Beige Book
For use at Noon, E.D.T.
Wednesday
August 9,1995
Summary of Commentary on
Current
Economic
Conditions
by Federal Reserve District
July 1995
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICT
July 1995
TABLE OF CONTENTS
SUMMARY
First District - Boston
Second District - New York
Third District - Philadelphia
Fourth District - Cleveland
Fifth District - Richmond
Sixth District - Atlanta
...............
Seventh District - Chicago
Eighth District - St. Louis
Ninth District - Minneapolis
Tenth District - Kansas City
Eleventh District - Dallas
Twelfth District - San Francisco
..............
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i
SUMMARY 1/
Most districts continue to report economic expansion, although in some areas the rate
of expansion has moderated recently. The upper Midwest, Southeast and West continue to
expand. Other areas are experiencing little or no growth. Expansion of retail sales also varies
by geographic region, with the center of the country generally doing somewhat better than
other areas. Manufacturing, particularly the auto and construction-related industries, continues
to slow in many districts. However, orders are up in some districts, and inventories generally
are considered to be at acceptable levels. Reports of tight labor markets come from many
districts, but few report increased wage pressures. Three-quarters of the districts continue to
report higher prices for raw materials, but the rate of increase is decelerating. Retail prices are
generally unchanged or up modestly. In most areas of the country, residential and commercial
real estate markets are picking up; loan demand is steady or strengthening. Weather concerns
dominate reports from most agricultural-producing districts, while livestock producers face
reduced profits because of lower selling prices and higher feed grain prices.
Consumer Spending
Compared with one year ago, retail sales are up slightly in the Atlanta, Chicago, Kansas
City, New York and St. Louis districts, while the remaining districts report sluggish or
declining sales. The Atlanta, Chicago, Kansas City and New York districts report strong
growth in apparel sales, while the Boston and Dallas districts report either declining or steady
apparel sales. Boston also notes that sales of durables are below retailers' expectations. The
Philadelphia district reports that discount stores are doing well and that the recent heat wave
1/
Prepared at the Federal Reserve Bank of St. Louis from information collected before July 31, 1995.
This document summarizes comments received from businesses and other contacts outside the Federal Reserve
and is not a commentary on the views ofFederal Reserve officials.
ii
increased the demand for air conditioners, fans, outdoor furniture and lawn equipment. In
general, though, retailers in this district are experiencing their usual seasonal slowdown. The
Kansas City and New York districts note that sales of home furnishings and home improvement
goods are weak, while retailers in the Atlanta district have seen a recent uptick for these
products. Most districts report that retailers' inventories are at acceptable levels. Contacts in
the Atlanta district expect a good back-to-school season, while St. Louis contacts are
somewhat more pessimistic.
Reports on auto sales are mixed, ranging from sluggish in the Atlanta, Minneapolis and
San Francisco districts, to above last year's levels in the Cleveland, Dallas and Kansas City
districts. In the Philadelphia district, increases in auto sales are leveling off from their higher
rates earlier in the year, and dealers in the St. Louis district report flat to moderately strong
growth. In the Chicago district, auto leasing is very strong.
Manufacturing
Manufacturing production continues to slow in most districts. The Boston, Cleveland,
Dallas, Minneapolis, Philadelphia, Richmond and St. Louis districts report some slowing, while
New York and San Francisco have mixed reports from their contacts. Some districts note that
the auto and construction-related industries have slowed recently, with accompanying effects
on firms that supply these industries.
The Atlanta, Chicago and Kansas City districts report some gains in overall production,
with Atlanta, Chicago and San Francisco noting increases in orders. The demand for machinery
has jumped significantly in the Boston district. Computer and electronic firms in the Atlanta
district indicate that recent increases in orders are adding to their backlogs. Heavy truck
manufacturers in the Cleveland district report that a backlog of orders is sustaining their
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business. The Chicago district notes a decline in steel demand, while St. Louis is experiencing
an expansion in the steel industry.
Exporters in the Boston district report that even though sales to European markets have
been sluggish, demand from developing countries has grown substantially. Inventories at firms
in the Cleveland and Kansas City districts are at desired levels, but firms in the Atlanta district
report that levels remain below those posted earlier in the year. Small high-tech firms in the
Minneapolis district note expanding activity.
Labor Markets
Labor market conditions vary across and within districts. Contacts in the Philadelphia
district note that they have trimmed payrolls and reduced hours. Similarly, contacts in the St.
Louis district note that the need for temporary workers or overtime has diminished greatly.
The New York district says that announcements of employment gains have been mostly offset
by recent layoffs. Temporary employment agencies in the Boston, Dallas and Richmond
districts, however, report strong demand. Firms in more than half of the districts continue to
report difficulty hiring and retaining both skilled and entry-level workers.
Wages and Prices
Nearly all districts note that price pressures remain on materials and supplies, with
reports of increasing prices generally outnumbering reports of flat or declining prices. Overall,
though, the rate of increases appears to be moderating. Despite reports of minimal wage
pressures, there are some reported exceptions. In the Dallas and Richmond districts, for
example, wages for temporary workers have been accelerating, while in the Chicago and
Minneapolis districts, upward pressure on wages for entry-level employees continues. Retail
prices in the Kansas City and New York districts are generally unchanged to up slightly,
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although individual districts report declining apparel and computer prices. Some retailers in
the San Francisco district are now tempering their price increases for fear of hurting sales.
Input price increases at the manufacturing level are more widespread and appear to be
most prevalent for raw materials like paper and wood products, chemicals and certain metals.
Nine districts report higher input prices; of those nine, two-Boston and Cleveland--expect
to see higher prices of cotton goods and furniture, respectively, later this year. In the Dallas
district, on the other hand, recently announced increases in chemical prices have been
rescinded, and in the Chicago district, prices for steel and resin have actually declined.
Construction and Real Estate
Residential and commercial real estate markets have improved somewhat in most
districts. Contacts in the Atlanta, Chicago, Dallas, Kansas City, Philadelphia and San Francisco
districts report recent increases in single-family home construction or sales, while New York
and St. Louis report slack activity.
Despite recent increases, year-to-date residential
construction is still below the records set in many districts in 1994. Recent reductions in
mortgage interest rates are credited for the pick-up in new construction and sales. Real estate
agents in the Philadelphia district report a large inventory of homes for sale, but contacts in
the Atlanta district complain of a low inventory.
Activity in commercial real estate markets, especially industrial markets, continues to
increase or hold steady across all reporting districts. Commercial vacancy rates have declined
in the Minneapolis and Richmond districts, while holding steady in the Dallas and Philadelphia
districts. The multifamily sector is strengthening in the Atlanta, Boston and Dallas districts.
New nonresidential construction is reported in the Atlanta, Chicago, Dallas and Minneapolis
districts and in selected portions of the Richmond and San Francisco districts.
Banking and Finance
Loan demand appears to be steady or rising in a majority of districts. Both the Atlanta
and St. Louis districts note that competition among lenders on price and credit terms is fierce.
Atlanta, Cleveland, Kansas City, Philadelphia, Richmond, St. Louis and San Francisco report
strong commercial and industrial loan demand. Consumer loan growth is reported to be up
in the Cleveland, Dallas, Kansas City and St. Louis districts. The Atlanta, Cleveland, Dallas,
New York, Philadelphia and Richmond districts report increased residential mortgage lending
because of home sales, refinancings or both. Commercial real estate lending is reported to be
steady in the Dallas and Kansas City districts and weaker in the Atlanta and New York districts.
Loan delinquencies remain low in the Cleveland, New York and St. Louis districts.
Agriculture and Natural Resources
Crops conditions are generally favorable across the nation. Most districts, however,
report some form of adverse weather that has led to heightened concerns about the size and
quality of many crops, which stem in part from this year's unusually late spring plantings. For
example, Kansas City reports that weather will need to be ideal for the remainder of the season
to produce normal yields for corn and soybeans. Elsewhere, hot, dry weather has affected
crops in the Dallas and St. Louis districts, while Chicago, Minneapolis and Richmond report
some heat-related losses for poultry and cattle producers. Increasing feed grain prices and
lower livestock prices have diminished profit levels for livestock producers in the Kansas City
and Minneapolis districts; some producers in the Kansas City district plan to reduce the size of
their breeding herds in response. With the wheat and small grain harvest complete in many
areas, yields are reportedly smaller and of lower quality in the Kansas City district and parts
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of the St. Louis district. On the other hand, record or near-record yields are reported in the
Richmond district and in other parts of the St. Louis district.
Energy production has changed little despite lower oil prices. A marked decline in
crude oil prices has not prevented an increase in oil drilling activity in the Kansas City district.
Despite lower natural gas prices in the Dallas district, drilling activity for natural gas is
reportedly higher. Minneapolis reports robust growth in its natural resources industries. In
particular, copper and wood products producers are operating at capacity, while activity in the
San Francisco district's mining industry is increasing.
FIRST DISTRICT - BOSTON
Economic activity is slowing in the First District.
Sales or
revenues of a majority of retail and manufacturing contacts in New
England are flat to down from a year earlier.
reportedly flat.
Most prices are
Commercial real estate markets are mixed, with the
office and retail sectors weaker than last year.
Retail
Most retail contacts in the First District express disappointment
with their June and July sales growth from a year earlier, which ranged
Even an exception, a
from 5 percent declines to gains of 5 percent.
large chain posting double-digit sales growth, noted that recent sales
of durable goods were below expectations.
Contacts view the next six
months with great uncertainty, anticipating level to modest sales gains.
Retailers of women's apparel see no immediate relief from continuing
aggregate sluggish sales and battles for market share.
Contacts suggest
that women have become more reluctant to buy clothing because of greater
expenses for health coverage and elder and child care, increased
interest in home renovation and inexpensive casual wear, and little
concern for "chasing fashion."
Most vendor prices remain stable; by exception, recent increases
in cotton prices are expected to boost prices of cotton goods this fall
and winter.
Most retailers, particularly off-price discounters, are
struggling to maintain gross margins and profits.
Only two contacts
plan significant increases in their 1995 employment levels and capital
budgets.
In contrast to the disappointing retail situation, the region's
tourist industry reports extraordinary activity this summer, far
exceeding expectations.
Both Americans and foreigners are attracted to
New England, reportedly by reasonably priced package vacations offering
several points of interest, such as outlet shopping, cultural events,
and outdoor experiences.
Manufacturing
Most First District manufacturers contacted report that recent
revenues are flat to down slightly from their levels of a year earlier.
However, about one-third of the contacts indicate double-digit sales
gains for machinery and equipment.
Although traditional European
markets have been sluggish, some companies report substantial growth in
exports to developing countries. Employment generally has moved in the
same direction as sales.
Manufacturers indicate that their input and selling prices are
mostly flat.
Prices of petrochemicals and copper are reportedly rising
and shortages of memory chips are leading to some temporary price
increases.
One contact notes that an anticipated increase in paper
prices did not materialize, while another reports that surcharges for
chrome appear to be ending.
Prices of computers and of machinery sold
to automakers continue to fall.
Capital spending has increased over the past year at most
contacts, with close to half the sample reporting a substantial
increase.
Much of the additional investment is being driven by the
development of new products.
In some cases, a changing product mix is
also leading to selective hiring.
Most manufacturers believe that they will be operating in an
environment of slow economic growth in coming months.
Some are hopeful
that new products or successful promotion of existing products will
boost sales.
Temporary Employment Firms
Temporary help firms are holding their own in the New England
region, according to industry contacts.
Although growth rates have
declined slightly from last year, sales continue to climb at a healthy
pace, averaging 15 to 20 percent increases over year-earlier levels.
Personnel supply firms expect to see continued strong demand for
temporary workers in the fall.
Commercial Real Estate
The apartment and industrial markets continue to expand in the
First District, while the office and retail sectors are lagging behind.
Contacts report negative absorption in downtown office markets in
Hartford and Providence, small gains in Boston (well below last year's
strong pace), and only Portland showing significant improvements.
Suburban office markets are doing better than downtowns, a pattern one
respondent attributed to substantial new leasing activity from small,
fast-growing high-tech and software companies that prefer suburban
locations.
Net absorption is strong in the Massachusetts and
Connecticut industrial markets, particularly among smaller companies
that require less than 50,000 square feet of space.
The lack of new
multi-family construction combined with strong demand is leading
investors to propose new apartments in suburban Boston.
Nonbank Financial Services
The majority of respondents at life insurance companies report
lower sales in the second quarter of 1995 than in the second quarter of
1994.
The decreases are mostly due to weakness in sales of variable
annuities and individual life insurance.
Employment at the responding
companies was flat to down in the second quarter, and they expect flat
or declining employment for the rest of the year.
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SECOND DISTRICT -- NEW YORK
Reports on economic conditions in the Second District were generally mixed in recent
weeks. Although Midtown's commercial real estate market firmed in June, reports from other
markets varied widely. Announcements of major job gains in June and July were largely
offset by announcements of job losses. Aggregate loan demand at small and mid-sized banks
weakened over the past two months, despite declines in average loan rates.
Consumer Spending
District retail sales rose moderately during June. Sales gains ranged from +1 to +10
percent on a year-over-year basis and averaged roughly 5 percent. Inventories were generally
on plan at the end of June. Sales of women's apparel (particularly sportswear), accessories,
and cosmetics were strong. Men's sportswear and commodity consumables also sold well.
As in recent months, sales of furniture and home goods remained weak. Several retail
contacts noted that price pressures remain subdued.
Construction and Real Estate
Midtown Manhattan's commercial real estate market firmed during June. Office
vacancy rates declined 0.4 percentage points to 13.5 percent, just equalling the rate at the
beginning of the year. Moreover, the Midtown market received a major boost when the City
reached agreement with a group of entertainment companies to open an array of attractions -including two theaters and a wax museum -- on 42nd Street.
In contrast to renewed strength in Midtown, office vacancy rates in Downtown
Manhattan rose to 24.6 percent in June as leasing activity remained unusually sluggish.
Anticipation of the enactment of the Downtown Revitalization Program -- widely expected to
provide a long-run boost for Downtown -- has contributed to the area's short-run difficulties;
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in order to qualify for the program's financial incentives, some prospective tenants are
deferring closings on new leases until the legislation passes.
The market for office space in New York City's suburban counties was mixed during
the second quarter. Steady leasing activity led office vacancy rates to decline in Northern
New Jersey, Westchester (NY), and Fairfield (CT). In contrast, vacancy rates rose on Long
Island; Nassau's rate jumped a full percentage point as large blocks of space previously
occupied by aerospace firms returned to the market.
Residential builders in Northern New Jersey report that sales of new single family
homes -- slow throughout the normally brisk spring selling season -- have not yet rebounded.
Several contacts noted that although customer traffic picked up in July, it has not yet
translated into sales.
Other Business Activity
Nonfarm employment inched down in both New York and New Jersey during June.
New York's employment decline was accompanied by a larger decline in unemployment,
causing the unemployment rate to decrease 0.4 percentage points to 5.9 percent. New Jersey's
unemployment rate edged up 0.1 percentage points to 6.6 percent.
Announcements of Second District job gains have been largely offset by
announcements of job losses over the past two months. The roster of firms announcing plans
to increase employment includes Bus Industries (+450 jobs in the Syracuse region), BuckbeeMeers (+300 Syracuse region jobs), Upgrade Corp. (+250 jobs in Buffalo), and General
Motors (+200 jobs in the Albany region). Utica will retain Rome Laboratory's 1,000 jobs,
but lose an equal number of positions as Lockheed Martin closes its Utica facility and
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transfers many of the plant's workers to the Syracuse area and New Hampshire. Other recent
announcements of job cuts include Hughes Training (-1,000 jobs in the Albany region, with at
least 700 jobs transferred to Texas and Virginia), CNA Insurance (-400 Albany region jobs),
and the Seneca Army Depot (-300 mostly civilian employees).
Purchasing managers in the Buffalo and Rochester areas reported that manufacturing
production increased during June, while purchasers in the New York metropolitan area
reported a modest contraction in the overall pace of business conditions. Reports of
commodity price pressures varied widely.
Financial Developments
Compared to two months ago, aggregate loan demand is steady at about forty percent
of the small and medium sized banks surveyed in the District and lower at about thirty-five
percent. The commercial and industrial (C&I) loan and nonresidential mortgage segments are
generally weaker. Demand for C&I loans is lower at approximately two-fifths of the banks
and higher at only one-fifth. Nonresidential mortgage demand is the same or lower at nearly
all of the banks. Refinancing activity continues to increase; it is higher at almost one-quarter
of those banks surveyed.
Average loan rates are lower at about eighty-five percent of the participating banks,
and are the same at the remaining banks. About forty percent of the respondents note that the
spread between the average lending and deposit rates has narrowed. Over the past two
months, nearly all of those surveyed have maintained their credit standards, and are just as
willing or more willing to lend. For the most part, delinquency rates are stable or lower.
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THIRD DISTRICT - PHILADELPHIA
Economic conditions in the Third District were mixed in July. Manufacturers continued
to report declines in orders for their products, and the weakening demand for manufactured goods
has led to some reductions in employment at area factories. Retailers said they were entering the
usual summer slow period while posting modest year-over-year gains. Most merchants said their
inventories were in line with plans. Auto dealers said sales picked up in recent weeks in response
to aggressive incentive programs by car makers, but dealers are skeptical about prospects for
continued improvement.
Bankers reported some recent gains in commercial and industrial
lending, and they continued to describe competition for new business loans as strong. Consumer
lending was generally described as near steady. Real estate lending has picked up a bit as home
sales in the region increased in June and July. Realtors said the increase was moderate, however,
and the inventory of homes for sale remains large. Commercial real estate conditions appeared
to be steady. Office vacancy rates--about 17 percent in the Philadelphia central business district
and 15 percent in the suburbs--have changed little since the beginning of the year, according to
realtors.
MANUFACTURING
Manufacturers in the region reported further slowing in business in July. Four in ten of
those contacted for the month said orders for their products had slipped from the June level, an
equal number said orders were steady, but only two in ten said orders had increased. On balance,
order backlogs at Third District factories declined in July: half of the firms surveyed reported
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drops in unfilled orders while just one in ten posted gains.
Several firms that produce
transportation equipment and parts for the auto industry said their business was softening due to
declining production rates in the automobile industry,
but the slowdown in manufacturing
activity in the Third District economy has affected nearly all the major industrial sectors of the
region.
In line with the slackening pace of business, Third District manufacturers have trimmed
payrolls and reduced working hours. Declining demand for their products apparently has also
affected pricing: surveyed companies indicated that they have kept prices for their own products
steady, on balance. While area firms continue to report increased costs for supplies and raw
materials, increases do not appear to be as prevalent as they were in the first quarter of the year.
The overall outlook among Third District manufacturers is positive. Expectations are that
there will be modest improvement in orders and shipments over the next six months. Despite the
anticipated improvement in business conditions most of the companies polled do not expect to
extend working hours or increase employment. Capital spending by area firms may be increased,
but current plans indicate the overall gain is likely to be only marginal.
RETAIL
Most of the Third District retailers contacted for this report said sales in July exhibited
the usual seasonal slowdown. Discount stores posted greater year-over-year gains than other
types of stores. A period of above normal heat and humidity in the region boosted sales of air
conditioners and fans. After a relatively cool spring, the hotter weather also appeared to provide
an impetus for somewhat better sales of lawn equipment and outdoor furniture as well as summer
apparel. Store inventories were generally in line with plans, according to merchants.
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Auto dealers reported some improvement in sales in recent weeks, but the gains appeared
to be based on extensive incentive programs by manufacturers. In general, dealers do not believe
the annualized sales rate will continue to move up. Most think the pace of sales will level off
for the rest of this year and into 1996.
FINANCE
Third District bankers said lending was moving up moderately in July. Several noted
recent increases in commercial and industrial loan activity, but nearly all of those contacted said
competition was very strong and margins were thin. Real estate lending was picking up as well,
according to bankers, driven by an upturn in home sales. Refinancings also increased. Bankers
generally indicated that consumer lending was about steady.
Some noted that they were
deliberately restricting growth in credit card debt in order to limit or reduce delinquencies.
REAL ESTATE
Commercial real estate brokers reported steady market conditions at midyear. Office
vacancy rates for both the city and the suburbs have been virtually unchanged through the first
half of the year. The rate in Philadelphia's central business district was estimated at 17 percent.
Vacancy rates in suburban office markets varied widely, with the overall rate estimated at 15
percent. Realtors and property managers said the demand and supply for Class A space remained
roughly in balance, but the supply of Class B space exceeded demand. The supply of Class B
space is likely to grow, according to realtors, as business firms in the region continue to reduce
staffs or relocate out of the area.
Residential realtors and builders said sales picked up in June in response to declining
mortgage rates and the higher sales rate was being maintained in July. The increase in sales was
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generally described as modest, however, and the inventory of homes for sale remained large.
Builders have effectively cut prices through a variety of incentives in order to sell a larger than
normal inventory of new homes built on speculation and to keep the pace of building activity
from dropping.
Both realtors and builders are concerned that the sales rate will dip in the
seasonally slow summer months and may not pick up again in the third quarter. They cite
concerns about employment security as a major factor in restraining move-up buying by area
residents.
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FOURTH DISTRICT - CLEVELAND
General Business Conditions
The District economy continues to operate at a high level, although the industrial
sector has slowed from its exceptionally strong growth pace earlier in the year. Capital
goods producers continue to lead the local economy's advance, and commercial
construction appears to have gained strength very recently. No significant layoffs have
been observed, but several sources have noted a drop-off in factory overtime. Indeed,
unemployment rates remain low relative to the national average. Price pressures appear to
have eased a bit from earlier in the year; no significant cost increases have been reported.
Manufacturing
The District's industrial sector, which had been growing at an exceptionally strong
rate, has since slowed to a more average pace. Many capital goods producers have seen a
drop-off in new orders, and in a few extreme cases, such as heavy truck manufacturing,
production levels are being sustained by a rather formidable orders backlog. Sources for
this industry anticipate a drop in production by year-end if orders growth does not
improve. Machine tool makers continue to report a solid level of new orders, and
production is thought to be nearing capacity. Only a few manufacturers have seen an
acceleration in business activity recently. Some unexpected strength has come from
aerospace-related products, and steel orders and production have also improved following
a relatively slow second quarter. Export markets, by most accounts, are still favorable.
No indications of an inventory imbalance at the manufacturing level are noted, and
virtually all sources consider current production and employment levels high by historical
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comparison. Labor appears to be amply available, with only a few, scattered shortages of
skilled workers, notably in the northern Kentucky region.
Retailers
Retail sales are generally reported as normal for the season, having strengthened
from an overall lackluster first half. District sales are still running somewhat below levels
at this time last year; only one department store reported summer sales were better than
last year. Optimism for the remainder of 1995 is mixed--about half of the retailers we
contacted expect the recent strengthening in consumer spending to continue. A large
share of the run-up in retail inventories during the past few quarters appears to have
dissipated. District retailers' reports on inventory levels range from "on plan" to "slightly
higher than planned."
Retail price increases remain moderate, with apparel prices actually declining
during the past several months. Women's apparel prices have been especially depressed.
Despite observations that demand for home-improvement products has been soft,
furniture prices are expected to rise as higher materials costs are pushed through to
retailers. Some labor shortages are occurring in the retail sector, especially in larger cities.
Several retailers also note plans for capital expansion and renovation.
Autos
July auto sales in the District were mostly positive. In northern Ohio, sales levels
were much improved--in some cases, 45% higher on a year-over-year basis--and well in
excess of general expectations. Southern portions of the District gave more subdued sales
reports: Auto sales in eastern Kentucky during July were down about 20% from last year.
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District auto dealers report that mid- and full-size car sales have surpassed smallcar sales, and one dealer notes that sport-utility vehicle sales have quadrupled from last
year. Demand for options has also strengthened during the summer months. Virtually all
dealers report lower new-car inventories from the District report of two months ago, but
new car inventories vary substantially by model, ranging from a 35 to 90 days' supply.
Manufacturer incentives have helped sales when used. One dealer reports that
incentives have offset the effects of high interest costs, although a few sources noted that
new car loan rates have begun to edge lower from their recent cyclical peaks.
Banking and Credit
Major District banks report a further, but moderate, growth in their deposit base.
Moreover, several sources note a lengthening in deposit maturities. Deposit expansion is
reported to be the means for the continued growth in lending activity, although the extent
of deposit growth is mixed by institution and region.
Bank lending remains especially strong in the commercial credit area, where loan
demand for plant and equipment expansion, mergers, and inventory floor plans has
increased substantially from the spring. Household borrowing is also reported to have
strengthened, with an improvement in consumer and new mortgage credit over the past
several months. Despite the continued rise in debt levels, however, District banks are
reporting exceptionally low delinquency rates, particularly for consumer-related credit.
Several institutions cite delinquency rates of less than 1 percent.
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FIFTH DISTRICT - RICHMOND
Overview: The rate of economic expansion in the Fifth District appears to have been
steady in late June and July. Retailers and manufacturers reported that growth slowed in their
industries, but service producers reported that growth picked up. Residential and commercial
real estate contacts and financial industry sources reported little change in their sectors.
Contacts at area ports and in the tourism industry reported increased activity, and temporary
employment agencies saw stronger demand for temporary workers. Government contacts
reported mixed trends in state revenue growth. Agricultural conditions were good, although
adverse weather damaged some crops and poultry.
Retail Trade: Indicators of retail activity growth decreased in July from their June
levels, according to preliminary results from a mail survey of District retailers. The indexes
of sales, employment, inventories, big-ticket sales, and shopper traffic were lower. The index
of wages changed little, however. Survey respondents indicated that retail prices rose more
slowly in July. They foresaw increased growth in the demand for their products, and they
expected their prices to rise more rapidly during the next six months.
Service Production: Indicators of service-sector activity growth increased in July
from their June levels, according to preliminary results from a mail survey of District service
producers. The indexes of revenues and wages rose. The employment index changed little.
Service producers reported that their prices rose more slowly in July. They expected the
growth in demand for their services to change little during the next six months, and they
expected their prices to rise more slowly.
Manufacturing: Indicators of factory growth decreased in July from their June levels,
according to a mail survey of Fifth District manufacturers. The shipments and backlog
indexes decreased, and the new orders, employment, and workweek indexes changed little.
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Manufacturers were more optimistic about the growth in shipments and employment during
the next six months, but their expectations about the workweek changed little from June.
They also anticipated decreased finished goods inventories. Finished goods and raw materials
prices rose more slowly in July than in June, and at rates below the general inflation rate.
Respondents expected their prices to rise more slowly during the next six months than they
had expected in June.
Tourism: A telephone survey of hotels, motels, and resorts throughout the District
indicated that tourist activity in June and early July was above that of May and a year ago.
Summer bookings were up compared to a year ago, and contacts expected better-than-normal
business and unchanged prices during the next six months.
Port Activity: Representatives at District ports indicated that export and import levels
in June were higher than those in May and a year ago. Contacts expected that both exports
and imports would increase during the next six months.
Temporary Employment: A telephone survey of Fifth District temporary
employment agencies indicated that the demand for temporary workers in June and early July
was higher than it was a year ago and was little changed from its May level. The demand for
clerical workers was particularly strong. Contacts expected demand during the next six
months to be greater than usual. Temporary workers' wages rose faster than the general price
level during the past year, although most contacts expected wages to stabilize during the next
six months.
Finance: District financial institutions reported that credit conditions were mixed
during the past seven weeks. Interest rates fell moderately for consumer and commercial
loans and rose slightly for mortgage loans. Demand increased for mortgage and commercial
loans but fell slightly for consumer loans.
Residential Real Estate: According to a telephone survey of District real estate
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agents and homebuilders, residential real estate activity was unchanged in June and early July.
Building permits, housing starts, and home sales were stable over the period, except in North
Carolina, where building permits and housing starts increased. Buyer traffic increased, and
most contacts attributed the increase to lower mortgage interest rates. Contacts reported that
lower- to middle-priced homes were selling better than expensive homes. Home prices were
unchanged, except in North Carolina, where they increased. District building material prices
and subcontractor wages were steady.
Commercial Real Estate: District contacts reported that commercial real estate
activity changed little in June and early July. Leasing activity was unchanged, except in
North Carolina, where it increased. Vacancy rates declined slightly, and commercial rents
changed little. The availability of prime office space tightened in most District cities, and
contacts reported shortages of such space in North Carolina and the District of Columbia.
Contacts reported little new construction.
State Revenues:
State government contacts reported mixed results in tax collection
growth in June. Compared with May, real revenue growth was lower in the District of
Columbia, Maryland, and Virginia; steady in North Carolina; and higher in South Carolina
and West Virginia.
Agriculture: District agricultural conditions remained good in recent weeks, although
adverse weather hurt crops and poultry in some areas, according to agricultural analysts.
Record or near-record yields were reported for small-grain crops. Floods in Virginia and
heavy rain in the Carolinas caused only minor damage to small-grain and tobacco crops in
some localities. A more serious impact of the rains, however, was their promotion of blue
mold growth on the tobacco crops, especially burley tobacco. On the other hand, recent
rainfall benefited the corn, soybean, and hay crops. Above-normal temperatures meanwhile
led to higher-than-normal poultry losses, especially along Maryland's Eastern Shore.
VI-1
SIXTH DISTRICT - ATLANTA
Overview: Contacts in the Southeast generally reported improving economic activity
since the last Beigebook period. Merchants said recent sales have bettered year-ago levels and
expressed optimism about the fall season. Manufacturers generally expect to continue to see
rising orders and output in the coming months, but gains are seen as modest and no significant
hiring is expected.
Summer tourism and theme park attendance appears to be exceeding
expectations in most locales. Single-family housing sales are improving, and prices in some
areas are increasing; markets also reportedly continue to strengthen for the commercial and
multifamily segment. Bankers note generally healthy commercial and consumer loan demand.
Most contacts believe that wage and price pressures are under control and expected them to
remain so for the foreseeable future.
Consumer Spending: Retailers throughout the District reported that sales were above
last year's levels during June and early July. Most merchants said that inventories were in good
shape, with several noting that their inventories were actually a little under plan.
Home
furnishing sales have improved as have sales of women's and children's apparel. According to
several retailers, men's apparel sales have slowed recently. Overall, retailers remain optimistic
and expect good back-to-school sales.
Auto sales, on the other hand, were generally
characterized as sluggish.
Manufacturing: Factory activity is improving or steady, according to most industry
representatives, but recent gains in shipments and new orders have been modest. Inventories for
most producers are said to remain below levels posted earlier in the year. Most manufacturers
contacted anticipate further near-term output increases; however, new hiring remains restrained.
Some apparel manufacturing contacts said demand had recently been stronger than expected;
however, some producers continue to announce layoffs. Increasing output was reported by
VI-2
chemical plants, but they expressed a concern about the availability of raw materials. Industrial
computer systems and electronics manufacturers note increasing order backlogs. Shipments are
increasing for medical equipment fabricators, and producers of heavy-duty trucks say that strong
demand has them operating at 100 percent capacity. On the other hand, central Florida continues
to be adversely impacted by military contractors' job cuts. Slow auto sales have also forced a
regional tire producer to cut production.
Although current sales remain good, some paper
industry managers are becoming uneasy because of possibly slowing demand.
Tourism and Business Travel: Tourism is reported to be improving notably in Florida.
There are more European visitors, and occupancy rates are rising.
Savannah's tourist
infrastructure is benefitting from improvements spurred by the Olympics. Casino gambling
activity in Mississippi is reportedly stable to increasing, and hotel occupancies in New Orleans
are above historical averages. On the basis of the record so far this summer, attendance at the
region's theme parks is expected to outpace last year's figures.
Construction: According to real estate contacts, single-family home sales continued
to improve throughout most of the District during June and early July. Realtors are again
attributing the increase in housing demand to low mortgage rates. However, home inventories
are extremely low in several markets, driving home prices up modestly. Single-family home
construction activity is generally mixed. Both realtors and builders are cautiously optimistic that
the market will continue to improve.
Commercial and multifamily contacts continue to report strengthening activity.
Multifamily construction demand continues to be strong in many areas of the market but has
slowed slightly in some.
The majority of commercial construction remains build-to-suit;
however, several major speculative office buildings have broken ground recently or been
VI-3
announced within the District. Realtors are optimistic and anticipate that both commercial and
multifamily markets will continue to strengthen moderately during the remainder of 1995.
Financial Services: Bankers around the region report that overall loan demand remains
moderately strong but portray competition on both price and credit terms as fierce. Commercial
demand remains relatively strong.
Most contacts reported moderate to strong activity in
commercial and industrial lending; however, demand for commercial real estate loans has
slowed. Consumer loan demand was generally characterized as mixed. Several bankers noted
that home equity credit lines were doing quite well. They said that lower rates have spurred
mortgage lending in the last few months. Refinancing activity has not been quite as strong as
some bankers expected. With mortgage rates edging up again, many contacts expected home
mortgage lending to slow somewhat in the coming months. Auto lending was reported to be flat.
Wages and Prices: Although a few areas still face a shortage of skilled workers,
wages generally remain stable in the region. Most contacts continue to report little change in
prices received for finished goods or prices paid for materials. Few expect price changes in the
near term. Those reporting price increases were confined mainly to the chemical, paper, and
building products industries.
VII-1
SEVENTH DISTRICT--CHICAGO
Summary. District economic growth increased in June and early July. Consumer spending and
housing activity remained on the higher growth path that developed late in the second quarter.
Manufacturing output flattened out on a seasonally adjusted basis, following a significant deceleration
centered in consumer durable goods production earlier in the year. Manufacturing inventory contraction
abated, but many producers remain wary about inventory levels. District employment growth has slowed
during 1995, but labor shortages have been partly responsible. Labor markets remain tight in many areas
of the region. Crop prices have risen sharply, as yield concerns for the 1995 harvest added to earlier
pressures from strong consumption and a cut in seeded grain acreage. Industrial input price increases
continued to moderate, however, and prices have actually declined for some important industrial
materials.
Retail Sales. Reports from retailing contacts suggest that District consumption growth remained
on the higher plane that developed late in the second quarter. A survey of retailers in Michigan suggested
that sales growth increased on a seasonally adjusted basis in May and June, led by sales of durable goods,
while optimism about future sales gains remained high. Two large department store chains reported
stronger apparel sales growth than earlier in the year. One large retailer stated that sales growth in June
was boosted by an easier year-over-year comparison, but the gain was still stronger than earlier in the
year, and durable goods sales continued to lead overall gains in early July. A large bank stated that
revolving credit rose quite strongly in recent months, with particularly strong gains noted in spending on
home electronics. Appliance and electronic firms agreed that computers and communications equipment
continued to take a growing share of consumption spending. A large consumer goods manufacturer
reported that sales of traditiona! television sets have remained relatively flat this year, but sales of largescreen TVs are "still going gangbusters," with unit sales growth in excess of 30 percent An auto industry
analyst estimated that the net effect of rising lease expirations on new vehicle sales has been increasingly
positive in 1994 and 1995. Most surveyed auto dealers stated that the leasing option continued to
promote new vehicle sales, on balance, thus far this year. Lease renewal rates have been holding steady
during 1995, according to one large automaker.
Housing/Construction. Existing home sales in the region strengthened significantly during June
and July on a seasonally adjusted basis. Residential construction remained relatively flat, but
homebuilder optimism continued to improve. A number of realtors' associations noted that sales gains
improved in June and July, after weakening in the spring. One of the largest realtors in the region
VII-2
characterized the existing home sales market as "very active" in June, with transactions "unusually
strong." Another large realtor stated that "up until May, things were kind of slow. Since May 1,
however, we've seen a dramatic turn upward." This firm posted sales records in May and June, and stated
that "at this point in July, things look very, very strong." Banks reported that residential mortgage
applications increased considerably in recent weeks, both for new mortgages and refinancing, and one
bank stated that it had a large backlog of unprocessed applications. Industrial construction activity
continued to grow at a brisk pace, and a number of contacts stated that contractors in the Chicago area
were "fully booked" for 1995.
Manufacturing. District manufacturing output stabilized in June and July on a seasonally
adjusted basis. The composite index for purchasing managers' surveys in Chicago, Detroit, and
Milwaukee pointed to a significant slowdown in District industrial output in the second quarter. This
index remained stronger than the national average, however, and both the Chicago and Milwaukee survey
indexes firmed up in July. District steel production trended down along a normal seasonal pattern in the
first three weeks of July, after declining on a seasonally adjusted basis in the three months ended in June.
An industry analyst reported that order books for the third quarter have been filling up in recent weeks,
and output in July is expected to be the low for the third quarter on a seasonally adjusted basis. However,
this contact expected industry inventory to continue to decline in the third quarter. Most of the recent
inventory trimming was concentrated in sheet products related to auto and appliance production. Demand
for structural and plate steel used in construction applications and heavy equipment remained strong.
Auto and appliance output firmed up on a seasonally adjusted basis, but have yet to post any
significant rebound in spite of reports of greater retail sales growth. Light vehicle deliveries strengthened
in June and early July, and some industry analysts even expected auto output to increase slightly in the
third quarter. Heavy-duty truck order cancellations rose considerably in recent months, however, and
build plans imply a decline in assemblies by the end of the year. Factory shipments of major appliances
weakened slightly on a seasonally adjusted basis during late June and the first two weeks of July, after
strengthening in May and early June. Factory inventories of appliances fell sharply in June, and then
flattened out in recent weeks. Reports from heavy machinery manufacturers remained relatively upbeat.
For example, a construction industry analyst reported that unit sales of new equipment rose sharply in the
latest reporting period (May). Year-to-date, this contact reported that sales in the Midwest posted the
largest year-over-year increase in the nation, despite especially adverse weather earlier in the year. An air
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cargo firm focused on construction equipment and parts stated that "we had a huge June, and expect July
and August to be just as strong."
Labor Markets. Employment growth has slowed along with the overall District economy, but
labor markets remain relatively tight and shortages continue to constrain growth in parts of the region.
The employment component of purchasing managers' surveys finned up in recent months, after falling
with the production indexes earlier in the year. A large daily newspaper reported that year-over-year
gains in help-wanted advertising inches have been narrowing in recent months, but they remain high and
showed a significantly stronger year-over-year gain in late July than for the year-to-date. Summarizing
the results of a survey of Wisconsin employers, a regional analyst stated that labor shortages were likely
to constrain growth in that state over the next five years. Manufacturing and services firms have reported
continuing increases in entry-level salaries this year. One large bank has raised entry-level wages three
times thus far in 1995, and has increased benefits paid to part-time workers.
Agriculture. Crop prices have risen sharply this summer as yield concerns for the 1995 harvest
have added to earlier pressures from strong consumption and a cut in seeded grain acreage. Crop
conditions vary across District states, with ratings better-than-normal in northern areas and lower-thannormal in southern areas. However, compared to the extraordinarily high per-acre yields of last year,
even normal yields in 1995 will translate into a sizable decline. Crops weathered a mid-July heat wave
reasonably well, but abnormally high livestock losses were reported in a few localized areas. Overall,
livestock marketings and milk production continue above the record pace of a year ago but a downturn in
pork production is likely this fall. The scaling back in pork production is more evident in District states
as production continues to expand in a few other fast-growing areas.
Prices. Industrial input price increases continued to decelerate. The price component of the
Chicago purchasing managers' survey dropped significantly in July, to a level consistent with only modest
increases in industrial input prices. Spot steel prices have been declining, mainly for sheet products, and
an industry analyst stated that a scheduled July 1 price increase failed to materialize (in fact, there was a
decline). Plastic resin prices stabilized in July, after weakening in June. Although prices charged by
resin producers were largely unchanged in June, an industry analyst stated that prices charged by
distributors fell, and producers turned away sales at lower prices and suggested customers contact
distributors. A large air cargo firm stated that emergency orders and premium pricing associated with
shortages have fallen off this year, even as orders strengthened overall in June and July.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
The District's economic expansion continues to slow. The pace of consumer spending
is unchanged to up slightly from year-ago levels, but some retailers are less optimistic about
upcoming back-to-school sales. Relative to the robust growth of a year ago, building permits
for new home construction on a year-to-date basis are down in most parts of the District. Loan
demand continues strong at District financial institutions. Soil moisture conditions are
deteriorating across much of the District.
Consumer Spending
District retailers report recent sales at or above their year-ago pace, with sales
growth meeting or exceeding expectations in many cases. Retailers cite business expansion
and population growth as reasons for robust sales. Compared with previous years, most
retailers have used less discounting to stimulate sales. About half report wage pressures
because of labor shortages. Although back-to-school sales activity is expected to be down
from last year, retailers are modestly optimistic about the last two quarters of this year.
One pessimistic retailer, however, anticipates that it will be "a hard fight with a short stick."
District car dealers report mixed sales activity. Most are experiencing flat to
moderately strong sales growth, although dealers in Little Rock report slowing growth
because of inventory shortages. Factory incentives and rebates have been used more than
usual to spur sales in the District. Dealers generally report an increase in used car sales, but
are divided about whether this increase is affecting new car sales. Assuming they can
maintain inventory, dealers are generally optimistic about the rest of 1995.
VIII-2
Manufacturing and Other Business Activity
Most contacts continue to see a slowing in the economy. Many report that overtime
and temporary employees are no longer needed to meet demand, although scattered
comments like "sales remain steady" and "there still remains a shortage of skilled workers"
mitigate these reports somewhat.
For the first time in a few years, the furniture industry in northeast Mississippi
reports a slowdown in its rate of growth. Overall, though, the contact notes that the region
continues to grow modestly. In northwest Mississippi, contacts believe the current slowing
will continue through the fall. A St. Louis-based baking company will relocate to Kansas
City after being bought by a firm from that area. Most of the company's 250
St. Louis employees will not be relocated to Kansas City. A maker of household appliances
is laying off 600 workers, most of whom were hired to meet last year's record-setting
demand. A supermarket chain is closing a Louisville distribution center, eliminating about
150 jobs.
An automaker announced it will choose one of two District plants to assemble a
new luxury sport-utility vehicle. Two firms that supply parts to the auto industry will build
new plants in Missouri, employing about 250 workers in total. The steel industry in
northeast Arkansas is expanding east into Tennessee with the construction of a mini-mill
that will employ about 300.
Real Estate and Construction
Residential building permits for new houses are down in most parts of the District
on both a year-ago and year-to-date basis. Memphis is the only District region reporting an
increase in permits, which are up about 6.5 percent so far this year. Home sales in
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Memphis, however, are down from a year ago. Total construction permits (residential and
commercial) in northwest Mississippi are up slightly in the most recent month, but down
significantly on a year-ago basis. Interestingly, when Tunica County--where there has been
a sharp dropoff in the construction of riverboat casinos--is excluded from these tallies, the
area reports relatively robust growth.
Banking and Finance
Loan demand and competition among lenders are still reported to be strong in most
areas of the District. Though some areas report a small uptick in loan delinquencies, most
have experienced no change. A number of banks report eroding net interest margins,
resulting primarily from intense competition in deposit pricing. Some areas report stronger
demand for agricultural loans this year as farmers have been forced to replant crops because
of earlier flooding.
Agriculture and Natural Resources
Hot, dry weather during much of July across the District has caused soil moisture
levels to deteriorate markedly when compared with June. Although crops are generally in
good-to-fair condition, there is widespread concern among farmers about the variability and
growth of their crops, particularly corn and soybeans in the northern portions of the
District. The wheat harvest in Arkansas was reported as one of the best in years, while
yields in Missouri and Illinois were disappointing because of a crop disease caused by too
much moisture in May and June.
IX-1
NINTH DISTRICT--MINNEAPOLIS
At mid-year, moderate, broad-based economic growth continues in the Ninth District with a
number of sectors improving from spring to summer. Construction is once again an engine of
growth as strong non-residential activity more than compensates for any reduction in home
building. Manufacturers, particularly of high-tech products, continue to report good business.
Oil and gas leasing and drilling is at the highest level so far this decade, and oil production is
increasing after several years of slow decline. Mines are busy, and the continued boom for paper
producers counterbalances some slowing in lumber output. Banks and investment firms report
good to record earnings. General merchandise sales are stable overall, with vehicles selling
somewhat better than in the spring. Tourist business improved from spring into summer along
with the weather. Employment continues to grow moderately and unemployment rates remain
well below national averages. Wage increases are small and few price increases are apparent.
Agriculture remains a problem sector due to persistent low livestock prices and adverse
weather. But crop prospects have improved substantially since mid-spring and the 1995 crop
will likely be good, though well below 1994's record.
Real estate and construction
"It's tighter than a drum," is one senior agent's description of the commercial and industrial
real estate market in the Minneapolis- St. Paul metro area where vacancy rates are down to about
5 percent and rents are reportedly rising sharply. This tight market is the fire under the boiler
for the 1995 construction season. Commercial and industrial projects planned or underway for
1995 in Minneapolis-St. Paul are the highest in 10 years and 40 percent above last year's active
pace. Publicly let government and private contracts through June for the states of Minnesota,
South Dakota and North Dakota are 3 percent above year-earlier levels.
This strength in non-residential construction is more than compensating for the slight slowing
of residential work. As evidence, construction employment in Minneapolis-St. Paul is up 8
percent from a year ago. For Minnesota as a whole and for North and South Dakota,
employment in the sector is up 1 percent to 2 percent in spite of some slowing of single-family
home building in many areas. Some residential builders report strengthening sales of new
homes in mid-summer and restored buyer confidence in the economy, although they do not
expect a return to 1994's record levels.
"Our residential business has really picked up since mid-winter although it is still below 1993
and early 1994," says a Minnesota regional manager for a major realtor. And one major
mortgage lender reports strong increases in new loan and refinance business in early summer,
although competing firms claim little change.
IX-2
Manufacturing
"This is a very good year for us, but our order book is not as full as it was last fall," reports a
Minneapolis manufacturer of industrial equipment. That generally characterizes manufacturing
in much of the Minneapolis district. Industrial electrical demand in late spring rose over 1994
by only slightly more than long-run trend. Manufacturing employment grew similarly. But
some sectors continue to experience strong growth. Industry sources report that small to
medium high-tech firms have very good business.
Natural resource industries
Natural resource extraction is at its strongest level in this decade. North Dakota oil
production has increased about 7 percent over year-earlier levels, the first uptick in a decade,
and oil leasing is reportedly very active in northeastern Montana. Copper producers are generally
running full out in response to near-record prices. The iron mining season is the strongest in at
least three years in terms of output and employment.
Lumber mills have been whipsawed by gyrations in lumber prices, but output remains
generally stable. For loggers, any decreases in work for sawmills is being offset by pulpwood
cutting for paper mills. Paper producers continue at capacity and pulp and paper prices are at
record levels.
Agriculture
The mood among farmers brightened considerably from late spring into mid-summer as fears
of a crop failure diminished with more favorable weather. Progress of all major crops continues
to lag five-year averages as a result of late planting, but the lag has diminished, particularly for
corn and soybeans. Certain regions, particularly eastern North Dakota and east-central South
Dakota, which were particularly hard hit by excess rain in the spring are likely to have short
crops. But conditions are more favorable in Minnesota, Wisconsin and Montana. Grain prices,
especially wheat, are up in response to low carryover and poor crop prospects.
In contrast to the improved situation for crops, livestock production continues to have severe
problems. Cattle and hog prices remain depressed and the recent runup in grain costs is further
squeezing producers. Periods of extreme heat in mid-July slowed livestock gains and caused
severe death losses for district turkey producers.
Banking and Finance
"All appear headed for another year of record earnings," is one Minnesota newspaper's
description of performance at major Minnesota-based banking, finance and investment
companies. Strong profits generally characterize banks of all sizes across the district. Small
agricultural banks in livestock-dependent areas are an exception; their managers expressed
concerns about loan losses and profitability in a survey of agricultural credit conditions.
IX-3
Consumer spending and tourism
"We are having to work harder and harder to keep sales up to projections," says the CEO of a
chain of appliance and electronics stores. Other retailers agree that they have increased
expenditures on advertising, specials and promotions in efforts to maintain sales. In
midsummer, general merchandise sales show only modest increases over year-earlier levels.
Discount chains and lower-price mass merchandisers generally report better results than do
traditional department and full-price specialty stores. In spite of this slowing, new retail
construction is underway in eastern Montana, North and South Dakota and urban areas of
Minnesota.
Automobile sales numbers remain slightly below 1994 levels, but the gap closed somewhat in
early summer according to new registration data. Dealer association representatives also report
improved dealership traffic and buyer interest in many areas.
As the weather improved from mid-spring to mid-summer, so did tourist business in many
areas, although the 1995 season is not expected to set any records. Sources in Montana report
mixed conditions, with higher-altitude areas such as Glacier National Park suffering from cold,
wet conditions well into July. But western South Dakota destinations report improvement.
Camps and lake resorts in northern Minnesota, Wisconsin and the Upper Peninsula of Michigan
had good business in July as urbanites fled extreme heat.
Employment, wages and prices
While the pace of employment growth is slightly lower than a year ago, it is still positive and
in the range of 1 percent to 2.5 percent over year-earlier levels. Unemployment rates remain well
below national averages. Firms continue to report difficulty in securing both skilled and entry
level workers.
Reports on wages and prices are mixed. Pressure to raise entry-level wages clearly
continues. One South Dakota grocery distributor had to raise hourly starting wages for data
entry and warehouse workers from $5 to $7 in order to fill jobs. But wage contract settlements
at many firms continue to be in the 1 percent to 3 percent range.
Once again paper is the most visible culprit in product prices. Prices of many printing and
packaging grades are at historic levels. Copper, brass and aluminum are also more expensive
and, in some cases, on backorder. Lumber prices have been volatile but generally well below a
year ago. Gasoline and diesel prices were several cents above 1994 levels, but this spread has
diminished in recent weeks.
X-1
TENTH DISTRICT - KANSAS CITY
Overview. The Tenth District economy continued to grow at a moderately strong
pace over the past month. Retail sales increased, manufacturing activity remained
generally strong, homebuilding rebounded somewhat, and energy activity quickened.
Agriculture, however, was hampered by poor crops and low cattle prices. Manufacturers
still report increases in some materials prices, but retail prices and wages have been
stable.
Retail Sales. Most retailers report that sales increased last month and were
higher than year-ago sales. Sales of apparel were strong, but sales of home improvement
items were sluggish. Retailers generally expect sales to improve during the remainder of
the year and plan to expand their inventories accordingly in coming months. Auto
dealers report sales increased over the past month, helped by readily available credit for
buyers and dealers. Most respondents expect sales to continue increasing during the next
few months.
Manufacturing. Manufacturers continued to operate at high levels of capacity last
month. None of the respondents report bottlenecks in production due to capacity or
labor constraints, but some report difficulty in obtaining steel. Respondents were
generally satisfied with current inventory levels, but a few were trimming stocks.
Energy. District energy activity picked up slightly in recent weeks despite a sharp
decline in crude oil prices. Some of the new activity was spurred by a modest increase in
natural gas prices from the low levels reached earlier this year. The average number of
drilling rigs operating in the district during the first three weeks of July stood higher than
X-2
the average for the previous two months. The uptick, however, was not large enough to
restore drilling activity to year-ago levels.
Housing. Builders report housing starts rebounded somewhat last month but
remained below their year-ago level. Sales of new homes also picked up but lagged
behind their year-ago pace in many areas of the district. Building materials were
generally available with no delays. Lenders expect lower mortgage rates to fuel
moderate growth in mortgage demand in the coming months.
Banking. Loans increased slightly at district banks last month, resulting in higher
loan-deposit ratios. Most respondents report gains in commercial and industrial loans,
consumer loans, home equity loans, and agricultural loans. Demand was steady for
home mortgages, construction loans, and commercial real estate loans. Security
investments decreased.
Most banks report no change in their prime rate last month, but some banks
lowered rates and additional declines may be forthcoming. Only a few banks lowered
consumer lending rates or expect to lower rates in the near term. At all banks, lending
standards remain unchanged.
Total deposits at district banks were steady last month. MMDAs increased
slightly and NOW accounts decreased slightly. Large CDs, demand deposits, and small
time and savings deposits were unchanged.
Agriculture.
Unfavorable weather has diminished prospects for district crop
production. Harvest of the district's winter wheat crop is nearly complete, but crop
yields and quality are well below normal. Development of the district's corn and
X-3
soybean crops remain a few weeks behind normal due to planting delays last spring.
Ideal weather will be required during the remainder of the growing season to attain
normal yields. Higher crop prices, however, promise to shore up incomes for farmers
who escape severe crop losses.
Higher crop prices have also boosted feed costs and deepened losses for district
cattle producers. A surge in red meat and poultry production promises to hold down
cattle prices, delaying a rebound in industry profits. With profits down, some district
ranchers plan to trim the size of their breeding herds.
Overall, farm income in the district may decline slightly this year after a much
steeper drop last year. The drop in farm income has weakened business activity
somewhat in small rural communities that depend heavily on agriculture. But business
conditions remain healthy in the larger rural trade centers that have a broad economic
base.
Prices and wages.
Manufacturers continue to report increases in materials prices,
especially in paper and steel.
Labor markets remain tight in some parts of the district,
but few employers report wage increases. Retailers report steady prices and expect no
significant price increases over the next few months.
XI-1
ELEVENTH DISTRICT--DALLAS
Eleventh District economic activity slowed to a moderate pace in June
and July. Manufacturing orders were weaker for most products, and retail sales
were reported to be very sluggish. Demand for business services increased
slightly, however, and construction and real estate activity remained at high
levels. Financial institutions reported higher residential real estate and
consumer loan demand. Energy activity held steady despite a drop in oil and
natural gas prices. Agricultural conditions have weakened.
Overall, there are few reports of price and wage pressures. Prices
stopped falling for electronic products and were higher for some business
services and agricultural products. Scattered wage pressure was reported in
manufacturing, and service firms continued to have difficulty hiring skilled
workers. Chemical prices leveled off after several months of increases,
however, and recently announced price increases were rescinded. Some
manufacturers said competition may bring price decreases in the near future.
Retailers reported that real selling prices were below a year ago.
Orders weakened for most manufactured products, with the notable
exception of telecommunications and semiconductor products where demand
remained strong. Demand for paper products slowed slightly. Sales weakened for
most construction-related products including lumber, fixtures and metals. A
drop in sales to automotive and construction industries led to reduced demand
for glass and inventory accumulation. Sales of primary metals weakened, and
inventories were reported to be high, particularly for construction-related
products. Demand was up for fabricated metals, however, although lower costs
XI-2
led to a 3 to 4 percent decline in selling prices. Apparel sales were steady
and contacts reported that input costs have continued to rise. Weaker domestic
economic activity led to slower demand for petrochemicals. Inventories have
rebounded from low levels to normal for most chemicals, but some companies now
report that inventories are too high. Yet, chemical companies are proceeding
with capital expansion plans along the Gulf Coast. Demand for most refined
products remains strong, although oversupply has caused gasoline prices to
fall faster than oil prices, putting refiners margins under substantial
pressure. Profit margins at the pump have grown, however, because pump prices
have been relatively stable while wholesale prices have fallen sharply. Demand
for oil-field machinery held steady.
Demand for business services increased slightly, although demand for
trucking and air cargo services was flat to slightly down. Temporary help
firms continued to report the greatest strength, followed by legal and
accounting firms. Hiring was unchanged at cargo service firms but increased
slightly at temporary, legal and accounting firms. With the exception of
temporary services, competitive pressures held wages and prices at the same
level. Increased competition and slower demand for interstate and intrastate
shipping, however, has put downward pressure on shipping rates.
Retail sales remained very sluggish in June and July. National retailers
reported that Texas sales were significantly weaker than the rest of the
country. Sales were said to be slow across the state, with continued poor
performance at stores along the Texas-Mexico border. While costs remained
stable, discounting had increased and contacts said real selling prices were
below a year ago. Auto sales increased in June.
Financial institutions reported steady loan demand except for
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residential real estate and consumer loans which increased over the past three
months. Business and consumer loan demand is expected to pick up slightly,
particularly for auto and home improvement loans. Contacts reported that
prospects for mergers and acquisitions are continuing, particularly for
smaller banks.
Construction and real estate activity remained at high levels in June
and July. Homebuilders reported a pick-up in new home sales and were more
upbeat about the outlook for the rest of 1995. Contacts reported tight
occupancy and strong demand for apartments, although construction is expected
to slow from its current pace. Nonresidential construction was at high levels,
mostly due to strong retail and industrial demand. Occupancy rates for
industrial and office space continued to improve and rents remained steady.
Energy activity held steady despite a drop in oil and natural gas
prices. Continued strong growth in international drilling stimulated revenues
for service companies, although domestic drilling activity was 8 percent below
a year ago. The normal seasonal increase in drilling activity has been
concentrated almost entirely in gas, and industry contacts report that
domestic oil drilling is at the lowest level ever recorded. After falling by
more than $2 in mid-June, oil prices have remained near $17 per barrel despite
very strong demand for crude. Natural gas prices have consistently weakened
throughout the summer despite strong demand from the recent heat wave.
Hot, dry weather, scattered insect infestations and reports of aflatoxin
have weakened agricultural conditions and raised costs. The June Texas All
Farm Products Index of Prices Received increased 1.1 percent above the May
level. Higher prices for corn, potatoes, sorghum, wheat and most livestock
offset lower prices for cotton and hay.
XII - 1
TWELFTH DISTRICT -- SAN FRANCISCO
Summary
The pace of economic growth in the Twelfth District picked up a bit in early summer,
although some signs of weakness remained.
Retail sales generally continued to be weak, and
the earlier dropback in construction continued to hold down manufacturing production of
construction materials. However, manufacturers of some other products reported higher rates
of resource utilization. Residential real estate and construction activity reportedly experienced
a slight uptick in early summer, with the exception of parts of California. District agricultural
production has been hampered by abnormal weather. The banking sector reports further
growth of loan demand in the District.
Business Sentiment
Twelfth District business leaders generally expect national economic growth over the
next year to stabilize at about its long-run average pace. Also, about one-half of the survey
respondents expect the national unemployment rate to exhibit little change or to improve
slightly over the next four quarters. Within the region, housing starts and growth in consumer
spending are expected to continue at about the pace of the prior four quarters, and business
investment is expected to accelerate somewhat. Business sentiment is particularly optimistic
in Oregon and Utah. California respondents generally expect business investment and
consumer spending to continue expanding at a moderate pace.
XII - 2
Retail Trade and Services
Retail sales are weak for some products and in some geographic areas. District
retailers report continued weak sales at automobile dealers and food stores, and sales of soft
goods at department stores are reportedly falling short of last year's trend. Sales of both new
and used motor vehicles were weak recently. Some retailers in California and Utah
reportedly have tempered price increases out of fear of hurting their sales, given continued
evidence of weak consumer confidence. Relative to a year earlier, retail sales are way off in
the Riverside area of Southern California.
District service industries generally report continued moderate expansion of demand.
In California, the demand for telecommunications services is growing moderately. The
More generally, business activity
tourism industry is doing relatively well in San Diego.
near the border with Mexico reportedly has been stimulated by a proliferation of maquiladora
factories just across the border. In Oregon, demand for business services is increasing, owing,
in part, to additional outsourcing by major corporations.
Manufacturing
District manufacturing activity is mixed. Some respondents report continued high
production levels, strong orders from their customers, and a lengthening of delivery times by
suppliers.
In contrast, manufacturing of construction-related materials continues to be weak,
despite a recent uptick in orders for some materials.
For example, wood products orders and
prices reportedly have increased since early June, reflecting some revival of housing
construction.
However, manufacturers' sales of paint and coatings have not experienced any
XII - 3
uptick and remain well below year earlier levels. In Arizona, Nevada, and Oregon, the rapid
expansion by manufacturers of advanced technology products reportedly is boosting job
growth. In Washington, an electronic components manufacturer reports that its suppliers are
experiencing capacity constraints for the first time in this business cycle. Deliveries of farm
equipment and parts also have been delayed, and heavy truck manufacturing remains at a high
rate of capacity utilization.
Agriculture and Resource-Related Industries
District agricultural producers noted that unusual weather this year has hurt yields and
boosted prices for several commodities. Abnormal weather reportedly is moving grain prices
higher, knocking tree fruit yields down 25 percent, and delaying harvest of the cotton crop.
However, cattle production reportedly continues at high levels, and harvests of most types of
seafood are going well. Elsewhere, the mining industry in the Intermountain states reportedly
is stable to improving, with an upswing in gold mining in Nevada.
Real Estate and Construction
In many areas residential real estate and construction activity experienced a slight
uptick in early summer, but in some localities these sectors have deteriorated further.
Housing sales and construction are reported to be firming in Arizona, Nevada, and Oregon.
Within California, the residential real estate market in the San Francisco Bay area recently
improved, according to some accounts; however, in Sacramento, residential building permits
and existing home sales are reported down sharply, and respondents reported concern about
XII - 4
the impact of the closure of McClellan Air Force Base. Residential construction also
continues to slump in the Central Valley and Riverside areas of California, and local housing
markets are weak in eastern Washington.
Commercial and industrial real estate activity in the District generally has been flat to
improving. In Oregon, construction awards have increased, as the multiplier effects began to
resonate from a string of expansions by high-technology product manufacturers and from
earlier rapid population growth. Nonresidential construction activity also continues to be
strong in southern Nevada.
Financial Institutions
District banks generally report further growth of loan demand. In Arizona, Nevada,
and Utah, strong business loan demand prevails, and residential loan demand is reported to be
rising, after slumping earlier. In recent months, large California banks have continued to see
strong overall loan growth in the state as a whole, led by increases in commercial and
industrial loans. However, in parts of Southern California loan demand continues to be weak.
Cite this document
Federal Reserve (1995, August 21). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_19950822
@misc{wtfs_beige_book_19950822,
author = {Federal Reserve},
title = {Beige Book},
year = {1995},
month = {Aug},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_19950822},
note = {Retrieved via When the Fed Speaks corpus}
}