largest commercial real estate transaction on
the island thus far this year.
Other Business Activity
Unemployment rates declined in the District during August. New York's rate moved
down to 6.9 percent from 7.1 percent in July while New Jersey's rate fell to 6.0 percent from 6.4
percent in July. This was the second consecutive decrease for New Jersey.
Demolition of the unused Eastern Airlines terminal at Kennedy Airport began in August in
preparation for construction of the first new terminal to be built there in over 20 years. An
international consortium will build and operate the terminal which will have 11 gates, each able
to accommodate the largest jets in use. The new activity is particularly welcome at Kennedy,
which had been severely impacted by the demise or downsizing of some of its major tenants.
Several department store chains have reportedly expressed interest in acquiring some of
the stores that will likely be divested in the metropolitan area as a result of the Macy-Federated
merger. These acquisitions would mitigate any adverse employment effect of the merger. On
the other hand, Mayor Giuliani recently ordered New York City agencies to make additional cuts
totaling $250 million and to prepare for the possibility of cutting yet another $200 million in the
months ahead. Further employment cutbacks are likely to result. In addition, G.E. announced
plans to reduce its manufacturing work force in Schenectady by 1200 over the next several
months.
Financial Developments
According to senior loan officers surveyed at small and midsized banks in the District,
overall loan demand has been mixed. The largest declines in activity occurred in the residential
mortgage and refinancing segments. About three-fifths of the banks experienced lower levels of
residential mortgage demand, and almost all reported less or no refinancing activity. The demand
for consumer loans was also somewhat weak. Business loans, however, remained healthy with
close to one-half of respondents reporting higher demand and only one-quarter reporting lower
demand. Loan rates have generally increased with the prime rate; only a few banks left their rates
unchanged.
While nearly three-quarters of the surveyed banks noted no change in their willingness to
lend, one-quarter reported an increase. The banks have not altered their credit standards, and
more than four-fifths reported stable or lower delinquency rates. Despite the latest increase in the
prime rate, the spread between the average lending and deposit rate has generally held steady,
with fewer than two-fifths of the banks reporting a wider spread.
III-1
THIRD DISTRICT - PHILADELPHIA
Business activity in the Third District was increasing slightly in late
August, according to reports from regional business contacts. Manufacturers said
shipments and new orders were moving up and employment was steady.
Retailers
gave mixed reports on back-to-school shopping, although sales overall appeared
to be running slightly above the pace of a year ago. Auto dealers continued to
report a healthy rate of sales.
Banks were posting gains in consumer lending and
some slight improvement in commercial and industrial lending.
Expectations are generally positive, although not robust.
About half of
the manufacturers surveyed anticipate further gains in shipments and orders over
the next six months; one-fourth expect slower business. Retailers expressed some
concern about consumer confidence in the wake of rising interest rates,
although they see
no
indication
forecasting sales for the fall.
of weakening,
they are being
cautious
and
in
Bankers expect loan demand to continue moving
up at its current modest rate, but they too are becoming concerned that recent
increases in interest rates could lead to slower business activity and an easing
in loan demand.
MANUFACTURING
Third District manufacturing activity continued to move up at a moderate
rate in August, according to reports from manufacturers.
About one-third of
those queried said shipments and new orders were on the rise, while nearly onehalf said demand for their products was running at a steady pace.
durable
goods
nondurable
District
generally reported
improving conditions,
goods indicated that business was steady.
reported
that
output
has
been
matching
Producers of
and most makers
of
Manufacturers in the
demand,
as
evidenced
by
III-2
inventories and order backlogs that remain virtually unchanged.
Staffing levels
and working hours at area plants have also been steady.
Forecasts by managers at industrial plants in the region are positive, on
balance.
About half expect orders and shipments to continue to increase while
one-quarter foresee no change from the current pace of activity and one-quarter
anticipate some slowing.
Employment plans at area firms call for no overall
change in hours or work forces.
About half of the firms contacted for this
report plan to keep capital spending at current rates, but nearly one-third
intend to step up outlays.
There appears to be some upward movement in industrial prices
in the
region. Just over half of the manufacturers reporting on prices said input costs
have been rising, and just over one-quarter have raised prices for their own
products.
Few report any decreases for either input or output prices.
Looking
ahead, the balance of opinion among Third District manufacturers is that prices
will increase for both the products they purchase and the goods they make.
RETAIL
Retailers in the Third District gave mixed reports for the late August
back-to-school shopping period.
On balance, however, sales appeared to be
running slightly above the rate of a year ago, in real terms.
As has been the
case for much of this year, discount stores were posting better year-over-year
gains than other types of stores.
Several merchants noted that fall clothing
styles were selling well.
Retailers said it is difficult to forecast sales for the upcoming fall
months. Several expressed reservations about the strength of consumer confidence
and voiced some concern that recent interest rate increases may lead consumers
to revise their spending plans downward.
III-3
Auto dealers described the recent sales pace as good, although several said
they were hampered by continuing problems in obtaining enough popular models to
meet demand.
Nevertheless, most of the dealers contacted for this report said
they were satisfied with their current inventories and did not intend to increase
them.
Dealers generally expect sales to remain healthy as long as auto loan
rates do not rise substantially.
FINANCE
Third District bankers
said loan volume
slowly, propelled mainly by consumer lending.
in late August
was moving up
Most of the bankers contacted for
this report said consumer installment lending was moving up on the strength of
car sales and that lending on home equity credit lines was increasing in response
to
promotional
efforts.
residential mortgage
Some
bankers
reported slight
lending for home purchases,
continuing
with adjustable
gains
rate
in
loans
predominating, but nearly all also said refinancing activity was at a low level.
On balance, bankers
indicated
they were
seeing
slight
growth
in commercial
lending, and they described the market for business loans as very competitive.
Most of the bankers interviewed for this report foresee little change in
business conditions
in the region or nation for the rest of the year.
expect the pace of loan growth to remain around its current rate.
They
Some said the
possibility that business activity and lending could fade has risen because of
recent
interest
rate
increases
as
increases may occur later this year.
well
as
expectations
that
further
rate
IV-2
A major food processor also notes improving business conditions, with both
domestic and foreign sales volume on the rise. Abundant harvests are keeping foodstuff
price increases moderate, however, up about 1%to 2% on average from last year.
Consumers
Retail spending apparently soared during the Labor Day sales weekend, but this
spike in activity is not viewed as a trend. Retail business around the District in August
was mixed, but generally growing; early returns from back-to-school sales were good,
though not spectacular. Apparel store sales are thought to have declined a bit from the
previous District report, but hard goods, namely appliances, have been selling at an
improved pace.
The rise in retail inventories during the second quarter was generally small relative
to sales. In fact, several large retail chains saw the higher inventories as a welcome
development in light of their increasingly short-stocked situation, and one retailer
characterized the inventory turnover rate as "very good."
Auto sales are much improved as dealer inventories are refreshed by the modelyear changeover. Most vehicle types are selling well, even imports, but light truck sales
are especially strong. Dealer inventory shortages are not as prevalent as they were during
the summer, although some models remain scarce.
Competitive pressures at the retail level are severe, and price increases here are
still modest. Consequently, retail margins remain lean.
Lending Activity
Loan demand around the District continues to grow, although the strength of the
credit expansion is somewhat mixed by category and institution. The credit market has
become increasingly competitive, and a few banks note losing business to competitors or
IV-1
FOURTH DISTRICT - CLEVELAND
Overview
Many, if not most, sectors of the District report some slowing from the unusually
strong gains seen earlier in the year, although business activity remains at a generally high
level. While no broad-based wage and price pressures are being noted, District
manufacturers continue to see increases among a range of commodity prices, especially
metals and chemicals. Retailers are still holding the line on prices, though, and retail
margins remain lean. Loan demand continues to be strong, especially in the consumer
lending area. And although commercial lending growth has moderated somewhat, no
significant retrenchment in business credit demand is seen, or apparently, anticipated.
Industrial Activity
Manufacturing production is still brisk in the District, with many capital goods and
steel producers continuing to operate at near capacity. Auto-related production has
rebounded from the summer slowdown, and District suppliers to the industry note solid
production gains in August. Capital goods producers are still reporting strong orders,
although the growth rate of order books has apparently eased from the blistering rates of
early summer. Order backlogs for machinery goods are running five months or more for
many District manufacturers, several of whom note a further improvement in foreign
operations and orders from abroad.
Price increases in the industrial sector are apparently sticking, among them a sharp
rise in industrial chemicals prices. A number of District sources are also reporting a
further upward movement in metals prices--steel prices are up about $10 per ton in the
past month or so. Domestic capacity problems in the steel industry are evidently propping
up foreign steel production as well, with imports reported to be 80% above last year's
level.
IV-3
other credit sources. Some District banks report a modest decline in commercial lending
activity, presumably as large commercial borrowers have been lured away by alternative
funding sources. Business credit demands are generally reported to be steady and strong,
however. Consumer lending in the District is vigorous, although again, alternative funding
sources (particularly for new autos) are seen as having cut into some of the commercial
bank activity. Mortgage refinancing has slowed to a virtual standstill, and the growth of
new mortgage credit has been mixed by area.
V-1
FIFTH DISTRICT-RICHMOND
Overview: District economic activity grew more slowly in July and early August
than it had in June. Manufacturing and services sector activity increased at a sluggish pace.
Retail sales rose little. Activity in housing was unchanged, and credit demand slackened.
However, tourism continued to strengthen, and commercial real estate activity picked up.
Price pressures were modest. In agriculture, crop conditions improved, but producers were
concerned about lower farm commodity prices.
Consumer Spending: Respondents to a mail survey indicated that District retail
activity barely grew in July. Retailers reported that sales and wages rose slightly,
employment and shopper traffic changed little, and inventories fell. Respondents reported
that retail prices increased 0.3 percent in July. Looking ahead to the next six months,
retailers expected demand for their products to increase and their prices to rise 1.0 percent.
Service-Producing Firms: Respondents to a mail survey of District serviceproducing firms indicated that activity increased more slowly in July. Service firms reported
that revenues and wages were up slightly; employment change little, except for increases in
the wholesale and health services sectors. Service prices rose 0.1 percent in July. During
the next six months, respondents expected their prices to rise 0.6 percent and the demand for
their services to increase.
Manufacturing: Factory activity grew more sluggishly in July according to a mail
survey of District manufacturers. Respondents noted smaller increases in shipments, the
volume of new orders, order backlogs, and the average workweek. However, employment
rose slightly in July, and exports were up compared to six months ago. Manufacturers
V-2
expected shipments and exports to increase during the next six months, but they anticipated
little change in employment. Finished goods and raw materials prices increased faster in
July than in June but continued to rise by less than the general inflation rate.
Tourism: A telephone survey of hotels, motels, and resorts throughout the District
indicated that tourist activity increased in August compared to July and to a year ago.
Respondents attributed the increases to unseasonably good weather, better marketing, and a
greater-than-normal number of repeat customers. Most respondents expected tourist activity
to remain above year-ago levels for the rest of the summer.
Ports: Representatives at the ports of Baltimore, Charleston, and Hampton Roads
(Norfolk) indicated that exports were lower in July than in June, but imports were higher.
Compared to a year ago, however, both imports and exports were higher. Looking ahead,
Baltimore contacts expected exports to increase faster than imports during the next six
months, while Charleston and Hampton Roads contacts expected activity to remain about the
same.
Finance: During the past six weeks, consumer loan demand declined slightly, and
commercial loan demand remained steady. Interest rates on consumer, commercial, and
mortgage loans increased. Lenders indicated that loan originations slowed and refinancing
activity remained unusually low.
Residential Real Estate: According to District realtors and builders, residential real
estate activity changed little during July and early August. Building permits, housing starts,
and buyer traffic were steady. Home sales were unchanged, although some real estate agents
reported an increase in sales of lower-priced homes. Most contacts indicated no impact on
sales from recent mortgage rate increases. Home prices were unchanged; lumber prices and
V-3
construction wages were stable, although the prices of nonlumber building materials rose.
Commercial Real Estate: District contacts reported that commercial real estate
activity picked up in August. Leasing activity remained strong and vacancy rates declined
further. One contact in Greenville, S.C., reported that activity there was the strongest since
the 1970s. Commercial rents inched upward, except in Charleston, S.C., and in parts of
Maryland and West Virginia, where rents were unchanged. Contacts reported new retail and
office construction throughout the District. Large discount stores continued to dominate
retail construction, but some shopping center construction was reported underway in Virginia
and the Carolinas. Some office construction was noted in Virginia and West Virginia, and
warehouse construction was reported in the Carolinas.
State Revenues: State government revenue forecasters said July tax collections
suggested moderate economic growth in all District jurisdictions except South Carolina,
where real growth slowed, and the District of Columbia, where real growth turned negative.
Tourism- and leisure-related tax collections were reported strong in several jurisdictions.
Agriculture: Conditions in agriculture improved in recent weeks, according to
District farm analysts. Moderate temperatures and adequate rainfall boosted the condition of
most crops to good or excellent. Peach and vegetable harvesting activity neared completion.
Tobacco cutting was well underway, and corn and sorghum harvesting had begun.
Preliminary yields indicated that most District crop harvests would be large. Farmers
expressed concern, however, about poor price prospects for their crops.
VI-2
increasing orders. Structural steel producers note strengthening orders for new building and
bridge construction. Business is also increasing for paper and newsprint producers. Some textile
markets, like denim, are improving, although other apparel fabric production reportedly remains
weak.
Home textile production remains at high levels. Some manufacturers of healthcare
textiles and bedding fabric are adding employees and increasing factory workweeks in response
to strong product demand. Suppliers to the auto and light truck industry continue to expand
operations and increase production at plants in the region. Less positively, suppliers to the
aerospace industry are operating at low levels of capacity due to a continued dearth of new
orders. The recently announced purchase delay of F-22 fighters by the Air Force is expected
to affect future hiring of production workers in Georgia. Other regional military contractors note
declining orders and are concerned about future prospects.
Tourism and Business Travel: Tourist traffic remains heavy at casinos on Mississippi's
Gulf Coast.
Convention activity continues to push hotel occupancies to high levels in New
Orleans. Florida tourism officials, however, are concerned about a sustained slowdown in visitor
arrivals. Hotel occupancies are down from a year ago in southern and central Florida; officials
blame this sluggishness on competition from other tourist destinations and adverse publicity about
crime. Continuing growth in the Asian and Latin American markets, however, appears to be
offsetting some of the reported slowdown in visitors from Europe, and cruise industry bookings
remain strong year over year.
Construction: According to District realtors, home sales slowed in August, with most
attributing this to higher mortgage rates. However, home prices continue to rise across the
region. Existing home sales are reported to be stronger than sales of new ones. Builders said
that activity has increased in August compared with July, because of better weather conditions.
VI-1
SIXTH DISTRICT - ATLANTA
Overview: According to business contacts, the Southeast economy continued to expand
in August, although at a somewhat less rapid pace than before. Retailers again reported higher
sales, and their expectations for Christmas are mildly optimistic.
Activity among District
manufacturers has been mixed; however, most expect orders to increase over the next few
months.
Building remains strong, although single-family home sales slowed in August.
Commercial and multifamily residential real estate markets continue to improve, with rising
rental prices and falling vacancy rates. Commercial loan demand is generally on the upswing,
while consumer loan demand is said to be weaker. Contacts report that some input prices are
on the rise, but wage increases are described as stable except for a few specific sectors.
Consumer Spending:
District retail contacts generally report improving sales.
Women's apparel sales are showing gains, while sales of men's wear continue to increase. Backto-school sales have been mixed in the region. Some contacts note strong sales with double digit
growth while others report that children's apparel has not sold well.
Sales of home-related
products continue to slow. However, retailers generally expect year-over-year gains in fall and
Christmas sales.
Apparel sales are expected to make the largest gains over last year.
In
response to these better expectations, many retailers report that they are building up inventories,
although some continue to purchase closer to time of need than they have in the past. Auto sales
have slowed somewhat; the ending of the model year has some customers delaying purchases and
some dealers running out of popular product lines, although the slowdown seems concentrated
in imports.
Merchants say that competition remains strong throughout the District, keeping
pressure on retailers and manufacturers to hold the line on prices.
Manufacturing: Factory activity has been mixed since the last reporting period. The
outlook over the next few months remains upbeat, however, as most contacts expect to see
VI-3
Builders also report that construction time for homes has increased because of the reemergence
of a shortage of skilled laborers seen earlier.
Commercial and multifamily real estate contacts continue to report improving
conditions in their markets. Multifamily occupancy rates continue to rise and rental rates have
also been on the increase. New apartment and condominium developments have been announced
recently in many parts of the District. Commercial realtors continue to report tightening markets
characterized by falling vacancy rates and rising rental prices, though commercial construction
is reported to. continue at low levels, except in the retail sector which is seeing moderate gains,
and the Atlanta metro area, in which there is some new building in preparation for the 1996
Olympics.
Financial Services:
Bankers around the region reported that overall lending was
steady. Commercial loan demand outpaced consumer demand in most areas. Several bankers
noted significantly increased competition on the commercial side.
Some banks described
consumer loan demand as disappointing. Auto lending has slowed at the end of the model year
with the decline in sales. Mortgage lending seems to be slowing in most markets as refinancings
have disappeared and home sales decelerate.
Wages and Prices: Although there have been some recent reports of labor market
tightness in parts of the region, they have mostly been limited to clerical and some service
personnel as well as skilled construction workers and are not widespread.
Reports of price
increases have become more numerous since the last reporting period, especially at the raw
material level. Some contacts in the paper, apparel, metals, and building products industries note
that their input prices are trending upward, but few say that they are able to pass on these rising
costs. The competitive environment appears to be holding finished goods prices steady.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. Seventh District economic activity advanced at a modest pace in recent months, as
capacity constraints in manufacturing joined slower retail sales growth and housing activity to restrain the
pace of expansion. Survey data and reports from large retailers were mixed, with little evidence of a
change in trend following the slower growth witnessed during the second quarter. Manufacturing activity
generally remained vigorous, except where hampered by production difficulties. Labor markets
continued to strengthen; worker shortages grew increasingly frequent, and temporary help companies
reported rising wages and higher recruitment costs. Prices of industrial commodities and building
materials continued to trend upward.
Retail Sales. Reports from District retailers suggest that sales continued to grow at a slow pace
in July and August. A regular survey of retailers in Illinois and Indiana showed continued modest yearover-year sales gains during May and June, on the heels of stronger increases during the first quarter. In
July, this survey showed a somewhat more clear-cut loss of momentum, particularly in the hardware and
homebuilding category. A survey of sales paid by check also showed modestly slower growth in the
Midwest during July. However, a significant majority of small retailers surveyed in Michigan anticipated
sales gains over the next few months (after adjusting for normal seasonal trends), with expectations
running well ahead of assessments of current sales activity. This survey also showed a greater majority
anticipated near-term inventory expansion than those reporting that stocks rose over the past month. One
large discount retailer noted that sales in its District stores continued to grow at a modest pace during
recent months. A large apparel retailer reported a positive consumer response to new apparel styles in the
early stages of the fall season, which was believed to be a good sign for sales over the next few months.
Automakers indicated that limited supplies accounted for much of the recent slowdown in light vehicle
sales. One of the largest auto dealers in the District reported that sales and buyer traffic have flattened out
at "mediocre" levels, after weakening during the second quarter. Limited supplies have constrained new
vehicle sales, and used cars have accounted for an increased share of the overall sales mix. This contact
stated that weaker demand has also dampened new car sales since March, however.
Manufacturing. District industrial output generally remained vigorous, although production
difficulties and capacity constraints have hampered growth in a number of industries. A composite index
of the production components of purchasing managers' surveys around the District has been in a modest
downtrend since April. but remains at a level consistent with relatively strong gains in output. An
industry trade association reported that appliance shipments ran at a record level for the month of July,
VII-2
although the report implied a small decline in shipments of core products from June to July on a
seasonally adjusted basis. Net orders for heavy-duty trucks declined slightly from June to July, and
remained at very high levels. Current build plans suggest heavy-duty truck output will flatten out during
the balance of 1994, with one industry analyst noting that the industry is "at capacity, with supplier
limitations basically setting the limits." A number of manufacturers of heavy equipment and building
materials announced new capacity expansion projects. One of these firms continued to forecast stronger
sales growth than anticipated in early 1994, and expected interest rate increases thus far in 1994 to have
little impact on demand over the balance of the year.
Housing/Construction. Housing sales and residential construction activity remained at
relatively high levels, but growth has clearly slowed from the strong pace set last year. New and existing
single-family home sales have been trending downward in the Midwest during 1994, and a number of
bankers noted that mortgage loan applications for home purchases have weakened during the year.
Likewise, homebuilders have been reporting significant declines (from high levels) in prospective buyer
traffic. One of the largest realtors in the District reported that sales were trending lower during the second
quarter, but held up relatively well in July. This contact stated that sales force optimism has been
tempered in recent months, but remains positive. Construction contract awards showed weakening yearover-year comparisons in the District during the second quarter, both in residential and nonresidential
building. Building remained active, however, and a study by a local development firm showed continued
high rates of absorption of industrial space in the Chicago area. Gypsum wallboard shipments ran at a
slightly slower pace than anticipated in June and July, according to one large manufacturer, with stronger
nonresidential building activity bolstering overall demand in the face of slower growth in residential
construction.
Labor Markets. Surveys and reports from staffing services firms indicated further strengthening
in District labor markets, with reports of worker shortages growing somewhat more frequent. A quarterly
survey indicated that employer hiring plans held at high levels during the third quarter. Nationally, this
survey showed that durable goods manufacturers planned some of their strongest hiring in the past 16
years, and hiring plans among Midwestern durable goods manufacturers remained significantly above
their national counterparts. The employment component of purchasing managers' surveys around the
District generally continued to rise during recent months, with a small but growing number of
respondents commenting about a short supply of skilled labor. The employment component of the
Chicago survey has recently been hovering near its highest levels in the last 16 years.
VII-3
Staffing services firms reported further strengthening in demand for temporary and permanent
employees, with a continuing trend towards conversion of temporary employees to permanent status.
August is a normally a busy month in the temporary help industry, and it was especially busy this year.
These companies generally expect their business to continue to strengthen over the balance of 1994 on a
seasonally adjusted basis. Most of these firms reported that the supply of better-qualified labor has grown
increasingly scarce, and wages offered temporary workers are rising. One firm has noted higher wages
offered in its competitors' help-wanted advertising. A number of staffing firms reported higher recruiting
costs (as did a large distribution services company). Some temporary help firms noted that increased
competition has restricted (but not eliminated) the ability to pass on higher wages in the prices charged to
their client companies. Wages paid in permanent positions at their client companies do not yet seem to be
under the same upward pressure for a similar temporary position, according to one temporary help firm,
but "we think we see it before they do." Two firms separately reported that the wages paid to their
temporary employees have increased roughly 5 to 10 percent, on average, during 1994.
Agriculture. A bumper fall harvest still appears to be in store for much of the District. Crop
condition ratings edged lower in recent weeks, however, as cool temperatures and dry conditions over
portions of the District slowed the final stages of crop development. Along with reports of problems with
the wheat harvest in several foreign countries, these conditions have halted--at least temporarily--the
recent sharp decline in crop prices.
Prices. Purchasing managers' surveys and trade information generally pointed to continuing
price increases for industrial commodities and building materials. The price component of the Chicago
purchasing managers' survey climbed especially sharply during August. Scrap steel prices firmed and
rose anew in the Chicago area in recent months, after dropping off significantly in March and April, and
an industry analyst expects further gains in the latter half of the year. Gypsum wallboard prices rose in
August, the second such wave of moderate increases this year, and there was little sign of any weakening
in orders following the latest increases. Corrugated paper prices have fallen somewhat in recent weeks,
after substantial increases during 1993 and early 1994. Retailers continued to emphasize that competitive
pressures significantly constrain their own price increases, however, and a recent survey showed a
substantially higher share of retailers expecting increased promotional activity than rising prices.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
District firms continue to report moderate growth, although some sectors have
experienced a recent slowing. Many firms report minimal wage pressures, but some price
pressures are apparent, as prices for raw materials have increased between 1 percent and
3 percent on average over the past six months. Recent retail sales increases were below
expectations, but car and truck sales were robust. Residential construction continues at
a brisk pace in most parts of the District, though rising interest rates are beginning to
pinch residential housing sales.
Total loans outstanding at a sample of District banks
declined from mid-June to mid-August after rising in the prior two-month period. Crops
are generally in good condition throughout the District, although dry weather has
hampered growth in some areas.
Consumer Spending
District retailers report average year-over-year sales increases of 4 percent to 5
percent, but this was below expectations. Nonetheless, expectations are for a strong fourth
quarter, with good volume in the coming holiday season.
No price pressures were
reported.
District car dealers report robust year-over-year sales growth of 7 percent to 10
percent. Shortages of many models, especially trucks, restricted sales growth to some
extent.
The use of rebates and other incentives to move inventory has declined
dramatically. Expectations are that strong sales will continue as long as inventories can
keep up with demand.
Manufacturing and Other Business Activity
District firms, particularly in manufacturing, report moderate growth and
employment increases. Some contacts, especially in the Memphis area, have mentioned
that they are having trouble finding qualified workers. Even so, employment increases
VIII-2
continue at many District firms. For example, a rail car manufacturer will open a new
plant in northeast Arkansas, bringing 400 jobs into the area. Little Rock will be home to
an airline's newest and largest customer service center, employing 900 people. A maker
of kitchen products is expanding in Memphis, initially adding 150 to its current workforce.
Firms also report sales growth. A contact in the heating and cooling industry
reports the industry is having its best year ever, with production up 15 percent over last
year. Sales of air conditioning units are up about 600,000 units over last year.
A
manufacturer of oil filtration and reclamation equipment reports that business has
rebounded in the third quarter after a sluggish start earlier in the year, as contracts from
South America and Pacific Rim countries, in particular, have increased.
Some industries noted a slowing. A contact in the farm equipment industry reports
that sales are down 16 percent from one year ago. A maker of rubber compounds reports
slowing because of reduced orders from auto makers. A garment manufacturer will close
its west central Arkansas plant because of increased global competition.
Prices
Reported wage increases, for the most part, have been minimal. Raw materials
prices over the past six months have increased moderately, between 1 percent and 3
percent.
One contact in the aluminum products industry has seen input prices increase
between 10 percent and 12 percent, while a contact in the paper industry has seen input
prices decline. Most contacts have not passed these cost increases through to customers.
In one case, a paper industry contact reports that product prices have fallen slightly in
response to intense competition. A metal manufacturer, though, does report a cost passthrough to customers; about four months ago this industry was unable to pass increased
costs along as price increases.
VIII-3
Construction and Real Estate
Residential construction remains robust in most areas of the District. Builders in
Memphis and St. Louis report that labor shortages are putting them further behind
schedule. Contacts in Memphis attribute the labor shortage to continued casino building
in the Tunica, Mississippi, area. Although sales of new and existing homes hit a record
in Louisville in June, realtors in other parts of the District report a slight downturn in
homebuyer traffic and sales, which they attribute to rising interest rates and a lessening
of pent-up demand.
Banking and Finance
Total loans outstanding at a sample of 102 large, mid-size and small District banks
declined 0.6 percent between mid-June and mid-August, after rising 1.1 percent between
mid-April and mid-June. Commercial and industrial loans declined 0.8 percent from June
to August, after increasing 1.6 percent from April to June. Real estate loans declined 1.3
percent compared with a 0.7 percent increase in the prior period. Consumer loans were
the only major category to show continued growth, rising 1.9 percent after a 2.2 percent
increase in the prior two months.
Agriculture and Natural Resources
Despite much-needed rainfall recently, soil moisture is inadequate in many areas,
particularly Missouri. Nevertheless, crops appear to be generally in good condition across
much of the District. Substantial increases in crop yields are expected, with near record
crops predicted in some areas. For example, Mississippi farmers expect to harvest their
largest rice crop ever this fall, while Illinois farmers expect to harvest their second-largest
corn and soybean crops. The rice harvest is under way in Arkansas and Mississippi with
early reports indicating good yields and high milling quality.
Hot, dry weather has
stressed the soybean crop in parts of Arkansas, Kentucky, Mississippi and Missouri.
Southern pine lumber producers report that orders and production so far this year are up
about 3 percent to 4 percent over last year.
IX-1
NINTH DISTRICT--MINNEAPOLIS
The Ninth District economy remains robust. Construction and manufacturing are strong. Metal mining
shipments are growing and oil and gas drilling is above 1993 levels. Output of forest products for
construction remains high, and beleaguered paper mills are benefiting from price increases for some
products. Crop and livestock production is above year-earlier levels. Vehicle sales continue to be very
good, but general merchandise retailers may have reached a plateau. The summer tourist season has been
excellent.
Employment levels continue higher than year-earlier levels in all parts of the district and unemployment
rates are lower. Some firms report difficulty in finding skilled employees, particularly in metropolitan areas.
But there is little upward pressure on wages or prices except for petroleum products and newsprint.
Construction and Manufacturing
As has been true for more than a year, construction is one of the strongest sectors of the Ninth District
economy. Residential building in the Minneapolis - St. Paul area in July was over 4 percent above 1993
figures. "Buyers are still coming out and. although they may be more cautious, they are nevertheless
buying." reported a builders spokesperson. Similar conditions prevailed in most metropolitan areas across
the district. "We are on a record year," said a Sioux Falls, S.D., association representative. "the higher
interest rates really haven't hurt activity." Furthermore, commercial and heavy construction continues to
expand. Publicly let contracts in Minnesota and the Dakotas through July are 2 percent higher for 1994 than
1993. but 23 percent above 1992 levels.
Manufacturing continues to grow. News media and district directors report good manufacturing sales,
particularly by machining and metal fabricating businesses and by producers of construction-related
products. Producers of farm implements and industrial machinery also reportedly have good business.
Natural resource industries
Sales prospects are generally good for the Ninth District's natural resource-related industries. Ongoing
strength in construction continues to undergird the forest products industry. Producers of plywood
IX-2
substitutes, windows and millwork are particularly busy. Reported increases in market prices for newsprint
offer some relief for the beleaguered paper industry.
Prospects are good in the metal mining sector. One Minnesota iron mine, idled for a year after a labor
dispute, is back in full production and other mines report strong shipments. A Minnesota industry
spokesperson said. "We expect a 43 million ton year in 1995," roughly 6 percent above 1994 shipments. Oil
production continues to erode in North Dakota and Montana, but drilling activity through mid-summer is
generally above 1993, reportedly in response to higher oil prices. A Montana official noted that a new law
lowering taxes for horizontally-drilled oil wells had caused a spurt of drilling.
Agriculture
Agricultural production in the Ninth District is above 1993 levels in most categories. Excellent harvests
of major crops are expected, not only in comparison to 1993, but also relative to five-year averages. Wheat
production in Montana is apparently down somewhat from 1993's record, but very good relative to the 19881993 average. Wheat output is also expected to be down slightly in South Dakota but up strongly in North
Dakota and Minnesota. North Dakota and Minnesota anticipate a doubling of dry bean production compared
to 1993 and a 10 percent increase in sugarbeets. In all states corn and soybeans are generally in very good
condition. Minnesota corn and soybean crops will break previous records by 5 percent to 10 percent.
The numbers of livestock on farms and slaughtered remain high compared to year-earlier levels and
longer term average levels. Cattle prices have recovered slightly from lows set in July, but hog prices have
been essentially steady since June. Given the production cycles for cattle and hogs, output can be expected
to remain high through the remainder of 1994. Minnesota and Wisconsin milk production in July was
slightly below 1993 levels.
But any impetus to farmers' personal or business spending as a result of increased production may be
limited by widespread declines in farm prices. A midsummer survey of agricultural credit conditions
showed that more Ninth District bankers expected decreases rather than increases in farm capital spending in
the third quarter. In spite of these expectations, farm machinery sales have been good thus far in 1993, a
North Dakota implement dealers representative said, "The biggest limitation on sales is the inability of
dealers to get as much as they want."
IX-3
Consumer spending and tourism
Retail sales remain generally strong for the district as a whole, but with some indications of softening of
general merchandise sales. Vehicles continue to sell well in all areas. One representative of a state auto
dealers association said, "We don't see any slowdown, it is a very good year." Mall managers in both
Dakotas say that customer traffic and sales remain very strong. And a news report from Grand Forks, N.D.,
described retail sales there as very good in spite of a decrease in Canadian shoppers. But a Minneapolisbased retail chain reported August sales only slightly above 1993 and described retail conditions as slowing.
And a representative of a regional retail chain said, "Sales are not as good as earlier in the year."
Pleasant weather and successful marketing enabled Ninth District tourism businesses to enjoy a busy
summer. An official in the Upper Peninsula of Michigan reports motel/hotel traffic in August up 5 to 6
percent over last year. Northern Wisconsin resort owners and campground operators laud this summer as the
best in five years, according to a local newspaper. Businesses near Duluth, Minn., report double digit
increases over last year's rainy summer. Visits at South Dakota campgrounds are up about 5 percent for
July and August compared to 1993, and several South Dakota tourist attractions reportedly will set
attendance records this year. Major attractions in Montana claim single digit increases to slight declines,
staying close to last summer's record pace.
Employment, wages and prices
Labor markets reflect a strengthening district economy. Summer employment numbers continued to
climb in all district states and generally remain nearly 3 percent above comparable 1993 figures.
Unemployment rates remain well below year-earlier levels. In Mankato, Minn., where the unemployment
rate is 2 percent, a Job Service director said. "Its definitely an applicant's market." And in other urban areas
such as Sioux Falls and Rapid City, S.D., Grand Forks and Fargo, N.D., and Eau Claire, Wis., job growth
reportedly is strong and some firms are experiencing difficulty hiring skilled workers.
However, directors and industry sources report little wage or price pressure. Hourly manufacturing
earnings in Minneapolis- St. Paul are up barely 1 percent from a year ago. Petroleum prices have increased,
with most motor fuels 5 to 8 cents above year-earlier levels in August. Newsprint prices reportedly have
also risen.
X-1
Tenth District - Kansas City
Overview. The Tenth District economy is growing at a healthy pace. Retail sales
increased over the past month and manufacturers continue to operate at high levels of
capacity. In the farm sector, rebounding cattle prices have helped trim losses in the
cattle industry and conditions remain generally good for crop producers. In other areas,
residential construction and sales of new homes continue toslow and retreating oil and
natural gas prices have restrained district energy activity.
Retail prices are reported to
be stable while prices of manufacturers' inputs are up fror a year ago.
Retail Sales. Retailers report sales increases over both the past year and the past
month. Several retailers report their strongest sales in apparel and furniture. Prices
have changed very little since last year and are expected to remain steady for the rest of
this year. Most respondents expect sales to grow moderately over the next few months.
While most retailers are either satisfied with current inventory levels or are trimming
slightly, some are planning to increase inventories for the upcoming holiday season.
Auto dealers report sales have been flat over the past month due to a lack of
supply. Dealers are optimistic that sales will increase over the next few months.
Financing is available for both dealers and potential buyers. Dealers are having
difficulty building up their low inventories because new models are not yet widely
available.
Manufacturing. Purchasing agents report their input prices are up from a year
ago, although fewer agents report input price increases during the past month. Several
agents report difficulties in getting materials. Manufacturers using construction materials
X-2
such as lumber and cement report significantly longer lead times. Firms are generally
satisfied, however, with their current inventory levels. Most firms are operating at high
levels of capacity, with a few agents reporting difficulty in obtaining skilled labor.
Exporting firms expect foreign sales to remain stable through the end of the year.
Energy. Retreating crude oil and natural gas prices have recently slowed district
energy activity. After a two-month rebound, the average number of drilling rigs in the
district slipped from 235 in July to 226 in August, well below the average from a year
earlier.
Housing. Most builders report housing starts declined last month and that some
additional decline is expected over the rest of the year. Respondents also report slower
sales of new homes. Despite these declines, prices of new homes remain higher than a
year ago. Some builders report shortages of building materials but expect prices of
materials to remain stable. Mortgage demand continues to decline with higher mortgage
interest rates. Most respondents expect mortgage demand to remain sluggish as rates
level off.
Agriculture. The district's winter wheat harvest is complete. Wheat yields were
slightly below normal in much of the district due to dry weather during the growing
season. In contrast, corn and soybean yields are expected to approach record levels
when harvest begins in a few weeks.
Cattle prices have rebounded somewhat in recent weeks, trimming losses in
district feedlots. Large cattle-feeding losses during the summer pushed many speculative
investors out of the industry. But most established cattle feeders were able to cut their
ELEVENTH DISTRICT--DALLAS
Economic activity continued to expand in late July and August. Growing
strength in the service sector compensated for a slight deceleration in
manufacturing orders. Despite slowing, manufacturing output was still strong.
Construction and real estate activity remained robust, but new home sales and
buyer traffic were less than in the second quarter. Retail sales were up, but
competition remained stiff. Energy activity was slower than expected and below
last year's level. Bankers said that loan demand was growing but not as fast
as they would like. Agricultural producers expect overall production to be
higher than last year, although there has been some damage to the cotton crop.
Manufacturing orders decelerated slightly but remained strong,
particularly for paper, electronics, chemicals and refining. Slower
homebuilding caused a decline in orders for construction-related products,
such as lumber, metals, brick and cement. Despite the slowing, however,
contacts in these industries said that sales were still relatively strong.
Lumber prices were unchanged, although one contact said that higher
inventories would probably lead to price declines. Demand for corrugated boxes
was up sharply, pushing up selling prices and causing a shortage of liner
board. Demand for other paper products also was strong, and contacts expect
rising input costs will force them to raise prices soon. Demand remained very
strong for electronics and telecommunications equipment. Inventories were low
for some of these products, but selling prices continued to fall. Automobile
and computer manufacturers created heavy demand for semiconductors and
integrated circuits. Producers are increasing capacity of these products
X-3
losses and stay in business by reducing their cattle inventories. As a result, district
feedlots are operating below capacity.
Bankers in most rural communities report modest improvement in overall
business conditions since last year. Contributing to their upbeat assessment are a
rebound in crop earnings after last year's floods, healthy retail sales, and strong loan
repayments by most non-farm businesses.
Banking. Loan demand rose last month at most reporting banks. Demand for
consumer loans rose and demand for home equity loans was flat to up. Changes in
demand were mixed for commercial and industrial loans, construction loans, and
commercial real estate loans. Demand for mortgages and agricultural loans was down at
most banks. Loan-deposit ratios were flat to up from the previous month and security
investments were mostly down.
All respondents raised their prime rate 50 basis points last month and about half
expect to raise it again in the near term. All reporting banks also raised their consumer
lending rates, with half expecting further near-term increases. Lending standards were
unchanged at all banks.
Deposits fell last month at most respondent banks, due mostly to declines in
demand deposits and IRA and Keogh accounts. MMDAs were flat while changes in
NOW accounts, large and small time deposits, and savings deposits were mixed.
XI-2
although contacts said that capacity was not increasing fast enough, and input
prices would probably stop falling in the next few weeks. Apparel
manufacturers said that sales had decelerated recently. Demand for food and
kindred products continued to be above last year's level, and several food
producers said that they had been hiring. Less than expected drilling activity
kept oil field equipment manufacturing weak. In contrast, District refineries
were operating near capacity. Contacts said that refining margins were very
good but had weakened in recent weeks with falling gasoline prices. Demand for
chemicals, particularly ethylene and propylene, was outstripping available
capacity. Heavy contract commitments limited deliveries of these commodity
chemicals to spot markets, and their prices were rising rapidly.
Demand for business services accelerated and many firms were hiring.
Temporary service and trucking firms reported the strongest activity.
Temporary firms reported slightly higher fees, but most contacts said that
competition was keeping prices unchanged. Some contacts reported difficulty
hiring workers but wages were not increasing.
Retail sales were up overall although sales along the Mexican border
were still slower than expected. Continued entry of high volume discount
retailers was keeping competition stiff, and several contacts said that Texas
store-for-store sales were weaker than the nation. Automobile sales
decelerated but year-to-date sales were above a year ago. Dealers said that
tight inventory of some models may have affected sales.
Construction and real estate activity remained strong but new home sales
and buyer traffic were down from the second quarter. Most homebuilders revised
their outlook for the year downward, even though new and existing home
XI-3
inventories remained tight. New home prices were unchanged but builders were
offering more discounts, such as free pools. High occupancy rates and rising
rents continued to spur apartment construction. Commercial construction also
was increasing, mostly for retail space. Rents for suburban office space were
higher but rents continued to be weak in most downtown areas. Labor shortages
were reported in some construction trades.
Energy activity was slower than expected and below last year's level.
District drilling did not increase seasonally, and foreign activity remained
weak. Weak demand for gasoline, and a further understanding of the political
situation in Nigeria, pushed down oil prices from $20 to $17.50 per barrel.
The decline in oil prices was expected, but contacts had not expected a
decline in natural gas prices. Weak demand and heavier than expected Canadian
imports pushed down natural gas prices to near $1.60 per thousand cubic feet.
Contacts had mixed views about the near-term outlook for the energy industry.
Bankers reported that loan demand was growing but not as fast as they
would like. Competition for loans remained intense. Contacts said that banks
were cutting fees and offering special services to attract borrowers.
Agricultural producers expect production of corn, sorghum, rice, peanuts
and soybeans to be higher than last year. Cotton production is estimated to be
about the same as last year, but there have been heavy crop losses around
Lubbock. Livestock remained in fair to good condition across the District.
July commodity prices were higher, pushing the Texas All Crops Price Index up
4.6 percent from a year ago. Prices for beef cattle, calves, and hogs
continued to decrease, however, causing the Livestock and Livestock Products
Price Index to fall 12.4 percent below the previous year.
XII- 1
TWELFTH DISTRICT -- SAN FRANCISCO
Summary
Economic conditions in the Twelfth District remain mixed. In California, activity has
stabilized at a low level and shows signs of improvement in some areas. In Idaho, Nevada,
and Utah, states which have experienced very rapid growth, activity remains high, but
business leaders generally expect more moderate growth over the coming year. Currently,
retail sales appear to be increasing, and demand for services is holding up. Manufacturing
conditions continue to improve. Agricultural output is expected to be high this season. Real
estate and construction activity remains strong overall, particularly outside California, but
residential sales and construction have slowed recently in some areas. Loan demand remains
strong in most of the District.
Business Sentiment
Twelfth District business leaders generally remain optimistic, but they expect some
slowing in interest-sensitive sectors, such as housing and business investment. For the
national economy, about half of the respondents still expect growth to exceed 2 1/2 percent
during the next four quarters. For most of the district outside California, regional growth is
expected to exceed the national average. However, most California respondents still expect
growth there to remain weaker than for the nation over the next four quarters.
Retail Trade and Services
Reports of some further improvement in retail and service sector conditions were
received from most of the District. Retail sales increased moderately in California's Central
Valley and Orange County, and sales also were up slightly in Los Angeles. In the
XII - 2
Intermountain states, retail sales remained strong, especially for durable goods. New car sales
in Idaho were up 12 percent in July from the level of a year earlier. In Idaho, Oregon, and
Utah, auto dealers are concerned that slow deliveries of some 1995 model year cars might
create shortages.
Tourism remains strong in most of the District. Car rental agencies in Salt Lake City
rented their entire inventory for each of the first three weeks of August. In California,
tourism has been strong, reportedly buoyed by an influx of foreign tourists who are taking
advantage of the continuing weakness of the dollar.
Maritime industry business is stable. Some weakness in employment is reported in
other service-providing industries; a California telecommunications utility reports further
downsizing of employment, as rapid technological advances permit investment in better
equipment at lower prices.
More broadly, labor demand appears to be accelerating a bit in the District, as
indicated by reported increases in help-wanted advertising at newspapers. Outside of
California, some labor markets show signs of tightness.
An Oregon bank reports increased
difficulty filling part-time positions. A multi-state construction firm reports that the shortage
of skilled construction workers is worsening. A Utah retailer reports unusual increases in
wages for entry-level jobs.
Manufacturing
Manufacturing conditions appear to be improving, although activity remains at low
levels in some industries. One aerospace supplier reports that its backlog has increased in the
past twelve months, but the backlog remains well below the level of two years ago. A
XII - 3
computer manufacturer reports strong orders, partly in response to continued price cuts. An
electronic components manufacturer reports that increasing wages have not been passed on to
prices, as rapid productivity growth has held down unit labor costs. Aluminum manufacturers
are reported to be operating at 85 to 90 percent capacity, with order lead times increasing and
ingot prices up 36 percent from the beginning of the year. Pulp and paper product orders
continue to strengthen: inventories are reported low and prices are up sharply.
Agriculture and Resource-Related Industries
Agricultural production appears to be increasing, but farm income is being held down
by weak prices for some crops.
Idaho's potato crop is reported excellent despite drought
conditions. A bumper crop of grain is reported to be holding down prices, and the outlook
for the corn crop is especially good. Beef production, as measured by the weight of cattle in
feed lots, is strong. In California, prices for grapes and tree fruits have fallen.
Uncertainties created by domestic mining law reform are reported to be driving some
mining exploration activity overseas. In Nevada, several mining exploration offices have
closed.
Real Estate and Construction
In parts of the District, real estate and construction activity appears to have slowed a
bit in recent months. In some areas, home sales are reported to have slowed recently from
the rapid pace set earlier this year. In the Intermountain and Pacific Northwest states, reports
suggest that the slowing of home sales is concentrated at the higher end of the market. A
slowing of home sales also is reported for California's Central Valley. In Northern and
Southern California, increases in existing home sales are reported, although overall prices are
XII - 4
relatively flat.
Construction activity generally remains strong outside California.
In Seattle,
commercial occupancy rates are increasing, and there is a growing shortage of light industrial
facilities. In southwestern Utah, Idaho, eastern Oregon, and eastern Washington, residential
construction has remained particularly strong. Single-family home construction is reported to
have slowed recently in a few areas, particularly Portland and Salt Lake City. In California,
both residential and commercial construction activity remain low. In Southern California,
rents for commercial real estate still are weak, but occupancy rates have improved somewhat.
Financial Institutions
District banking conditions generally are strong, with a slight slowdown in mortgage
lending being softened by a shift towards adjustable-rate loans. Banks in California's Central
Valley are reported to be doing well, with good deposit growth and modest loan growth.
Credit supply conditions in Northern California are competitive. Outside California,
commercial and consumer loan growth is reported rapid in Arizona, steady in Nevada, and
leveling off in Utah.
Cite this document
Federal Reserve (1994, September 26). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19940927
@misc{wtfs_beige_book_19940927,
author = {Federal Reserve},
title = {Beige Book},
year = {1994},
month = {Sep},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19940927},
note = {Retrieved via When the Fed Speaks corpus}
}