Beige Book
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
OCTOBER 1994
TABLE OF CONTENTS
SUMMARY .........................................
First District - Boston
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Second District - New York
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Third District - Philadelphia
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Fourth District - Cleveland
Fifth District - Richmond
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Sixth District- Atlanta ....................................
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Seventh District - Chicago
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Eighth District - St. Louis ................................
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Ninth District - Minneapolis
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Tenth District - Kansas City
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Eleventh District - Dallas
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Twelfth District - San Francisco
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SUMMARY¹
Economic activity continues to expand in all Federal Reserve districts, according to
business contacts; there are signs of acceleration in the Chicago, Dallas, Minneapolis, and
Philadelphia districts, while growth has slowed somewhat in the New York district.
Consumer spending generally remains strong. Many districts report increased spending, but
several districts report flat or slackening retail sales. Auto sales remain very strong.
Manufacturing activity increased in nearly all districts, and demand for business services,
where reported, has accelerated.
Single-family construction has declined from fairly high levels across much of the
country. Most districts report gains in commercial real estate activity. Loan demand is
advancing at a healthy pace in most districts.
Better-than-expected crop yields have added to record-breaking crop and livestock
production nationwide, and large supplies have pushed down agricultural prices. Energy
activity has improved, despite relatively weak oil and natural gas prices.
Labor markets are tight or tightening in most districts, although tightness is limited to
specific sectors. There are a few reports of rising wages. Prices of raw and intermediate
materials continue to rise, and there are increasing reports that manufacturers are passing
along these costs by raising selling prices. Most districts report no change in retail prices,
although pressure is building in some districts.
'Prepared at the Federal Reserve Bank of Dallas and based on information collected
before October 25, 1994. This document summarizes comments received from businesses
and other contacts outside the Federal Reserve and is not a commentary of the views of
Federal Reserve officials.
Consumer Spending
Consumer spending (which includes automobiles) has picked up in many districts and
is strong in most. Auto sales continue to be very strong across the country, and many dealers
still complain that inventory shortages are curtailing sales of popular models. Generally,
however, retailers are comfortable with inventory levels. Retail sales were unchanged or
below expectations in the Atlanta, Cleveland, New York, and Richmond districts. Demand
continues to be strongest for durable goods, such as furniture, appliances, and electronics.
Several districts report weak apparel sales, particularly women's clothing. Contacts in the
Atlanta, Boston, Cleveland, and New York districts suggest that unseasonably warm weather
in September contributed to slow apparel sales. Retailers are optimistic about holiday retail
sales growth in the Atlanta, Boston, Cleveland, Kansas City, Philadelphia, and San Francisco
districts.
Manufacturing
Manufacturing activity has increased in all districts, and only Atlanta and Richmond
note a slowing rate of growth since the last Beige Book. Demand remains particularly strong
for heavy-duty trucks, automotive inputs and parts, steel, home appliances, electronics,
furniture, chemicals, paper, and packaging. Several districts report that pulp, paper, and
newsprint inventories are low, and food producers in the Dallas and San Francisco districts
note higher packaging costs. In most districts, manufacturers have indicated that input prices
are rising, and there are increasing reports that manufacturers are passing these costs along
to consumers through higher selling prices.
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The San Francisco district reports continued weakness in the commercial aerospace
industry, and in the Boston district, demand for aircraft parts has dropped at double-digit
rates. In Central Florida, defense manufacturers' ongoing downsizing and the space
industry's cutbacks are slowing economic activity.
The apparel sector continues to shrink in the Atlanta district. Apparel demand is
steady in Dallas, and producers are optimistic in the St. Louis district.
Services
In those districts reporting on the service sector, activity appears to be accelerating.
Demand for business services has increased in the Atlanta, Boston, Dallas, Richmond, and
San Francisco districts. Temporary service firms continue to report the strongest growth.
Tourist activity is reported to be very high in the Atlanta, Minneapolis, Richmond, and San
Francisco districts.
Construction and Real Estate
Single-family construction continues to decline in most districts, but activity remains
at fairly high levels in the Atlanta, Chicago, Minneapolis, and San Francisco districts and
parts of the St. Louis district. Sales of existing homes also have slipped in several districts,
but sales were reported as brisk in the St.Louis district and strong in the city of Philadelphia.
Home prices are reported as stable or lower in the Atlanta, Boston, Kansas City,
Philadelphia, and Richmond districts.
Commercial real estate markets have strengthened in the Atlanta, Chicago, Dallas,
New York, and Richmond districts, and construction is reported as increasing in many of
these markets. Lower vacancy rates are reported for office markets in the Atlanta, Chicago,
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Dallas, New York, and Richmond districts, and markets for multifamily real estate have
tightened in the Atlanta and Dallas districts.
Banking and Finance
Loan demand is advancing at a healthy pace across the country. Most districts report
solid gains in commercial and industrial lending, but residential mortgage and refinancing
activity continued to slow or decline in many districts. Consumer lending is increasing
modestly in many parts of the country but has declined moderately in the Richmond district.
Competition among banks for loan customers is squeezing margins in several districts, but
most bankers report no change in credit standards. The San Francisco district reports weak
bank employment as part of consolidations and other cost-cutting efforts. The Philadelphia
and Cleveland districts report that increased competition for deposits is placing upward
pressure on funding costs.
Agriculture and Natural Resources
Better-than-expected crop yields to several districts are adding to record-breaking crop
and livestock production nationwide. High crop yields are straining grain storage and
handling facilities and pushing prices to very low levels. Record levels of production also
have pushed down livestock prices, and the Chicago district reports that hog prices have
reached the lowest level in fourteen years. The Chicago and Minneapolis districts expect low
prices to limit farm household income and capital spending.
The Dallas, Kansas City, and Minneapolis districts report that energy activity has
improved, despite relatively weak oil and natural gas prices. On-shore drilling in the Dallas
and Kansas City districts is reported to be below year-ago levels, although drilling activity
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was strong in the Gulf of Mexico, where the number of working rigs is the highest since
1990. Mines in the Minneapolis district are reported to be running at capacity.
Prices and Wages
Reports of labor market tightness have increased in most districts, but they are limited
to specific sectors. There are a few reports of rising wages. The Atlanta, Chicago,
Cleveland, Dallas, Kansas City, and St. Louis districts report tighter labor markets, although
wages are not reported to be rising. In a few parts of the Atlanta district, labor market
tightness is making it difficult for firms in the retail, service, and light industrial sectors to
attract and retain employees. Cleveland reports labor shortages in the industrial sector, while
Dallas reports hiring difficulties at temporary and trucking firms and in large metropolitan
areas. A few manufacturers in the Kansas City district report shortages of skilled labor, and
many contacts in the St. Louis district report a shortage of qualified workers for both
permanent and seasonal work.
Labor market tightness has led to rising wages only in the Boston, Minneapolis, and
San Francisco districts. San Francisco reports tight labor markets, especially for the retail
and service sectors, and wages are rising at food stores and for experienced computer
programmers. The San Francisco district also reports a shortage of skilled construction
workers in Idaho, Oregon, and Utah, where wages are increasing rapidly.
Most districts continue to report that prices of raw and intermediate materials are
rising, particularly prices of chemicals, plastic, paper, steel, and cotton. Prices of medical
and computer equipment continue to decline, however. The Dallas, Philadelphia, and
Richmond districts report that higher costs are being passed along through manufacturers'
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selling prices. A growing number of factory contacts in the Atlanta and Cleveland districts
expect cost pressures to be reflected in finished goods prices soon. Most districts report that
retail prices have not risen. In the Atlanta district, however, pressures are growing, and in
the Dallas district, retail prices are continuing to fall but at a slower pace.
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FIRST DISTRICT - BOSTON
Business continues to improve in the First District, with the
exception of the housing sector.
Most retailers and manufacturers
report improving results in the late summer and early fall, with
corroborating indications from temporary services firms.
Insurance
companies report small sales increases in the third quarter.
First District retail sales have picked up considerably since the
summer, particularly in hard goods.
Chains selling home furniture, home
audio, and business equipment report increases in sales of 20 to 30
percent over year-earlier levels.
ranging from 2 to 8 percent.
Other retail contacts cite gains
One exception to the generally strong
results, a department store, attributes sluggish sales to warm fall
weather, which deterred shoppers from purchasing winter apparel.
Some retail contacts have observed modest increases in suppliers'
prices, particularly plastic, paper, and cotton, which will be passed on
to customers in some cases.
Gross margins remain fairly stable.
Inventory levels are generally satisfactory.
Retailers with double-
digit sales growth report large profits and increases in employment of
12 to 30 percent.
Retail contacts anticipate a strong holiday season with growth in
sales of 2 to 20 percent.
While none plans large pre-holiday markdowns
like those offered last year, all agree that their customers continue to
be frugal and discriminating shoppers.
Temporary Employment Services
Temporary employment firms report that their business is strong
and growing.
Contacts sense a definite shift toward temporary workers
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on the part of many firms, especially larger ones; companies that have
recently downsized
are turning to contract labor as business picks up.
Temporary assignments are reportedly increasing in length and tend to be
more project-oriented than in the past.
Personnel services firms expect
strong demand for temporary staff to persist as the economy continues
its modest growth.
Manufacturing
First District manufaturing contacts report continued growth in
revenues from a wide range of products.
Sales of automotive-related
items, industrial machinery, personal computer and networking products,
furniture, and biotech instruments, in particular, are said to show
double-digit rates of increase from a year ago.
One contact producing
residential construction products reports a recent slowdown in orders,
but notes they remain above year-earlier levels.
By contrast, demand
for aircraft parts and medical equipment has dropped at double-digit
rates, and sales of minicomputer and mainframe products remain sluggish.
Most exporters are still finding Western European markets to be slow,
while seeing good growth in the Pacific rim.
Contacts generally report that they are operating in a stable
pricing environment, although a few are able to raise prices, and
medical equipment and most computer prices remain on a downtrend.
one-half report unchanged materials costs,
in some cases because they
have successfully fended off increases by suppliers.
The other half
report overall increases, typically in the range of 1 to 3 percent.
With respect to labor, most reported pay raises are about 3 to 4
percent.
About
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Two-thirds of the manufacturers contacted expect business trends
in coming months to be similar to recent performance.
respondents are split as to
The remaining
whether their company will be challenged by
a slowdown in the rate of economic growth, or benefited by new products
or more favorable export conditions.
Residential Real Estate and Construction
After a good spring in many parts of New England, the real estate
market shows some signs of slowing down.
Contacts in Rhode Island and
Massachusetts report a decrease in sales activity in the summer and
early fall compared to last year, which they attribute in part to the
increase in interest rates.
Connecticut activity has held steady at
earlier levels, with prices at or near trough.
exception, with sales growth
New Hampshire is an
reportedly accelerating each quarter this
year.
Nonbank Financial Services
Almost all respondents at insurance companies report a small
increase in sales in the third quarter of 1994 compared to the third
quarter of 1993, with most of the increase in annuities.
While
employment is currently stable, two of the responding insurance
companies plan significant downsizing in the first half of 1995.
The Outlook
The New England Economic Project (NEEP), a nonprofit forecasting
group, released its semi-annual
retail trade are expected t
region's job gains.
NEEP
the rate of total employment growth in New
projects a slight slowdown in
England, from 2 percent in
regional forecast in late October.
1994 to 1.8 percent in 1995.
Services and
continue to account for most of the
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SECOND DISTRICT--NEW YORK
District economic growth slowed somewhat in recent weeks. A majority of
retailers surveyed reported lower-than-expected sales and homebuilders noted a slackening
of momentum in the market for both new and existing homes. The movement in
September unemployment rates was mixed, however, and office vacancy rates fell in many
parts of the District. Senior loan officers surveyed at small and midsized banks reported
that overall loan demand remained mixed.
Consumer Spending
Although year-over-year sales results varied widely at District retail stores during
September, a majority of contacts reported that sales were somewhat below plan. They
attributed the shortfalls in part to unseasonably warm weather during much of the month
which deterred buying of outerwear and much of the new fall apparel. Several chains
noted a decided pickup in apparel sales with the return of cool weather in early October.
Most respondents stated that goods for the home sold well in September and some, with a
smaller concentration of apparel, reported better-than-expected sales results.
Year-to-year sales results in September ranged from flat to +9 percent among
surveyed retail chains in the District Items mentioned as selling well in addition to goods
for the home were women's accessories and cosmetics, and men's suits and sportscoats.
Early in the month back-to-school merchandise did well. Despite some buildup in
inventories as a result of slower-than-planned sales, respondents were generally
comfortable with inventory levels but intended to monitor them closely.
Residential Construction and Real Estate
District homebuilders reported a recent slowing of momentum in the market for
both new and existing homes. One respondent described this year's activity as unusually
volatile with traffic and sales up and down like waves. Most contacts expect that, on
balance, District housing starts will show little change this year from last year's level.
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The current lackluster activity was attributed by several respondents to the continued
downsizing by major corporations in the region with a resultant negative impact on
consumer confidence. Higher interest rates were cited as another depressing factor,
though apparently not a major one since contacts noted that rates remain at historically
moderate levels.
Office leasing activity was sufficiently brisk to lower vacancy rates in many parts
of the District during the third quarter. The biggest drop was in the 11-county northern
New Jersey area where the rate fell by almost a percentage point between June and
September. Rates were down by smaller amounts in Fairfield County, (where vacancies
were at their lowest level in five years), in Westchester County and on Long Island.
However, vacancy rates backed up a bit in both midtown and downtown Manhattan from
August to September.
Other Business Activity
District unemployment rates were mixed in September as New York's rate fell to
6.2 percent from 6.9 percent in August while New Jersey's rose from 6.0 percent to 6.7
percent. Several major employers announced additional employment cutbacks or
reiterated their earlier plans to do so. Among those planning payroll reductions in the
thousands are IBM, Northrop Grumman, Nynex, New York City government and the
brokerage industry (taken as a whole). Despite earlier comparably-sized corporate
cutbacks, however, District nonfarm employment has been growing fairly steadily for the
last several months.
Several developments occurred in recent weeks which should impact positively on
the District economy. Ground was broken for two mixed-use projects which have joint
public and private sponsorship: a $2.3 billion development in Queens combining
residential, commercial and retail components, and a $200 million retail and residential
project in downtown Brooklyn. Additionally, the Port Authority of New York and New
Jersey announced an $800 million plan to rebuild the largest terminal at Kennedy Airport.
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In the area of entertainment and tourism, MTV will develop a studio complex in
three adjoining Times Square theatres and Disney has expressed interest in another 42nd
Street theatre. New York City has been the location for several new movies in recent
months following several years of little moviemaking, and the number of tourists and hotel
occupancy rates in the City reached their highest levels in several years.
Financial Developments
Senior loan officers surveyed at small and midsized banks in the District reported
that overall loan demand remained mixed. The largest declines in activity occurred in the
residential mortgage and refinancing segments. More than half of the banks experienced
lower demand for residential mortgages and over three-quarters reported less or no
refinancing activity. The commercial and industrial loan segment saw the largest increase
in activity, with demand higher at almost one-half of the banks. Consumer loan demand
also showed a slight improvement. Loan rates have generally increased, though a few
banks lowered rates on residential mortgages.
While more than half of the surveyed officers noted no change in their willingness
to lend, over one-third reported increased willingness. Very few banks changed their
credit standards, and almost all reported stable or lower delinquency rates. About one-half
of the loan officers noted a smaller spread between the average lending and deposit rates
following recent increases in deposit rates.
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THIRD DISTRICT - PHILADELPHIA
Economic activity in the Third District moved up at a somewhat faster pace
in
October than in
September,
according to business contacts.
Manufacturers
noted stronger growth and reported higher rates of shipments and new orders.
Manufacturers also reported increased hiring, on balance.
indicated that the pace of sales picked up in
although the increase was modest.
October
Retailers generally
from the prior month
Bankers reported a slight pickup in commercial
and industrial lending and continued growth in consumer lending.
Real estate
conditions, however, continued to be described as about steady, although there
were some positive reports on home sales.
Forecasts by Third District business
contacts reflect current trends.
Manufacturers foresee continuing gains, and their plans call for some further
hiring.
Retailers are optimistic that the pace of sales will continue moving up
into the holiday shopping period.
Bankers expect consumer lending to remain on
an upward track, but they are less confident that business lending will continue
to increase.
For real estate, the outlook is that home sales should stay at
their current pace, but construction activity of all types will remain at a low
level.
MANUFACTURING
Reports
from Third District manufacturers in October indicated that
activity had increased significantly from the spring and summer months.
Four out
of ten firms polled said shipments and orders were on the rise in October, and
about the same number of firms reported steady business. Producers of nondurable
goods generally indicated stronger demand for their products than did makers of
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overcome.
They look for a good sales rate to continue through the rest of the
year.
FINANCE
Third District bankers contacted for this report said loan volume moved up
at a slightly faster rate in October than it had in September.
Growth was noted
in commercial and industrial lending and in consumer lending.
In general,
bankers said the increase in business lending was modest and competition among
banks for commercial
loan customers was shrinking lending margins.
Consumer
lending has picked up on the strength of auto financing and greater use of credit
cards and home
Residential mortgage loan volume
equity credit lines.
was
virtually steady.
Looking ahead,
bankers expect consumer
lending to remain on an upward
trend, but they are unsure of the course of business lending.
expect
further growth to be slight,
putting pressure on margins.
Several said they
and they expect competition to continue
Also, several bankers noted that a continuation of
the current rate of loan growth may soon require them to step up funding and
raise deposit rates.
REAL ESTATE AND CONSTRUCTION
Realtors in Philadelphia said home sales continued to be strong in October,
maintaining a trend that got under way in the spring.
Realtors in other parts
of the Third District gave mixed reports, with an overall assessment that sales
in October were steady but not strong.
Realtors continued to mention that the
supply of homes for sale was large in relation to the sales rate and selling
prices have been steady. Looking ahead, realtors said consumer confidence seems
high enough to sustain the current rate of sales.
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durable goods, although manufacturers of metal products and stone, clay, and
glass products
reported stronger business
as well.
for
Increased demand
manufactured goods apparently has prompted stepped-up employment.
On balance,
area industrial firms added workers and extended working hours in October.
Some
firms also reported tightening labor market conditions for skilled workers.
Looking ahead, Third district manufacturers expect improvement to continue
through the winter.
Nearly half of the firms contacted expect the upward trend
of shipments and orders to continue, and about one-third anticipate steady
business.
Plans at area plants call for some additional hiring and increases in
capital spending over the next six months, although, on
balance, the gains are
expected to be modest.
Managers at area plants continued to note rising prices in October.
Over
half of those commenting on prices said input costs were going up, and more than
one-fourth said they had raised the prices of the goods they manufacture.
There
were virtually no reports of price decreases.
RETAIL
Third District retailers generally reported a pickup in sales in October
compared to September, although for most the gains were moderate. Merchants said
apparel, especially sportswear, and home furnishings were selling well.
Store
executives characterized their inventories as in line with sales.
Although merchants said it is too early to speculate about the level of
sales in the upcoming holiday shopping period, the general tenor of opinion is
optimistic.
Retailers believe apparel sales will remain healthy and that sales
of electronic appliances will increase as the holiday period approaches.
Auto dealers indicated that sales in October were healthy and that the
supply shortages that hampered sales of certain models have been largely
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Commercial real estate activity remained subdued in October, as it has been
for most of the year,
according to contacts.
The vacancy rate for office
buildings was practically steady in central Philadelphia and down slightly in
some suburban office markets.
Rents in both the central
business district and
suburban areas continued to show little change.
Construction activity was
flat throughout most of the Third District,
according to reports received in October.
While a few home builders noted recent
increases in demand that they were able to meet, construction activity in total
has not been strong, and contacts in the real estate industry see no signs of an
upturn.
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FOURTH DISTRICT - CLEVELAND
General Business Conditions
The Fourth District economy continues to perform at a relatively high level,
particularly in the industrial sector, where capacity constraints are becoming increasingly
evident. Substantial price increases are noted along a broad range of industrial goods, and
there is a general presumption that these cost pressures will soon be felt in finished goods
prices. However, significant price increases have yet to be realized at the retail level.
Construction is spotty by region, although steel producers note an improvement in
structural steel orders. Agricultural conditions are favorable, with record harvests seen in
many regions. High crop yields have exerted some downward pressure on prices, but
farm revenues are expected to be good.
Manufacturing
Industrial activity in the District remains brisk. Auto-related industries are
operating at a high level, bolstering steel production. District steelproducers also note an
improvement in orders coming from the capital goods industry. Recovery in Europe is
strengthening foreign demand for U.S. products. Rising foreign steel prices and
lengthening backlogs from foreign steel producers appear to be further boosting domestic
demand for steel.
A continued acceleration in industrial commodities prices including steel, resin, a
variety of paper products, and chemicals, is being noted, along with increasingly frequent
reports of capacity strains and labor shortages in the industrial sector. Although a few
firms are hesitating to add permanent staff or capacity, that reluctance appears to have
diminished in the past few months. No respondents are citing substantial wage pressures,
however, and there is little indication that the cost pressures from industrial materials are
spilling into finished goods or retail prices.
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Consumers
District retailers report some slackening in activity in early October, although one
major discounter said that sales have quickened since then. The back-to-school sales
period (mid-August through September) was described as good overall, with mid-single-
digit improvements from last year.
Durable goods continue to sell well, especially furniture, appliances, and
electronics. Some of the strength in this area is thought to be a lagged response to the
strong housing starts earlier in the year that have recently been completed. Slower growth
in housing demand and increased reluctance of consumers to take on new debt suggest
some softening in this area through the end of the year.
Sales of soft goods have lagged, but are generally expected to strengthen. Sales of
apparel, and particularly women's apparel, have been disappointing for District retailers.
Although part of the weakness is characterized as cyclical, unseasonably warm weather
over much of the Midwest has also temporarily reduced clothing demand.
Early indications suggest that the 1994 holiday sales period will be reasonably
strong-retailers expect gains of 5 percent or so for the season compared with 1993.
Seasonal hiring is expected to be on par with last year. Although one large discounter
reports labor shortages in some locations, District retailers indicate they have not had
much difficulty finding part-time employees. Suppliers have been increasingly pressing for
price increases, but with little apparent success. The major retailers we contacted
indicated little room for price increases, stating that a "brutally" competitive retail
environment has kept profit margins razor-thin.
Autos
Sales by Fourth District auto dealers vary from "very good" to "best ever."
Although sales rates have probably eased in October after a robust September, they
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continue to improve on a year-over-year basis. Dealers are once again reporting that
shortages of many popular models have damped sales, but confidence for the 1995 model
year is still quite high.
Price increases on the 1995 models are similar to last year, in the 2 to 5 percent
range, although incentives and other price discounting are reduced. Dealers also report
only modest gains in parts prices and service charges.
Dealers are increasingly concerned that market interest rates will begin rising
again, most immediately because of the impact on their floor-plan costs, and only
secondarily because of their effect on consumer loan rates. Consumer finance rates have
been stable recently in most markets.
Banking and Credit
District loan demand remains solid, especially for consumers. Real estate lending
has moderated a bit, but is still characterized as reasonably strong. The most prominent
change in the past few months has been a strengthening in commercial credit demands,
particularly for small and medium-sized businesses. This may reflect rapidly rising floorplan financing by auto dealers, although a more general business expansion is noted. No
slippage in loan quality has been reported. Competition for deposits has intensified,
although several large District banks note a continued run-off of certificates of deposit.
Deposit rates have apparently become increasingly competitive with nonbank deposit
sources.
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FIFTH DISTRICT-RICHMOND
Overview: District economic activity grew moderately in September and early
October. Areas experiencing growth included the service-producing sector, commercial real
estate, ports, state revenues, and tourism. Manufacturing growth slackened, however, and
housing activity declined. Consumer spending was unchanged, while conditions were mixed
in finance and in agriculture.
Consumer Spending: Respondents to a mail survey and other contacts indicated that
District retail activity was flat in September. 'Overall sales and auto sales were unchanged
from August, and employment and wages changed little. Inventories increased, but shopper
traffic and big-ticket sales declined. Survey respondents indicates
that retail prices increased
0.5 percent in September. They foresaw increased demand for their products and an increase
of 1.6 percent in their prices during the next six months.
Service-Producing Firms: Respondents to a mail survey and other contacts indicated
that activity in the service-producing sector increased in September. Revenues and wages
rose, but employment changed little. Revenues decreased, however, in real estate and health
services. Service producers indicated that prices rose 0.6 percent in September. They
expected increased demand for their services and an increase of 1.1 percent in their prices
during the next six months.
Manufacturing: Indicators of factory activity growth declined in September from
their August levels, according to a mail survey of District manufacturers. Finished goods
inventories were down compared to six months ago, and respondents expected a further
decline during the next six months. Manufacturers expected shipments and employment to
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Commercial Real Estate: Real estate contacts reported that commercial real estate
activity grew in October. Commercial vacancy rates declined throughout the District.
Commercial rents were steady, but contacts anticipated slight increases in the near future.
Leasing agents reported that the availability of large blocks of office space continued to
tighten, particularly around Washington, D.C. Contacts reported little change in new
construction, except in North Carolina, where new build-to-suit construction increased.
State Revenues: State government forecasters said September tax collections grew
moderately. Real revenue growth remained slow in South Carolina, flat to negative in the
District of Columbia, and moderate to healthy elsewhere.
Agriculture: Conditions in agriculture were mixed in early October, according to
District farm analysts. Crop harvesting was progressing at a normal pace. Near-record crop
yields were expected to lead to large production levels. Analysts, however, expected weaker
crop prices to dampen increases in crop cash receipts. The planting of winter small grains
was underway, and farm analysts believed that dry conditions may have slightly damaged the
crop in some areas of Virginia and Maryland. In the livestock sector, hog production was
steady in all District states, except in North Carolina, which experienced a dramatic increase;
hog prices were sharply lower. Poultry production increased in Maryland, Virginia, and
North Carolina, and prices were steady.
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increase during the next six months, but they anticipated little change in the workweek.
Finished goods prices increased faster in September than in August, while raw materials
prices rose more slowly; both increases were below the general inflation rate.
Tourism: A telephone survey of hotels, motels, and resorts throughout the District
indicated that tourist activity in the first half of October was above that of September and a
year ago, especially in mountain areas where fall foliage was near its peak. Fall bookings
were up compared to a year ago, and contacts expected better-than-normal business over the
next six months.
Ports: Representatives at the District ports of Baltimore, Charleston, and Hampton
Roads (Norfolk) indicated that export levels in September were higher than those of August
and a year ago. Imports increased in Baltimore and Charleston but decreased in Hampton
Roads. During the next six months, port representatives expected both exports and imports
to increase.
Finance: District financial institutions reported that loan demand was mixed during
September and early October. Demand for commercial loans increased, but consumer loan
demand declined moderately. Mortgage lending activity continued to decline. Interest rates
were higher on commercial, consumer, and mortgage loans.
Residential Real Estate: According to Distict realtors and builders, residential real
estate activity declined during September and early October. Building permits, home sales,
and buyer traffic all decreased. Homebuilders indicated that they started fewer houses
following the recent rise in mortgage rates. Home prices remained stable, although prices of
nonlumber building materials rose slightly.
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SIXTH DISTRICT - ATLANTA
Overview: The southeast's economic expansion held steady in early fall, according
to business contacts. Retailers reported mixed results, but with strength in men's and women's
apparel. Holiday sales are generally expected to be strong, although merchants generally expect
pressures to grow on prices. Business travel and tourism remain robust in most of the region,
and positive reports of advance winter bookings in south Florida may signal improvement there.
While factory activity may have slowed a little since the previous report, contacts have become
more optimistic about the near-term outlook. Home sales and building have slowed somewhat
in most of the region, while rising rental rates and occupancies have boosted the multifamily
market, and commercial real estate markets are reported to be tightening somewhat. Overall loan
demand is said to be increasing modestly. Contacts report labor market tightness in a few parts
of the region, and wages generally remain stable. Reports of pressures on prices of inputs
continue to mount.
Consumer Spending: Reports from retailers were mixed, with some contacts noting
double-digit growth and others saying that unseasonably warm weather slowed sales in the last
half of September. Back-to-school sales were characterized as fair, with denim items continuing
to be strong sellers. Generally, women's apparel sales are said to be improving while those for
men's wear maintain a strong pace. Retailer's note that traditional apparel lines are selling better
than faddish ones. Merchants generally anticipate a strong holiday selling season. Currently,
prices are remaining stable, but pressures are reported to be growing, and many retailers expect
vendors to raise prices in the near future. Auto dealers report that sales are brisk, although many
dealers continue to complain about inventory shortages of popular models.
Manufacturing:
The District's manufacturing sector continued to expand, although
most contacts said the pace of activity had slowed a bit from a month before. Although several
VI-2
reported higher inventories of finished goods, most factory contacts were more optimistic about
future prospects than before. Firms producing paper, pulp, chemicals, forest products, textiles,
and aluminum products are currently increasing production at their plants. Shipbuilding and
repair facilities report strengthening activity. Producers of heavy-duty trucks are running at
capacity levels. Other sectors, however, are not so vibrant. The region's important apparel
manufacturing sector continues to shrink with new layoff announcements, which producers
attribute to foreign competition, corporate efficiency measures, and soft demand for certain
products. Uncertainties surrounding the ongoing downsizing of defense manufacturers and
cutbacks in the space industry are continuing to adversely affect central Florida.
Tourism and Business Travel:
There are reports of signs of a turnaround along
Florida's southeast coast. Advance winter bookings at major resorts are said to be up, and
interest from Canadianand Latin American tourists has been increasing. Tourist, convention,
and business travel is well above 1993 levels, according to reports from the rest of the region,
and is providing an especially strong boost to the economies of New Orleans and Atlanta.
Construction:
September home sales have moved below last year's strong level,
according to District realtors. The fall-off in sales is attributed to rising mortgage rates which
have squeezed some buyers out of the market and prompted others to wait and see. Even though
home prices appear to have stabilized in most areas of the District, most realtors report that the
market continues to be tight. Residential construction has slowed in much of the District with
the exception of flood damaged areas that are experiencing a surge in construction.
Commercial and multifamily real estate contacts continue to report improving market
conditions. Both occupancy and rental rates continue to rise within the multifamily market. New
apartment developments are currently under construction in several cities whose markets are said
to be tight enough to easily absorb the new space. Commercial realtors continue to report falling
VII-1
SEVENTH DISTRICT-CHICAGO
Summary. Seventh District economic activity gained some upward momentum in recent
months, with renewed strength in retail sales joining greater expansion in manufacturing output Housing
activity has slowed during 1994, but remains at relatively high levels. Commercial real estate markets
strengthened further. District labor markets continued to firm up, but concerns over job security and
heightened competition in the temporary help industry continued to dampen labor cost pressures. Large
supplies have undermined farm commodity prices and will likely trim farm sector earnings and
expenditures in the months ahead.
Retailing. Survey data and reports from large retailers suggest that retail sales advanced at an
improved pace on a seasonally adjusted basis in recent months. Sales growth in the District has fallen
more closely in line with the national average, but sales were relatively strong here during 1993. A
regular survey of retailers in Illinois and northern Indiana showed some improvement in the most recent
survey, after sales comparisons weakened during the second quarter and into the early stages of the third.
A survey of independent retailers in Michigan showed a large majority anticipating greater sales gains in
coming months.
One large national chain reported that sales growth improved in the first half of October on a
seasonally adjusted basis, after some slowing in the summer. This contact noted that sales of appliances
slowed around mid-year, then picked up again in recent months. Total inventories (for this retailer as
well as its suppliers) are running in line with plan and moderately higher than last year. However, a
higher turn rate and increased confidence in the purchasing department are expected to make the
company's own inventory posture somewhat more aggressive in the months ahead. A manufacturer of
consumer electronics also reported that inventory levels have been increasing, both at the company and
among its dealers, even as inventory has been turning at a faster rate.
Real Estate/Construction. Housing activity in the region has trended sideways in recent months
on a seasonally adjusted basis, although activity remains at relatively high levels. Recent reports showed
new slowing in permit issuance for housing construction in Iowa (where gains held up relatively well
through the first half of the year), and slower home sales in Illinois. One of the largest realtors in the
District reported a slight upturn in transaction volume in August and September, after activity slowed
during the second quarter and into July. This contact still believes that sales willsoften further on a
seasonally adjusted basis as the year comes to a close. Even so, "we are still showing good numbers, and
there isn't too much grousing among the salespeople." An association of homebuilders reported that sales
VI-3
vacancy rates and rising rental rates. Increasing demand for space in some areas is said to be
bringing about some speculative building.
Financial Services: Banks noted flattening commercial loan demand, especially from
larger companies, but healthy demand from small and medium-size companies. Commercial real
estate lending was also strong and some felt there was too much money chasing deals in that
area. Consumer loan demand was described as either flat or up modestly by most contacts.
Auto lending is mixed, with some banks reporting demand as flat, and others noting a modest
uptick. Home mortgage lending continues to slow in most areas of the District.
Wages and Prices:
Contacts in some local area labor markets say that they are
tightening, making it difficult for firms in the retail, service, and light industrial sectors to attract
and retain employees. Reports of rising wages are becoming more numerous but are still limited
to only a few parts of the region. The number of reports of price pressures continues to mount.
A growing number of factory contacts expect finished goods prices to increase in the coming
months. Price increases for lumber, paper, and other raw materials were reported.
VII-2
and traffic continued to ease downward on a seasonally adjusted basis. This contact stated that members'
expectations point to a further slowdown in 1995, "orperhaps some stabilization. 1995 should still be a
good year, though, and we aren'tcomplaining."
Commercial real estate markets continued to strengthen. A large real estate services company
stated that the downtown Chicago office market "continues to move in the right direction," and the overall
vacancy rate has fallen to its lowest level in over three years. This firm found stronger conditions in the
suburbanmarketplace than the downtown area, with most of the surveyed areas showing record low
vacancy rates. A large bank stated that industrial and commercial real estate markets in Chicago are
showing "considerable strength, with signs of speculative activity arising for the first time in a long time."
A larg steel manufacturer noted that an increasing share of new construction projects seems to have a
"hurry-up"quality, as firms authorize projects "and scramble to catch up" to meet tighter completion
dates.
Manufacturing. District industrial output gained momentum in recent months, after expansion
slowed during the summer. Production readings from the Chicago and Milwaukee purchasing managers'
surveys remained quite vigorous during September, and the Detroit survey showed new strengthening.
Surveys conducted in western Michigan have been depicting some of the strongest results in the District,
and these surveys showed even greater momentum in late September.
Among key District industries, steel production moved higher on a seasonally adjusted basis in
recent weeks in the region, after plant shutdowns for maintenance contributed to a greater slowdown in
output than the seasonal norm late in the summer. One industry analyst stated that nearly all of the major
markets for steel produced in the Midwest remain strong, including appliances, heavy equipment, and
autos. This contact stated that producers' steel inventories are relatively low, partly because customers
have demonstrated greater willingness to hold steel of their own accord. A large auto supplier reported
that demand from transplant operations has shown recent renewed strengthening, joining continued strong
sales to domestically based manufacturers. This firm expected continued moderate growth in 1995. The
company has been adding capacity this year, and "only recently have we seen some stabilization in our
ability to meet demand without using overtime." An association of home appliance manufacturers
reported that the industry is headed for a record shipments year, topping its previous high in 1987.
However, the association is expecting "some kind of a slowdown" in 1995. A number of large
manufacturers noted greater momentum in exports to Europe, including producers of construction
machinery, material handling equipment, and industrial automation controls.
VII-3
Labor Markets. Seventh District labor markets continued to tighten, and reports of worker
shortages seemed to grow somewhat more frequent At thesame time, few manufacturers or retailers
reported significant new wage pressures in permanent positions. A regular survey of Wisconsin
businesses showed a substantial, continuing majority planning to increase their employment. One large
manufacturer recently began adding full-time workers to its operations in Milwaukee for the first time
since 1978. Fully 95 percent of 100 senior executives ofmid-sized companies surveyed recently in the
Chicago area expect employment to remain stable or increase further, and this percentage has been on the
rise consistently since the fourth quarter of 1993. Help-wanted advertising in the East North Central
region fell back somewhat from July to August, according to the most recent Conference Board index, but
only after especially strong gains in previous months, and the underlying trend continued to climb faster
than the national average. A Chicago newspaper recently moved help wanted advertising to the front of
its classified section, noting that demand climbed especially sharply in recent months, and the paper has
increased its rates for help-wanted ad space.
A growing number of contacts reported difficulty finding skilled workers, but reports of tight
labor markets are not universal, even in some of the strongest states in the District One regional analyst
stated that recent cutbacks by three significant employers in central Wisconsin have reinforced a
continuing skepticism among workers that labor markets lack the strength and stability apparent in
reported statistics. This contact stated that "many workers sense increased risk, and don't see a higher
return." Temporary help companies have been reporting increased difficulty attracting employees for
available positions, but heightened competition in the industry has held in check the prices these
companies charge the ultimate employer. One large retailer stressed that the company has experienced no
abnormal price pressures arising from labor costs, with base wage increases continuing to run below the
increases seen in the late 1980s and early 1990s.
Agriculture. Large supplies have undermined farm commodity prices and will likely trim farm
sector earnings and expenditures in the months ahead. The winding down of a record-breaking fall
harvest, both in this District and nationwide, is straining grain storage and handling facilities and pushing
corn and soybean prices to the lowest levels in several years. Likewise, livestock prices have retreated as
updated reports show the record-setting pace in meat production will extend well into next year. Hog
prices have fallen the most, down more than a fourth from last year and the lowest in fourteen years.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
District firms continue to report expansions and new hirings. At the same time,
plant closures and layoffs have dulled the momentum witnessed earlier this year.
Residential construction activity is mixed, but new and existing home sales are still strong
in most areas of the District. Business, real estate and consumer loans outstanding at large
District banks have increased moderately in recent months. Record crops in many areas
have buoyed District farmers after last year's poor harvest.
Manufacturing and Other Business Activity
District firms continue to report modest growth, although some firms are laying off
workers and shutting down plants.
Sales, for the most part, continue strong in many
industries. Many contacts, particularly in the Memphis, northern Mississippi and eastern
Arkansas areas, are reporting a shortage of qualified workers for both permanent and
seasonal work.
One contact in the paper industry reports that the third quarter was the best since
1989, with capacity at about 96 percent. A contact in the heating and cooling industry
reports a record year, with sales greatly surpassing last year's levels. This contact also
noted that a slowdown in orders for the fourth quarter was large than the normal seasonal
decline. A farm equipment dealer states that new equipment sales have picked up very
well over the past two months, while used equipment sales have dropped off somewhat.
The poultry processing industry is entering Kentucky en masse; another firm announced
plans to open a new plant, bringing the total to four within the past year. Makers of wood
furniture in northeast Mississippi report that plants are operating at or above capacity,
overtime is the norm, and plans for expansion are commonplace. An apparel manufacturer
reports optimism about sales for the rest of the year given the current level of orders.
VIII-2
Some manufacturing firms in the southern part of the District report year-to-date
sales increases of between 5 percent and 26 percent over last year. Firms throughout the
District also report increases in employment levels. For example, a dry cleaning company
will bring 300 new jobs into southern Indiana when it moves into refurbished Army
facilities. An engine manufacturer will bring 600 jobs to centr Missouri when its new
plant opens next year. A maker of plumbing fixtures is building a new plant in western
Tennessee and will hire at least 200 workers initially. Because of a new contract with a
fast food chain, a poultry processor is adding 200 employees at itsMissouri plant and will
hire almost 500 in Kentucky. A maker of mobile homes that closed a plant in 1991 has
reopened it because of high demand; the company has a 600- to 700-home backlog.
All the news is not positive, however, as layoffs and plant closings have also
occurred. For example, a maker of tissues and other paper products closed its Memphis
plant, eliminating 640 jobs.
eliminating 200 positions.
A maker of plastic products closed its Missouri plant,
An Arkansas shoe company has placed all production
employees on a four-day workweek in an attempt to avoid layoffs. A hydraulic pump
manufacturer will lay off 175 workers when it closes early next year because of excess
capacity.
Construction and Real Estate
Some softening of single-family residential construction, largely attributed to rising
interest rates, is being reported in several areas of the District. Although single-family
building permits are still up on a year-to-date basis, they were at or below their year-ago
levels in July and August in both Louisville and Memphis. In St. Louis, permits were still
above their year-ago levels in August and September, but the paceof activity is markedly
slower than it was earlier in the year. Some pockets of strength still exist, however, as
residential construction in northeast Mississippi, and in central and northwestern Arkansas
continues at a strong pace. Even in areas of slowing construction, however, realtors still
report fairly brisk sales of existing homes.
VIII-3
Banking and Finance
Total loans and leases at 11 large District banks rose 1.7 percent during the past
two months, after declining 1.9 percent in the prior two months. Each category of loans
showed growth during this most recent two-month period: Commercial and industrial
(C&I) loans rose 1.7 percent, real estate loans were up 1.1 percent and consumer loans
increased 3.2 percent. In the prior two-month period, C&I loans were down 0.9 percent,
real estate loans had declined 3.6 percent and consumer loans were up a modest 1.3
percent.
Agriculture and Natural Resources
The fall harvest is reported as better-than-expected in many areas. Arkansas
farmers, for example, expect to harvest a record rice crop, with milling quality generally
reported as good to excellent
Similarly, Delta cotton farmers report that warm, dry
weather in September has produced good yields, although recent rains may have
diminished the quality of the crop somewhat. Corn and soybean yields are reported as
above average in most areas, with some farmers reporting record yields. Even some fields
in Missouri that were damaged in last year's floods have reportedly yielded unexpectedly
good crops. Bumper crop prospects, however, have caused most grain prices to fall well
below last year's levels.
Despite low river levels in the southern parts of the District,
primarily on the Mississippi, barge traffic has not been impaired. In fact, barge operators
are expecting business to pick up because of the record fall harvests and the prospects of
increased grain exports.
IX-1
NINTH DISTRICT-MINNEAPOLIS
The Ninth District economy continues to gain momentum. Construction continues strong.
Manufacturers report continued good sales. Banks and financial service firms report excellent profits.
Natural resource industries face favorable prices, and many mines and building board plants are operating
near capacity. The 1994 crop is a record one in many areas and livestock numbers remain high. Vehicle
sales are still the strongest force pulling the retail sector, but general merchandise sales are also robust
Summer tourism was excellent in most areas and some observers anticipate an active winter season.
Employment remains higher than year-earlier levels in all parts of the district and continues to grow.
Unemployment rates are generally lower, particularly in metropolitan areas and in some cases are at their
lowest level in two decades. Some firms report difficulty in finding skilled employees and reports of wage
pressures are more frequent than in mid summer. Prices increases for steel, paper, plastics and other
manufacturing inputs are reported, but prices for agricultural commodities and petroleum have eased.
Construction and Manufacturing
Construction remains a robust sector across the district In Minneapolis-St. Paul, new residential permits
for August were down somewhat from year-earlier levels, but industry officials still categorize building
activity as strong. "Because 1993 was such a fantastic year for the single-family residential construction
industry, 1994 has to work that much harder to beat it," said one building association official. Builders in
metropolitan areas of North Dakota and South Dakota also continue to report strong business.
Commercial and heavy construction is running ahead of 1993's hearty pace Publicly let contracts in
Minnesota and the Dakotas for September were 4 percent above 1993 levels. Contracts for the first three
quarters of 1994 were 6 percent above year-earlier figures and 18 percent above 1992.
Employment numbers illustrate the strength of the two-year construction boom in the western part of the
district. In North Dakota, South Dakota and Montana. August 1994 construction employment stood 11
percent, 16 percent and 19 percent, respectively, above the same month in 1992.
Manufacturers report good orders, particularly for farm machinery and components for the auto industry.
Many publicly-traded manufacturing firms announced strong revenue increases over 1993. One Minnesotabased utility noted that electrical use by industry grew from August 1993 to August 1994, at twice the fiveyear average rate.
IX-2
Banking and financial services
Banks reportedly face excellent business conditions. Two large, publicly traded, Minneapolis-based
banks announced record earnings for the third quarter. Several bankers responding to a survey of
agricultural credit conditions also noted that their banks' earnings were solid in spite of continuing financial
stress for some farmers. Two large insurance firms based in Minnesota also announced favorable earnings.
However one securities firm reportedly suffered substantial losses in derivatives positions held earlier in
1994.
Natural resource industries
Favorable prices are spurring production in natural resource industries. After a long period in the
doldrums, paper producers face strong demand for many grades, and sales volumes and prices have both
increased. Prices remain very favorable for most metals, and mines are generally running at capacity. In
August, Minnesota mines employed 22 percent more workers than two years previously. Oil and gas
drilling rig counts have recovered from earlier in the year and are about at year-earlier levels, though oil
production in the district continues to decline. Lumber and building board output in Minnesota, Wisconsin
and Michigan remains strong, in contrast to South Dakota and Montana where cutting restrictions have
sapped production.
Agriculture
The 1994 harvest is excellent in all Ninth District states and is setting records in many areas. Spring
wheat production in Montana nosed out the previous record set in 1993. Sugar yields are very favorable in
Minnesota and North Dakota. Record corn and soybean harvests are expected in South Dakota, Minnesota
and Wisconsin. Some potato producers suffered losses from excess rain in early fall, but yields are good
overall as are those of edible beans.
Wheat prices have recovered somewhat from lows set in late summer, but corn prices have declined to
the lowest level in three years. In spite of the bumper crop, comments from a Minneapolis Fed third quarter
survey of farm bankers indicate that low crop prices will limit farm household and capital spending.
Livestock numbers remain very high and prices continued to erode into early October. Farmers are
expected to cut output of hogs by mid-1995 in response to current low prices, but for now pork supplies are
more than adequate and retail pork prices are expected to decline even further in the next two months.
Consumer spending and tourism
Vehicle sales continue as the locomotive pulling retail sales. Pickup trucks are especially popular,
September new registrations of all trucks in Montana ran 32 percent above the same month in 1993. New
IX-3
registrations of cars and light trucks in South Dakota for the year through September were over 4 percent
above year-earlier figures. In Minnesota, the increase for the same period was nearly 5 percent.
Mall managers and a regional department store chain report good sales. Minneapolis-based national
retailers announced very good sales for September, with the best results in mid-priced and discount stores
but less satisfactory sales in traditional department stores. Directors from western areas of the district report
very favorable conditions for retailers, but in Michigan's Upper Peninsula "sales are so-so."
However the summer tourist season in the Upper Peninsula is described as "excellent, and the fall and
winter are expected to be very good also." Wisconsin tourism continues a strong year with seasonally high
occupancy rates at resorts this fall. A Minnesota tourism industry association described 1994 as the best
season in five years. Major attractions in South Dakota report double digit increases for September.
Although Canadian traffic is slower, tourism numbers in Montana remain at last year's pace.
Employment wages and prices
Labor market indicators sketch a robust economy in the Ninth District. With the exception of Michigan's
Upper Peninsula, August unemployment rates in most metropolitan areas were at 4 percent or less, with the
dominant Minneapolis-St. Paul MSA at 2.9 percent. Montana's 3.6 percent rate was the lowest in 24 years.
Overall employment numbers are 2.5 percent to 3.5 percent above year-earlier levels. News media, directors
and industry sources indicate that some firms have difficulty securing enough workers with desired skills.
Evidence of upward pressure on wages and prices is emerging. Directors and news media note that some
employers have raised wages in attempts to secure needed workers in tightening labor markets. A major
credit card processor in South Dakota announced a 6.7 percent increase in compensation for 2,100 nonmanagerial employees. A St. Paul commercial building contractor said that compensation costs for skilled
building trades will increase by 8 percent or more for 1995. But directors continue to report some new labor
agreements with modest wage increases. Moreover, a Minneapolis-St. Paul personnel managers association
poll of its members projected pay increases of 4 percent in 1995.
Several sources report price increases. Steel prices for construction and manufacturing have risen by as
much as 10 percent since January and some steel users anticipate further increases. Plastic laminates and
particle board for cabinetry have increased by 8 percent. Other manufacturing inputs including plastics and
non-ferrous metals also have increased in price. Prices of some grades of office paper have increased by
over 20 percent. But petroleum costs have declined from mid-summer levels and all prices of virtually all
agricultural commodities are below year-earlier levels.
X-2
during the next few months. Firms are generally satisfied with current inventory
levels, but a few plan to reduce inventories in the months ahead. Most firms are
operating at high levels of capacity, and a few report shortages of skilled labor.
Exporting firms report a slight increase in sales and expect sales to grow through the rest
of the year.
Energy. Energy activity in the district has begun its usual fourth quarter surge
despite soft crude oil and natural gas prices. In September, the average number of
drilling rigs in the district surged, while crude oil prices fell for the second straight month
and natural gas prices hit a two-year low. In the first two weeks of October, the district
rig count continued to climb but remained below its year-ago level.
Housing: Housing starts and sales of new homes are generally down over the last
month. Most respondents expect starts and sales of new homes to remain stable in the
near future. Prices of new homes are stable to slightly lower than last month. Delivery
times and prices of materials are mostly unchanged, although some builders report
problems obtaining concrete. Mortgage demand continues to decline with higher interest
rates. Lenders expect demand to remain sluggish in the months ahead.
Agriculture. The district's corn and soybean harvest is ahead of schedule.
Agricultural bankers report above-average yields with some record yields reported in
Nebraska. Winter wheat planing is nearly complete. Although dry conditions forced
farmers to cut back planted acreage in Oklahoma and Colorado, recent rains have
substantially improved the prospects for the district's wheat crop. The earlier dry spell
hurt pasture conditions in the district, causing many cow/calf operators to sell calves
X-1
TENTH DISTRICT-KANSAS CITY
Overview. The Tenth District economy continues to grow at a healthy pace.
Retail sales increased over the past month and manufacturers continue to operate at
high levels of capacity. District energy activity is improving somewhat. In the farm
sector, conditions are generally good for crop producers but somewhat less favorable for
cattle producers. Meanwhile, residential construction and sales of new homes continue
to slow. Retail prices remain stable, while the prices of manufacturers' inputs are up
from a year ago.
Retail Sales. Retailers report sales increases over both the past year and the past
month. Sales remain strongest in apparel and home furnishings. Prices have been stable
since last year and are expected to remain steady for the rest of this year. Most
respondents expect sales to continue to rise over the next few months. While most
retailers are satisfied with current inventory levels or are expanding inventories for the
holiday season, a few are trimming inventories.
Auto dealers report that sales have generally been stable over the past month but
are concerned about a lack of supply. Most dealers are optimistic that sales will increase
in the near future as new models become more widely available. Financing is generally
available for both dealers and consumers.
Manufacturing. Purchasing agents report input prices are higher than a year ago,
and some expect input prices to increase further in the next few months. Several agents
report longer lead times in obtaining materials but do not expect major bottlenecks
X-3
earlier than normal. The large number of cattle entering feedlots this fall suggests
cattle prices may not strengthen in the near future.
Banking. Loan demand at most reporting banks rose last month, due to rising
demand for commercial and industrial loans, consumer loans, and commercial real estate
loans. Demand for home equity loans and construction loans was flat to up. Changes in
demand for home mortgages and agricultural loans were mixed. Loan-deposit ratios
were up at most banks over the last month, while security investments were flat to down.
Only one of the responding banks raised its prime rate last month, but about half
of the banks expect to raise it in the near term. Most banks increased consumer lending
rates last month and expect to raise them slightly in the near term. None of the
respondents changed its lending standards over the past month.
About half of the banks reported no change in deposits last month, while the
other half were divided between increases and decreases. Large CDs, IRAs, and Keogh
Accounts were flat to up, while NOW accounts and MMDAs were flat to down.
Changes in demand deposits and small time and savings deposits were mixed.
XI-1
ELEVENTH DISTRICT--DALLAS
Economic activity accelerated in September and October, with stronger
demand for manufactured products and business services. Contacts in several
sectors reported higher prices, and there were scattered
reports of hiring
problems particularly in large metropolitan areas. Retail sales, construction
and real estate activity increased modestly. Growth in the supply of bank
credit continued to outpace demand, creating intense competition by banks for
credit worthy borrowers. Energy activity accelerated but levels remained below
a year ago. Bad weather hurt agricultural production.
Manufacturing orders accelerated with strong demand for electronics,
chemicals, paper products and packaging. Orders increased modestly for energyrelated and construction-related products. Several producers raised selling
prices, mostly in response to higher costs. Sales of electronics were strong.
Inventories were below desired levels at some semiconductorcompanies, and
capacity constraints were limiting sales. Electronics prices were still
falling but at a slower rate. Sales of boxes, packaging and paper products
were up strongly, and several contacts said inventories were low. Input costs
were higher, particularly for new paper products as opposed to recycled
products, and selling prices had increased. Demand for construction-related
products such as concrete, glass and lumber was up slightly. Automobile and
parts manufacturers continued to report strong demand. Metals producers said
sales were unchanged, although higher costs pushed up selling prices. Demand
for apparel products held steady, while contract garment finishing remained
weak. Some contacts said higher cotton prices raised costs, although only a
XI-2
portion is being passed along to customers. Demand for food products was
stronger. One contact said new nutritional labelling caused shortages of
packaging materials and higher costs. Demand for oil services and machinery
picked up, while chemical sales and prices continued to rise. Capacity
expansions are planned for ethylene and other chemicals. Lnvironmental work
was slower because of uncertainty regarding EPA rules. Demand for gasoline has
beenstrong but several refineries reduced production because of falling
prices. Gasoline prices fell because refiners had to empty and clean gasoline
storage and transportation facilities before production switches to
reformulated fuel. Refiners expect distribution problems and spot shortages
while switching to reformulated products.
Demand for business services increased, with strong growth at temporary,
transportation, accounting and consulting firms. Demand for litigation
services was softer, but business legal activity was higher, particularly for
regulation, real estate, mergers and acquisitions. Prices were rising at
accounting, advertising and temporary service firms. Wages had increased at
accounting and temporary service firms, and temporary and trucking firms
reported difficulty hiring. Mergers and downsizing reduced employment at
several hospitals, and price increases were slowing.
Retail sales were up modestly. Apparel stores continued to report very
weak sales, although demand remained strong for hard lines such as computers,
electronics and home improvement products. Overall, selling prices continued
to fall, but at a slower rate. Automobile sales accelerated, and dealers said
insufficient inventory of some models had limited sales.
Bankers reported that their willingness to supply credit continues to
XI-3
outpace demand, resulting in intense competition for borrowers. Lending rose
at a 7 to 12 percent annual rate at most banks. Real estate lending was
expanding, particularly at large banks, although residential mortgage activity
remained weak. Mortgage bankers are reducing employment levels and looking for
ways to increase productivity.
Construction and real estate activity continued to increase. Demand for
commercial space was strong, particularly for retail and industrial. New
homebuilding picked up but remained below the March peak. Office markets
tightened, except in downtown Dallas and Houston. Apartment construction
accelerated, and contacts were concerned about overbuilding. Labor shortages
were reported for plumbers and electricians, and higher wages were pushing up
costs. Rents were unchanged or up slightly for most types of real estate.
Energy activity picked up strongly, although levels were lower than last
year. Oil demand was strong, and prices stayed between $17 and $18 per barrel
despite political uncertainties in Iraq. On-shore drilling was about 3 percent
below last year's levels, but drilling activity was strong in the Gulf of
Mexico where the number of working rigs is at the highest level since 1990.
Maintenance on existing oil wells was up substantially. Natural gas prices
continued to be weak, with futures prices between $1.45 and $1.70 per Mcf
since mid-September. Recently, prices have stayed in the middle of that range.
Several natural gas producers shut in capacity to wait for better prices.
Bad weather hurt agricultural production. Dry weather stressed crops,
and reduced production estimates for corn, sorghum and peanuts. The cotton
harvest is better than expected, however. The September Texas All Farm
Products Index of Prices Received was 3.2 percent lower than a year ago.
XII TWELFTH DISTRICT - SAN FRANCISCO
Summary
It is increasingly apparent that the California economy is growing modestly, and in the
remainder of the Twelfth District economic conditions generally remain strong. However,
reports suggest that economic growth in Idaho and Utah is moderating relative to the earlier
robust pace. Among sectors, retail sales are strong, and conditions in the service industry
generally remain solid. Manufacturing production remains strong outside of the aerospace
industry. Agricultural conditions are mixed, with weak prices reported for several important
District crops. Real estate and construction activity remains at high levels in most parts of
the District, but expectations for future construction levels have been marked down. Loan
demand generally is increasing.
Business Sentiment
The survey of Twelfth District business leaders finds they generally remain optimistic
about real activity, but they expect a pickup in inflation over the next four quarters. About
two-thirds of the respondents expect inflation to worsen, and most of the remaining one-third
expect no further progress on inflation next year. About two-thirds of the respondents expect
national growth to exceed 2 1/2 percent during the next four quarters, a higher fraction than
in September. Regional growth over the next four quarters is expected to exceed the national
average in Arizona, Oregon, and the intermountain states, match the national average in
Washington, and be only slightly weaker than the nation in California.
Retail Trade and Services
Generally solid retail and service sector conditions continue to be reported in most
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parts of the District. In California, Idaho, and Oregon, motor vehicle sales are reported to be
strong, creating shortages of some new models, especially full-size domestic trucks. In
Southern California, retail sales in August were up 1.8 percent from ayear earlier. Reports
from Reno, Nevada and the San Francisco Bay Area are cautiously optimistic about holiday
season retail sales.
Tourism is strong or improving in most of the District. Hotel occupancy in Salt Lake
City remains high. In Southern California, hotel industry conditions have improved
significantly but remain below pre-recession levels.
Conditions are mixed among other service industries. In Oregon, business services
employment growth has been strong. In the tri-cities area of eastern Washington, economic
activity is being held down by cost-cutting at firms under contract to the Department of
Energy. In some areas, sales of hospital suppliers are weak, as continued mergers have
slowed major purchasing decisions at hospitals.
Labor markets are reported to be tight in many areas, especially for jobs in the retail
and service sectors. In several District states, openings for entry level jobs in food stores are
remaining vacant at current wages; food store wages are expected to rise 4 to 5 percent in
1995, after rising 3 to 3 1/2 percent in 1994. In Idaho, wages for expeienced computer
programmers have increased sharply in the past year.
Manufacturing
District manufacturing production is recovering further, although additional
restructuring is holding down employment in some areas. In the Pacific Northwest, heavyduty truck manufacturing is expanding, but commercial aerospace production has not yet
XII-3
rebounded. Pulp, paper, and newsprint orders are strong, and inventories are declining. In
Oregon, further increases in several large high technology projects have been announced. In
Idaho, the elimination of 600 jobs by one large high technology manufacturer is expected to
be partly offset by expansion at another manufacturing firm.
Agriculture and Resource-Related Industries
Agricultural production remains strong, but farm income is being held down by falling
prices for some crops. Prices are reported weak for potatoes, apples, barley, and corn. In
eastern Oregon and Washington, wheat yields are good and prices are high. California
specialty crop producers report continued strong export demand and note that packaging and
ocean freight costs are increasing. Cattle prices remain low, and the cattle feeding industry is
reported to have lost a substantial amount of equity in the last several years. Cattle producers
in eastern Oregon report a lack of irrigation water. Without sufficient rainfall, drought
conditions in 1995 are predicted to be severe in California, Idaho, Oregon, and Washington.
Real Estate and Construction
Real estate activity generally remains at high levels despite some slowing in parts of
the District. In the intermountain states, home sales have slowed, especially at the higher end
of the market; sales price increases are expected to moderate in 1995. In Idaho, apartment
vacancy rates are reported to be increasing. In the Pacific Northwest, some slowing of
Washington home sales was reported, but otherwise activity remains robust. Within
California, home prices are reported below year-earlier levels in most areas.
Construction activity remains at a high level in many parts of the District, but growth
has moderated in some areas.
After earlier strong gains, housing starts slowed in Utah, and
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commercial construction activity slowed in Idaho. In Los Angeles as a whole, housing
permits are up sharply, but construction of affordable housing remains weak. Increases in
building activity continue in Arizona and Oregon. Respondents from Idaho, Oregon, and
Utah noted a shortage of skilled construction workers. Construction wages and costs of raw
materials are reported to be increasing rapidly.
Financial Institutions
District banking conditions generally are strong, with solid loan demand in most areas.
At large California banks, business loan demand has picked up, but consumer lending remains
sluggish. Bank lending policies are reported to be increasingly aggressive. In most
geographic areas, employment at banks is expected to remain weak, owing to consolidations
and other cost-cutting efforts. Wage increases at banks are expected to be moderate, except
for some entry level positions.
Cite this document
Federal Reserve (1994, November 14). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19941115
@misc{wtfs_beige_book_19941115,
author = {Federal Reserve},
title = {Beige Book},
year = {1994},
month = {Nov},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19941115},
note = {Retrieved via When the Fed Speaks corpus}
}