Beige Book
October 15, 2003
Summary
Prepared at the Federal Reserve Bank of New York and based on information collected before October 7,
2003. This document summarizes comments received from businesses and other contacts outside the
Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Information received from District Banks suggests that, on balance, the pace of economic
expansion has picked up since the last report. Ten of the twelve districts indicate that
activity has been expanding, while two--Boston and Cleveland--report mixed but steady
levels of economic activity. Overall, both wages and prices of finished goods and services
remained relatively stable, though there were scattered reports of business input cost
pressures. Hurricane Isabel inflicted some limited damage across much of the Richmond
District, but the disruptions to activity from the storm were said to be short-lived.
Consumer spending generally strengthened, though most districts report a recent pullback in
auto sales. Improving sales trends are reported in New York, Philadelphia, Chicago, St.
Louis, Minneapolis, Kansas City, Dallas, and San Francisco. Retail inventories are generally
described to be at or close to desired levels, and retailers generally anticipate modest
year-over-year gains for the upcoming holiday season. Most districts report strengthening in
manufacturing activity. Employment in this sector remained generally weak, though some
districts note pockets of firming.
Broad-based strength is reported in residential real estate and construction, but commercial
real estate markets are still described as sluggish. Travel and tourism activity was mixed but,
on balance, showed some improvement. Reports from most other service industries also
show improvement.
Banks in almost all districts report a substantial drop-off in refinancing activity since the last
report, though there were a few reports of improvement toward the end of September. There
was some pickup in business loan demand, while home mortgage and consumer lending
were mixed. Credit quality was generally described as good, with only scattered reports of
increased delinquency rates. Most districts report favorable weather conditions and
improved agriculture yields since the last report, though Richmond reports significant crop
damage from Hurricane Isabel.
Labor markets generally remain slack, but some signs of a pickup are reported in New York,
Richmond, Chicago, Minneapolis, and Dallas. Prices of finished goods were generally
stable, and wage increases continued to be quite modest, though many districts note
continued escalation of non-wage benefit costs--particularly health insurance. Also, fairly
sharp price increases are reported for cattle and certain commodities, such as steel, lumber,
plywood, and natural gas.
Consumer Spending
Most districts report a general strengthening in retail sales but some softening in automobile
purchases. A few districts credit the recent federal tax rebates with temporarily boosting
sales, though the timing of the effect on sales varied. Non-auto sales are generally said to be
improving in New York, Philadelphia, Chicago, St. Louis, Minneapolis, Kansas City, Dallas,
and San Francisco, while Cleveland, Atlanta, and Chicago describe sales as steady or
moderating but still ahead of plan. Boston and Richmond characterize sales as flat but with
some pockets of strength. Richmond reports that sales lost due to hurricane-related closures
were quickly made up, and that hardware stores, grocery stores, and restaurants saw brisk
business after the storm.
Recent reductions in motor vehicle sales are reported in most districts. Automobile sales are
said to have weakened in the Cleveland, Atlanta, Chicago, Minneapolis, and Kansas City,
Dallas, and San Francisco Districts. St. Louis, on the other hand, reports some improvement
in vehicle sales in recent weeks, though they were still lower than a year ago. Also, sales of
imports are said to be holding up better than those of domestic makes in the St. Louis, and
San Francisco Districts.
Non-auto inventories are generally reported to be in good shape in almost all districts, but
vehicle inventories are said to be higher than desired in Cleveland, Chicago, and St. Louis.
Looking ahead to the rest of 2003, retailers in most districts are reported to be cautiously
optimistic. Modest sales growth is anticipated in Boston, New York, Philadelphia,
Cleveland, Atlanta, St. Louis, and Kansas City, while the remaining districts did not specify
sales expectations.
Manufacturing
The majority of the districts report a pickup in manufacturing activity, with several
indicating significant improvement in a wide variety of industries. Machine tool orders
strengthened in the Atlanta and Chicago Districts; semiconductor producers note a pickup in
demand in the San Francisco District; contacts in lumber and construction related materials
see improvement in several districts; and high-tech manufacturers in the Dallas District
indicate gains. On the downside, Richmond reports a contraction in its manufacturing sector,
and contacts in Boston report weak demand and a decline in revenues. The Minneapolis
District notes only slight gains, and the Dallas and Cleveland Districts report mixed activity.
Kansas City, Boston, and St. Louis report a decline in activity in the aerospace industry, and
several districts indicate marked deterioration in the textile industry. Activity in the
transportation equipment industry was mixed, with declines noted in the Philadelphia
District, little change in Chicago, but increases in St. Louis. Several districts report a
continuing low level of inventories, and most contacts report that input prices remain high,
and above year-ago levels, but have not accelerated further since the last report.
Manufacturing employment exhibited modest gains in some districts, but in most was stable
or declining. The Kansas City, Cleveland, and New York Districts report increases in hours
worked, and Kansas City, New York, and St. Louis report hiring gains. Capital spending
activity was mixed, with contacts in several districts reporting plans to increase capital
spending, while the majority of contacts from other districts cite hesitation and lackluster
spending plans going forward.
Real Estate and Construction
Residential real estate markets continued to show strength in virtually all districts, while
commercial real estate markets remained generally sluggish. Virtually all districts describe
housing markets as robust, despite relatively modest signs of slowing in the Boston,
Richmond, Kansas City, and San Francisco Districts. On the other hand, signs of further
strengthening are noted in New York, St. Louis, Minneapolis, and Kansas City. A few
districts specify that the recent increase in mortgage rates appears to have had at most a
limited impact on home sales. Reports from Boston, New York, Chicago, and Kansas City
note particular strength for entry-level or lower- to mid-priced homes, as opposed to the
high end of the market.
Residential construction is also indicated to be strong in most districts. Recent increases in
construction activity are reported in New York, Atlanta, St. Louis, and Minneapolis. Kansas
City notes that builders have had trouble obtaining plywood, while reports from Boston,
New York, Cleveland, Atlanta, and San Francisco indicate sharp increases in lumber and
plywood costs, which, in turn, are said to be squeezing builders' profit margins.
Commercial real estate markets, in contrast, continue to be characterized as weak in almost
all districts. Still, a number of districts indicate slight signs of firming since the last report-specifically New York, Cleveland, Atlanta, St. Louis, Kansas City, and Dallas. On the other
hand, renewed signs of slowing are reported from Chicago and Minneapolis, while
conditions are described as stagnant in Richmond and San Francisco.
Tourism and Services
Tourism and travel activity was mixed but, on balance, improved; however, both business
travel and international visitors were still lagging, although there were some scattered signs
of recovery. Overall, tourism was described as robust in New York, Kansas City, and San
Francisco but sluggish in the Boston District. Since the last report, New York and San
Francisco report a pickup in international visitors, while Boston, Minneapolis, and Kansas
City note some pickup in business travel. On the other hand, Atlanta describes both of these
segments as persistently weak. Richmond reports that Hurricane Isabel caused substantial
hotel damage and widespread cancellations along much of the Virginia and North Carolina
shore. The evacuations from the storm resulted in a noticeable pickup in business at hotels
in less affected parts of the district.
Business conditions in other service industry sectors varied but generally improved.
Increased demand for various business-related services (such as legal, accounting, IT, and
executive search) is noted in Philadelphia, Richmond, Dallas, and San Francisco. Increases
in trucking are reported in Cleveland, while Dallas indicates a decrease in trucking volume
but an increase in rail shipments, and New York reports strong increases in port traffic.
Boston reports mixed to firmer conditions in the insurance industry, with industry contacts
reporting little financial impact from the August blackout and expressing optimism about
the business outlook.
Banking and Finance
Banks report mixed but generally favorable conditions. Loan demand is generally steady
overall, with some improvement from the commercial sector, but steep declines in mortgage
refinancing. Demand for commercial loans strengthened in Philadelphia, Cleveland,
Richmond, Atlanta, Chicago, Dallas, and San Francisco, and was little changed in New
York. While none of the districts indicates weakening in business lending, a few
characterized the level of activity as still low. Demand for consumer and home mortgage
loans was steady to weaker in New York, Cleveland, and Richmond, but some firming was
indicated in Philadelphia, Chicago, St. Louis, and Kansas City. Most districts report sizable
declines in mortgage refinancing activity, though Dallas indicates persistent strength in this
category, while Chicago and Minneapolis report a slight bounceback in late September.
Loan quality is generally described as good, with delinquency rates little changed since the
last report. Chicago and Dallas report some improvement in loan quality and Atlanta says
that loan delinquencies "remained manageable," while Philadelphia cites an increase in
debt-service to income ratios, and New York indicates an uptick in delinquencies on
consumer and home mortgage loans.
Aside from lending, financial institutions report favorable conditions and brisk growth. New
York's securities industry reports strong growth in revenue, profits and compensation.
Similarly, financial institutions in the Dallas District report a pickup in mergers and
acquisition activity, leading to higher fee income. Finally, San Francisco suggests that a
recent acceleration in business deposit in-flows further reflects a pickup in general economic
activity.
Agriculture and Natural Resources
Most districts report favorable weather conditions and improved agriculture yields since the
last report. However, Hurricane Isabel wrought significant damage in the Richmond District.
A combination of flooding, high winds, and power outages resulted in damage to crops,
fruit, livestock, and fishing equipment in much of the Richmond District. Otherwise, recent
rains have improved crop yields in the St. Louis, San Francisco, Atlanta, Kansas City, and
Chicago Districts. These rains, however, caused spotty problems for fall planting in some
districts. Suppliers from all cattle-producing districts report banner prices, decent pasture
conditions, and are optimistic that profits will follow suit.
Activity in the energy industry was mixed. The Minneapolis District indicates a slight
decline in oil and natural gas exploration levels since the last report, while the Kansas City
District reports a moderate expansion in oil and gas drilling. The Dallas District reports that
activity remained at a relatively high level, but was not quite as strong as might be expected
given the current price of oil and natural gas.
Labor Markets, Wages and Prices
Most districts continue to describe labor markets as slack, though there are modest signs of
improvement in a number of districts. In general, labor markets are characterized as stagnant
in Boston, Cleveland, Atlanta, Minneapolis, and San Francisco. On the other hand,
Richmond, Chicago, Minneapolis, and Dallas report increased demand for temporary
workers, while New York reports a pickup in hiring across a number of sectors. Both New
York and Chicago note that much of the hiring is coming from smaller firms. Kansas City
notes some decrease in layoff announcements, as well as an increase in hiring plans.
Modest wage growth is reported across the nation, though continued escalation in non-wage
benefits, particularly health insurance, are noted in Atlanta, Chicago, Minneapolis, Kansas
City, Dallas, and San Francisco. Rising benefit costs are said to be holding down wage
increases in the Atlanta District and deterring hiring in Dallas.
The various districts report little change in prices of consumer goods and services, but steep
escalation in certain commodity prices. Retail prices are reported to be stable in Cleveland,
Atlanta, Chicago, and San Francisco; steady to slightly higher in Philadelphia, Minneapolis,
and Kansas City; and steady to slightly lower in Boston, New York, and Dallas.
In contrast with the general price stability for finished goods and services, prices for a
number of commodities have risen sharply. Steep increases in lumber and plywood costs are
noted in Boston, New York, Cleveland, Atlanta, Kansas City, and San Francisco--some of
this is attributed to post-war rebuilding in Iraq, post-hurricane repairs along the
Mid-Atlantic seaboard, and fires in the West that affected supply. There were also reports of
steep price increases for cattle, steel, and natural gas. However, oil and gasoline prices have
retreated, following a sharp run-up in August. In terms of intermediate services, a noticeable
increase in freight costs is reported in the Minneapolis District, but declines in commercial
rents are seen in Richmond, Chicago, and Minneapolis.
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First District--Boston
According to business contacts in the retail and manufacturing sectors, economic activity in
the First District is largely stagnant. Most merchants report sales in September about level
with a year ago, while the majority of contacted manufacturers indicate that third-quarter
revenues were below year-earlier levels. Insurance contacts say revenues are level, except
for some property and casualty insurers who indicate their business continues to grow.
Demand for residential real estate throughout the region is still strong. Respondents are not
increasing employment levels; retailers are holding headcounts steady while most
manufacturers continue layoffs. The outlook remains cautious.
Retail and Tourism
Retailers in New England report sales in September are mostly flat compared to year earlier,
with some pockets of strength. Contacts in the lumber and home-builder sector indicate
residential construction and home improvements continue to positively affect their business.
A furniture retailer reports that sales continued to be strong through September, slightly
exceeding expectations. An entertainment equipment retailer notes a slowdown in
September following an up-tick in August. A major department store indicates sales are
mostly flat, with some increases in women's apparel but softening sales of home products.
According to travel and tourism contacts, the hospitality industry remains sluggish.
Respondents in the Boston area report some slight improvements, including a modest
pick-up in business travelers. Contacts indicate leisure travelers continue to favor drive-to
destinations for day or weekend trips. Prices remain extremely competitive, with many
travelers choosing to book reservations online for the lowest prices. One contact notes future
bookings in northern New England are particularly weak, with higher-than-usual vacancy
rates for the upcoming Columbus Day weekend.
Most retail respondents indicate they are maintaining lean inventory levels and modest
capital spending plans. Employment is said to be stable and any wage increases are minimal.
Vendor prices are reportedly mixed, with notable increases in plywood and lumber prices.
Many retail contacts note slight decreases in selling prices, particularly in the travel and
tourism sector, but others say their price changes are mixed. Overall, most retail respondents
expect slow growth over the next six months.
Manufacturing and Related Services
A majority of First District manufacturing contacts say that their third quarter revenues were
below year-earlier levels. Demand for aerospace products reportedly continues to weaken,
apart from items used by the military. Sales of metal products also are down from a year
earlier. A textile manufacturer indicates that sales have been falling because of inventory
reductions at retail. By contrast with the general trend, a publishing firm reports spotty
improvement, a computer hardware firm indicates continued gains relative to 2002 sales,
and some other contacts are experiencing rising sales of home and automotive products.
Manufacturers report that they are paying more for energy, insurance, and euro-denominated
inputs. Other materials costs remain under control. Most contacts indicate that they have
little if any scope for increasing their selling prices, with the possible exception of new
product introductions.
Most of the contacted manufacturers are continuing to pare back employment through
selective layoffs. Pay increases for 2003 are mostly in the range of 2.5 to 3.5 percent. A
couple of firms report that their overall capital spending will be up this year, but most are
holding the line. Some companies are undertaking significant IT projects, but
simultaneously cutting other investments.
In discussing the outlook for 2004, manufacturing contacts indicate that their customers are
likely to remain cautious. To the extent that they foresee improvements in their business,
manufacturers expect them to be due largely to their success in increasing market share
through cost cutting or product innovation.
Residential Real Estate
Residential real estate markets in New England remain active. Contacts continue to report
low inventory levels, although high-priced houses are staying on the market longer. Lowerand mid-priced houses sell very quickly in all parts of the region. Demand remains strong,
spurred by low interest rates. One contact reports that the number of single-family homes
sold in Massachusetts in August was 17 percent higher than a year earlier, and the number
of condominiums sold increased by 27 percent. The average sale prices rose as well, with
the average price for condominiums reaching a record high level in August. Contacts expect
housing markets to remain steady, with lower activity levels in the winter. Most anticipate
the markets will become busy again in the spring, as long as interest rates stay low.
Insurance
Contacts from the property and casualty insurance industry report positive or flat top line
growth, while annuity and traditional life insurance sales have stayed level with little
potential for change. Respondents observe that revenue growth rates have moderated, in part
because of increased price competition and in part because equity markets have stabilized
somewhat, allowing companies to generate more operating capital. Most contacts are
optimistic about the current state of the industry and think that pricing in the property and
casualty market has largely equilibrated.
While generating many small claims, the power outage in August did not have a large
financial impact on contacted insurance firms. Some companies, however, report extending
the workweek to 70 hours to meet client needs after the outage.
Employment and capital budgets remain largely flat, although one company plans to expand
substantially its capital budget for 2004. The majority of insurance contacts is optimistic and
expects a continuation of gradual improvements.
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Second District--New York
The Second District's economy has shown further signs of strengthening in recent weeks.
The labor market, in particular, has shown signs of firming, while price pressures have
diminished. Retailers report that sales were mixed but generally ahead of plan in September;
selling prices are said to be modestly lower than a year ago, on average, and retail
inventories at desired levels. Recent business surveys point to some acceleration in
manufacturing activity since the last report, as well as a noticeable pickup in employment
and steady to declining input prices.
Both residential construction and the market for existing homes have strengthened. Office
vacancy rates in and around New York City were generally stable in the third quarter,
though Manhattan's market is said to have taken on a firmer tone. Conditions in New York
City's financial industry have reportedly improved further since the last report, with brisk
growth in revenue, profits and compensation, as well as an upturn in industry employment.
On a less positive note, consumer confidence declined in September, to its lowest level since
the spring. Also, bankers report weakening demand for consumer loans and especially
residential mortgages, a modest upturn in delinquency rates in these same segments, and
little change in lending standards.
Consumer Spending
Retailers report that sales were generally on or above plan in September, with
year-over-year same-store sales gains ranging from 2 to 6 percent. A number of contacts
indicate that the general firming in sales in recent months largely reflects a pickup in apparel
sales, which had been weak in the first half of the year. Demand has remained strong for
household furnishings and equipment, as well as jewelry. All of the retailers contacted
indicate that inventories are in good shape, and that selling prices are steady to down
moderately compared with a year ago. In looking ahead to the upcoming holiday season,
retailers are generally planning for sales to be flat to up modestly over comparable 2002
levels.
Consumer confidence weakened in September, according to two separate surveys. The
Conference Board's survey of residents of the Middle Atlantic states (NY, NJ, PA) shows
confidence falling to a 6-month low, while Siena College's measure, based on New York
State residents, fell to a 5-month low.
Construction and Real Estate
Residential real estate markets showed persistent strength in the third quarter, while
commercial markets showed some signs of firming. New York State realtors report that unit
sales were lower than a year earlier but that selling prices continued to post double-digit
gains from a year ago. Particular strength was reported in the New York City and Albany
areas. A large Manhattan real-estate firm and a leading appraisal firm both report brisk
co-op and condo sales activity, across all segments of the market, in the third quarter--
particularly in September. They also note that the inventory of apartments on the market has
fallen steadily since April and observe some upward pressure on selling prices, particularly
for smaller units.
Housing permits in the district rose in August, led by a sharp rebound in the multi-family
segment in New York City. More recently, homebuilders in northern New Jersey report
continued strong demand in September but one contact expresses concern that recent
increases in property taxes and mortgage rates have crimped affordability. An industry
contact notes a steep rise in the cost of plywood and OSB (oriented supply board), but
indicates that labor and other material costs remain in check.
Office vacancy rates in and around New York City were generally stable in the third quarter.
In Manhattan, contacts report some firming: although vacancy rates were little changed, the
amount of sublease space on the market reportedly declined and a number of large leases are
said to be pending. Suburban markets were mixed but, on balance, stable--vacancy rates
increased modestly in Westchester County and Long Island, but edged down in Fairfield
County, Connecticut.
Other Business Activity
A major New York City employment agency reports a significant pickup in hiring activity in
September, following a summer lull, and describes this strength as more than just seasonal.
Much of the hiring is said to be coming from small to medium-sized firms. Separately, a
contact in New York City's securities industry reports further improvement in industry
conditions, with brisk gains in revenues, profits and compensation, and a recent modest
upturn in employment. Manhattan hotels report robust business in August and September,
with both occupancy rates and total revenue running ahead of last year's levels. While the
business travel segment is still described as sluggish, some pickup is reported in foreign
leisure visitors, and more strength in this segment is expected due to the weakening dollar.
The manufacturing sector has shown increased strength in recent weeks, which is apparently
beginning to boost employment. Our latest survey of New York State manufacturers,
conducted in early October, points to continued improvement and strong optimism about the
six-month outlook. Similarly, purchasing managers in both the Buffalo and New York City
areas report widespread increases in manufacturing activity in September, and those in
Buffalo indicate a significant upturn in employment--the most pronounced in five years.
Finally, shipping volume through the Port of New York and New Jersey expanded at a
double-digit rate in the third quarter, and the volume of activity is said to be well above
expectations.
Financial Developments
Small to medium-sized banks in the Second District report stable demand for commercial
credit but decreased demand for consumer loans and especially residential mortgages, for
which nearly three-quarters of bankers indicate lower demand. Also, lower overall
refinancing activity is indicated by nearly two-thirds of bankers. On the supply side, credit
standards are reported to be steady across all loan categories.
Interest rates rose for all loan categories except consumer loans. Most notably, more than
half of the bankers surveyed report higher rates for residential mortgages. Average deposit
rates were little changed, on balance. Finally, bankers report some increase in delinquency
rates on consumer loans and residential mortgages, but little change among commercial
borrowers.
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Third District--Philadelphia
Business conditions in the Third District improved slightly in September. Manufacturers
reported increases in orders and shipments for the month. Retail sales of general
merchandise in September were up slightly from August and from September a year ago.
Auto and light truck sales eased in September from August but were up somewhat on a
year-over-year basis. Bank lending has been rising, with advances in business, consumer,
and residential mortgage lending. Business at service firms has begun to show some
improvement, although the gain has been slight.
The consensus forecast in the Third District business community is for slowly improving
conditions. Manufacturers forecast increases in shipments and orders during the next six
months. Most of the retailers surveyed in September expect sales in the fourth quarter of this
year to exceed sales in the fourth quarter of last year, and some store executives have
recently raised their forecasts. Auto dealers anticipate steady sales. Bankers expect
continued slow growth in lending. Service companies expect some growth, but in general
they anticipate only slight gains in the next two quarters.
Manufacturing
Manufacturers' shipments and orders increased in September compared with August,
continuing the upward trend that began in the summer. Although around half of the firms
polled in September indicated that their shipments and orders were running at steady rates,
nearly a third reported gains. Order backlogs at area plants edged up in September. Backlogs
have been moving up slowly for the past several months. Firms in most of the District's
major manufacturing industries reported increased demand for their products in September,
but producers of transportation equipment and apparel noted some declines in orders.
Looking ahead, manufacturers in the region expect further improvement. More than
two-thirds of the firms contacted for this report expect increases in shipments and orders,
and virtually none expect decreases during the next six months. Around one-third of the
manufacturers surveyed in September have recently increased planned production for the
fourth quarter compared with plans made earlier this year, and only one in ten have trimmed
production schedules for the quarter. More area manufacturers plan to increase rather than
reduce capital expenditures in the next six months, but not by a large margin.
Retail
Third District retailers contacted for this report indicated that sales in September were
slightly above August levels and a bit above the sales level posted in September of last year.
Merchants generally indicated that some easing in sales growth was expected in September
after income tax rebates and back to school demand pushed up sales in August. There was a
pickup in sales of fall apparel and accessories during September, and sales of furniture and
home furnishings remained strong. With an apparently improving trend of sales, stores have
been able to limit discounting of fall merchandise compared with the extensive markdowns
they made to clear out summer goods.
Third District retailers expect sales in the final quarter of this year to exceed the same period
a year ago, and some have recently raised their forecasts. Merchants believe consumer
confidence is building slowly and that shoppers will begin to make purchases that they have
been postponing. Nevertheless, in a continuing effort to contain costs, many stores are
limiting their inventories and implementing measures to reduce order cycle times.
Auto dealers reported an easing in the sales rate in September after very strong August sales.
Compared with a year ago sales in September were up slightly. In general, dealers indicated
that inventories were at appropriate levels, but some dealers said they still had 2003 models
that they were trying to clear out. Dealers expect sales to run at a roughly steady rate during
the rest of the year.
Finance
Outstanding loan volume at Third District banks was on the rise in September. Banks
reported modest increases in commercial and industrial loans, with slightly higher loan
demand from firms in a fairly wide range of industries. Consumer credit also expanded, for
both personal loans of various kinds and credit card lending. Besides the increase in
personal loans booked during September, some banks noted that they approved personal
lines of credit during the month that have not yet been fully utilized. Banks generally
reported continuing increases in overall residential real estate lending, but most of those
contacted for this report said refinancing activity has slowed.
Bankers in the District expect continued slow growth in lending through the rest of the year.
Some said growth in business and personal loans could accelerate somewhat next year if the
pace of business activity in the region quickens. Most of the lending officers surveyed in
September expect lending for home purchase mortgages to continue to increase in tandem
with any increase in home sales in the region, but they anticipate further declines in
refinancings. In general, bankers in the District indicated that credit quality for both
personal and business loans has been steady, but some noted that debt service to income
ratios have risen for both individual and business borrowers.
Stock brokers and investment management companies indicated that cash flows into most
types of funds and financial instruments were steady in September. Executives of the
nondepository financial firms contacted for this report said investors are still concerned
about fundamental economic conditions. They do not expect investment activity to pick up
significantly until employment begins to move up consistently.
Services
Service firms contacted in September generally reported steady or slightly growing activity.
Demand for general business services has been edging up and the region's health services
sector continues to advance, but telecommunications activity remains nearly flat. Several
local service sector firms indicated they see the beginnings of rising demand, although most
of those surveyed expect growth in the next two quarters to be slow. Some noted that their
corporate customers are still emphasizing cost-cutting, and are limiting their use of outside
services until overall business conditions show more significant improvement.
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Fourth District--Cleveland
Business conditions in the Fourth District remained mixed in August and September.
Residential construction activity and mortgage-related lending remained at high levels,
although some contacts noted a slight deceleration in September. Modest improvements
were noted in nondurable manufacturing, some retail categories, trucking and shipping, and
commercial lending. Conditions remained steady or weak in durable goods manufacturing,
apparel and auto retailing, and commercial construction.
Input prices remained the same or rose during these months. Manufacturers in particular
noted sharp increases in energy prices, while builders noted an increase in some of their
materials costs. Trucking companies reported that fuel costs had leveled off.
At worst, contacts expect annual economic activity to be the same as in 2002, but many
contacts expect higher levels of sales and production.
Manufacturing
Manufacturing contacts continued to report mixed conditions in August and September.
Durable goods producers reported steady conditions compared with one month ago, but they
often reported lower sales and production compared with a year ago. On the other hand,
nondurable manufacturers consistently reported at least modest increases in both production
and sales. For all contacts, inventory levels were flat or lower compared with a year ago.
Few contacts in nondurable manufacturing reported excess idle capacity, but durable
manufacturers reported excess capacity ranging from 5 to 40 percent. About half of the
contacts stated that overtime was used, and most experienced no change in their
employment levels. Input prices were higher than last year but were flat relative to July.
Increasing prices for utilities was of particular concern. A few contacts have increased the
prices of goods with some success, but most producers left their prices unchanged. Most
contacts anticipate flat or increasing sales and production through the rest of the year.
Auto production increased overall throughout the District in September (up 6.6 percent in
the last month and up 2 percent since a year ago), though a few producers experienced
declines. This increased production appeared to run counter to national trends. Most
facilities in the District used overtime hours more than usual during the survey period.
Steel production and sales were mixed during August and September. Firms in different
market sectors continued to experience different trends, with those supplying the defense
industry maintaining high levels of demand while demand from aerospace, power
generation, and non-residential construction continues to be weak. Idle capacity is in the
range of 10 to 40 percent. Inventory levels are low, and most contacts were satisfied with
current levels. Due to increases in some input prices including natural gas, electricity, and
ferrous metals, steel prices have climbed as well for some contacts. New orders are coming
at a very slow rate and are flat for most contacts. Contacts generally anticipate flat to
moderately rising production and sales through the rest of 2003.
Retail Sales
Retail sales were flat to slightly higher than last year during August and September, in some
cases, better than expected. Apparel sales were again soft, while food and drink, personal
care items, furniture, and home appliances sold well. Inventories continue to be tightly
managed and are low compared with historical standards. As usual, discount stores fared
better than other retail chains. Vendor and retail prices continued to be flat in general,
although sharp increases in meat prices hurt some restaurants. As retailers prepare for
seasonal hiring, staffing is not expected to be a problem this quarter; labor turnover remains
low, and prospective workers are easily found. Sales for the rest of the year are expected to
be steady and flat to slightly up from last year.
Auto dealers indicated that September sales were poor, much lower than August and
September 2002. Used vehicles continued to sell well, as did new trucks. Dealer inventories
have risen and become somewhat "bloated" because of soft sales and increased shipments
from manufacturers attempting to reduce their own inventories as the model-year ends.
Construction
Sales were strong in residential construction in August and September. In Ohio, August
home sales were up 18 percent over last year. Some of the increase was attributable to
customers purchasing in anticipation of rising interest rates. Since rates have since flattened,
there were some indications activity may have slowed slightly in September. Overall,
contacts expect sales will be strong for the rest of the year and at least as high as fourth
quarter 2002. Profit margins were somewhat strained by rising material costs. Plywood and
lumber prices have been rising sharply. Contacts indicated that events outside the District,
particularly rebuilding efforts after Hurricane Isabel and recent military purchases of
plywood for operations in Iraq, were partly responsible for some of the price increases.
Commercial construction was slow during this period, and increases noted in the last report
appear to have been transitory. Conditions have not changed much from the early summer.
However, most contacts continue to be optimistic about future contracts, as discussions
about projects have picked up and appear to be less tentative than in the past. Several
contacts noted new project possibilities in manufacturing areas. Profit margins continue to
be low because of fierce competition for the available construction opportunities. A few
contacts noted slight increases in materials costs.
Trucking and Shipping
Activity in trucking and shipping in August and September showed modest improvements
compared with the same period in 2002. Most contacts believed that the uptick in activity
represented more than just seasonal factors. Retail customers increased their demand for
trucking and shipping services, while demand from manufacturers continued its flat-tonegative trend of the last several years. Most firms have an optimistic outlook for the
remainder of this year and into 2003. Fuel input costs rose during the summer driving
season, but have since leveled off.
Banking
Conditions were again mixed for commercial and consumer loans. Contacts reported stableto-increased demand for commercial loans (which are at low levels), while consumer loan
activity was steady to declining from the high levels seen earlier in the year. This drop in
demand for consumer loans was driven by the drop in refinancing activity, which was
caused by the recent rise in mortgage rates. Reports regarding the rate of loan delinquencies
for mortgage, installment, and business loans were mixed.
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Fifth District--Richmond
Despite disruptions from Hurricane Isabel, economic growth advanced at a modest pace in
the Fifth District in late August and September as ongoing moderate expansion in the
services sector was partially offset by continued contraction in the manufacturing sector.
Hurricane Isabel disrupted retail and services businesses in several District states in
mid-to-late September, although relatively few establishments outside of coastal regions
experienced significant property damage. Along the coast, tourists were on the move in
advance of Isabel's arrival on September 18, but decreases in tourism activity in those areas
were partly offset by increases at inland locations as tourists relocated and out-of-region
utility crews arrived for repair and clean-up efforts. With the exception of hurricane-related
purchases, such as generators, plywood, and batteries, retail sales were generally flat in
September. District manufacturing activity weakened since our last report as shipments
declined again and employment at factories contracted. Adding to the weaker tone, a small
number of manufacturers reported prolonged shutdowns and/or substantial damage resulting
from the hurricane. In the housing sector, growth in home sales slowed, but realtors said that
activity remained at a high level. In agriculture and fishing, heavy rain and high winds from
the hurricane damaged fishing boats and crops and disrupted the feeding of livestock in
areas lying in the storm's path.
Retail
Fifth District retailers reported generally steady sales over the last six weeks. Only a few
contacts, however, reported increased hiring. Many retailers in North Carolina, Virginia, and
Washington, D.C., closed on September 18 and for several days thereafter because of power
outages in the aftermath of the hurricane. Hardware stores in those areas saw increased sales
of chain saws and generators after the storm, and grocers did brisk business as a result of
lengthy power outages. Most retailers said that sales lost because of the storm were quickly
made up and that the hurricane caused just "a blip" in their monthly sales figures.
Services
Services businesses reported moderately higher revenues in the weeks since our last report.
Executive search firms in the Washington, D.C., area said demand for their services picked
up, and a contact at a Baltimore financial services firm said customer demand was strong
enough to warrant increased hiring. Effects of Hurricane Isabel were specific to particular
services businesses-electric utilities brought in thousands of workers, tree removal
companies in central Virginia gained "phenomenal" business, and insurance companies
brought in disaster-relief specialists to assess and settle claims. Restaurants were busier than
usual as households waited days for electric power to be restored. Also, air traffic and
trucking were disrupted by the storm. In the public sector, federal government offices closed
for two days because of the hurricane.
Manufacturing
The District's manufacturing sector contracted in September: shipments, new orders,
capacity utilization and employment fell. Contacts in the chemicals, lumber, and textiles and
apparel industries noted particularly sharp declines in shipments. A machinery manufacturer
said that they were already half way through September and hadn't put enough [sales] on the
book to make the payroll much less pay other expenses. Several textile and apparel
manufacturers told us that foreign manufacturers continued to gain market share to the
detriment of U.S. textile and apparel companies. Manufacturers overall noted a substantial
decline in hiring and modest wage growth.
Hurricane Isabel caused relatively few disruptions to manufacturing operations, though
adverse impacts were noted by some District lumber mills. A contact at a North Carolina
lumber mill told us that their plant shut down for several days and noted that there would be
much lower volumes of standing timber available for sale for years to come. On a brighter
note, a counterpart at a Virginia lumber mill said that while his company's orders had
dropped because of the storm he felt that there would be a surge in business after roads were
cleared and power was restored to the area.
Finance
District loan officers said that growth in overall lending activity declined as residential
mortgage refinancings slowed in the weeks since our last report. Residential mortgage
refinancing dropped substantially in August and early September as mortgage interest rates
climbed well above 6 percent. In addition, new home loan originations grew more slowly as
the pace of house sales cooled. Commercial lending, however, showed signs of picking up
in some areas. A Richmond, Va., banker, for example, said that businesses were beginning
to expand their capital spending and borrowing funds again. In her words, businesses had
"put off spending long enough." Commercial lenders in other areas, however, suggested that
most business decision makers continued to keep expansion plans on hold, "waiting to see
what will happen to the economy."
Real Estate
Although growth in home sales slowed somewhat in several areas of the Fifth District
residential realtors continued to report generally strong housing markets. A realtor in
Odenton, Md., reported slower growth, but added that the market had been "so insane" in
recent months that the slowdown was welcomed. A contact in Washington, D.C., said that
the market there was still robust, as was the neighboring market in Prince George's County,
Md., where increased gentrification was driving house prices higher. A North Carolina
contact reported that although the Greensboro real estate market was still doing relatively
well, customer interest had ebbed somewhat in recent weeks. Home prices were reported to
be rising moderately in most areas of the District.
District realtors reported no major changes in commercial real estate conditions in recent
weeks. While there continued to be pockets of improvement, contacts said that the lack of
job growth had made many companies cautious and hesitant to commit to new projects. By
sector, the leasing of retail space remained steady in most markets, while activity continued
to be flat in office and industrial space. Commercial rents dipped and vacancies held firm.
Commercial construction activity continued to be "very slow." Looking ahead, realtors
expected stronger growth in the fourth quarter--a contact in Columbia, S.C., said he was
"cautiously optimistic" regarding activity for the remainder of the year.
Tourism
Tourist activity remained mixed in September. Hurricane Isabel battered coastal areas along
the Outer Banks of North Carolina and much of Virginia in mid-September causing damage
to some coastal hotels and widespread cancellations of hotel reservations. However, one
hotel's loss was another's gain in some cases as tourists relocated out of the storm's path. A
contact at Emerald Isle, N.C., on the southern Outer Banks told us that bookings there had
picked up as the storm passed further to the north. A hotelier at Virginia Beach said that
Isabel caused severe damage to some oceanfront resorts resulting in increased business in
the better-protected inlet area. Mountainous areas in Virginia and West Virginia also fared
well as thousands of people headed west after evacuating from the Virginia Beach and
Williamsburg, Va., areas.
Temporary Employment
District temporary employment agencies reported increased demand for workers since our
last report. Contacts in Hagerstown, Md., and Northern Virginia reported a definite upturn in
business activity. Likewise, a Raleigh, N.C., agent reported an increase in corporate
confidence and a better response to his agency's marketing efforts. Administrative assistants
and customer service representatives were among the occupations in highest demand. There
was also a large influx of temporary workers involved in repair and cleanup in the aftermath
of the hurricane.
Agriculture and Fishing
Hurricane Isabel brought heavy rain, strong winds, and flooding in low-lying areas in the
storm's path. With the exceptions of South Carolina and Washington, D.C., farmers in most
areas of the District incurred varying degrees of storm-related crop damage. In Maryland,
corn, fruit trees, and soybeans were damaged from flooding. Corn, tobacco, tomatoes, and
strawberries were damaged by both water and high winds in northeast North Carolina and in
Virginia. Sustained power outages and lack of water were a concern in North Carolina as
farmers tried to dry corn, cure tobacco, and provide feed and water to livestock. Scattered
losses of cattle were reported and thousands of chickens were lost because of wind damage
to poultry houses and a lack of power. District orchards were also hard hit--agricultural
officials estimate that a sizeable proportion of the apple crop in Virginia was destroyed. The
hurricane-related wind and storm surge also damaged fishing boats, nets, and other
equipment along coastal areas. Contacts in the fishing industry expect some long-term
damage to the crab and fish populations as a result of the storm.
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Sixth District--Atlanta
Reports from Sixth District contacts suggested that business activity continued to expand
during September. District residential housing markets continued to post steady growth,
whereas commercial real estate markets displayed small improvements. Factory activity
showed further signs of stabilizing and transportation contacts reported increased freight
volumes in September. The pace of retail and auto sales moderated somewhat, although
several reports noted that sales for the month exceeded expectations. Commentaries on the
District's tourism and hospitality sector were mixed: reports from South Florida were mostly
upbeat, but others were more subdued. Responses from the banking industry noted steady
deposit flows and a further drop-off in mortgage refinancing. Overall, employers appeared
to be reluctant to add to payrolls, and wage increases were modest in most sectors.
Environmental conditions were favorable for the District farmers' in September.
Consumer Spending
Retail contacts indicated that sales growth moderated somewhat in September from the
strong pace set in August, but activity still managed to exceed retailer's expectations in
many cases. Contacts noted that apparel sales improved in September and electronics and
home-related products continued to sell well. Overall, inventories were described as
balanced. Reports noted that the retail outlook for the fourth quarter remained positive, and
some regional consumer confidence measures showed a modest improvement in September
from August. Meanwhile, District auto dealers reported weaker sales in the first part of
September than in August.
Real Estate
District single-family housing markets were generally stable in September. Homebuilders
continued to report that new home construction and sales were flat to up slightly during
September. Reports from District real estate agents mirrored those of builders. Most contacts
appeared more optimistic regarding single-family housing through year-end than they had in
the last report. Higher mortgage interest rates have apparently not curtailed activity as much
as had been initially expected. The region's commercial real estate markets continued to
show only small, isolated improvements, and contacts reported that vacant space continued
to fill slowly. Commercial construction remained at low levels.
Manufacturing
Manufacturing production in various industries picked up or was stable in September,
although there were some reports of layoffs. Many firms were still reportedly planning to
limit the extent of new capital spending and hiring in the near term. However, factory
contacts in Tennessee saw a pickup in orders for machine tools and equipment as their
customers' sort to improve productivity. Florida contacts noted stabilization in
manufacturing activity, but saw little evidence of a rebound. An Alabama steel producer
indicated that business was improving, but capacity utilization rates remained low. A
manufacturer in Georgia reported that the weaker dollar was helping exports, but a textile
producer noted smaller sized orders. Further layoffs were announced in the District's
chemical industry.
Tourism and Business Travel
Reports from the District's hospitality and tourism sector were mixed. Although early fall is
traditionally a slow period for tourism in south Florida, visitor traffic was better than
expected and restaurant business was reported to be quite brisk. In contrast, the international
market remained weak and the sluggish demand for lodging in central Florida reportedly
forced the closing of at least two hotels there. As before, hotels throughout the District
catering to business travelers reported low-occupancy levels. Convention attendance in
Atlanta, Nashville, New Orleans, and Miami continued to suffer from restrained business
spending.
Financial
Most reports indicated a steady flow of deposits into banks and that the rate of loan
delinquencies remained manageable. Reports also noted a drop in demand for mortgage
refinancing because of higher interest rates. Some loan officers reported that they were
receiving more business loan requests for projects aimed at reducing costs or increasing
productivity. However, overall business loan and venture capital investment activity
remained low.
Transportation
Reduced capacity combined with higher than normal seasonal demand for shipping services
led to improved conditions for the District's transportation sector. Trucking firms reported
increased freight volumes and stable rates in September. In Georgia, an increase in
shipments of pulp and paper for the packaging industry was noted.
Employment and Prices
Contacts reported that labor markets were stable overall in September, although the demand
for additional permanent staff was rising in only a few sectors and was notably absent in
manufacturing. Some factory contacts, however, reported that they had increased the amount
of overtime as production turned up. Part-time and temporary workers also continued to be
in demand. Some businesses noted that they were reluctant to hire permanent employees
because of the associated benefit costs.
Prices for most goods and services remained stable in September. However, the rising cost
of healthcare and pension benefits were holding down salary and wage increases according
to some contacts. Local lumber prices were reportedly the highest in several years because
of wet weather, fires in the West, and recent high demand for plywood.
Agriculture
Rains and cooler weather produced favorable conditions for most of the District's agriculture
sector in September. Some commodity prices moved higher in September. Local poultry
growers were encouraged by the new U.S.-Russia market access agreement that should lead
to additional poultry exports to Russia.
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Seventh District--Chicago
Seventh District economic activity continued to show signs of modest improvement in late
August and September. However, many businesses wanted to see a longer period of firming
in demand before committing to hiring, expanding capacity, or inventory building.
Consumer spending was stronger than earlier in the year, but sales results were mixed by
retail segment. Business attitudes appeared to improve further, yet spending and hiring plans
remained cautious. Construction and real estate activities continued to be characterized by
strong residential markets and weak commercial markets. Manufacturing activity continued
to expand. Bank lending remained relatively soft. There were only small changes in the
price and cost environments. Early harvest results suggest that corn output will be at least
average, but that soybean output will be well below average.
Consumer spending
Consumer spending in August and September still appeared to be stronger than earlier in the
year, although reports were mixed. Retailers said that sales generally exceeded expectations,
as consumers continued to purchase deeply discounted merchandise. Inventories were leaner
than expected as a result. Still, most merchants were not confident enough about sales
prospects to boost inventories in the near term. While apparel sales generally remained
sluggish, there was a sharp rise in sales of baseball-related apparel in the Chicago area. By
contrast, a contact in casual dining indicated that food service sales remained soft. District
auto dealers said that light vehicle sales fell from August to September, and seemed softer
than the national trend in both months. With weaker sales, dealers continued to curb light
vehicle orders and draw down inventories. Many dealers also noted that service sales slowed
in September after picking up toward the end of summer.
Business spending
Business attitudes continued to improve, although spending and hiring plans remained
cautious. Several contacts noted that businesses were seeing better earnings, but much of the
improvement resulted from cost containment rather than revenue gains. One contact
suggested that firms want to see several periods of stronger revenue growth "in their
rearview mirrors" before they commit to capacity expansion and permanent hiring. Most
capital equipment spending continued to go toward the maintenance, repair, or replacement
of existing stock. On the hiring side, contacts with temporary help firms reported a seasonal
pickup in worker orders; for one national firm, this was the first seasonal boost in three
years. The jump in worker assignments was particularly evident in the light industrial and
office/clerical categories. Several contacts suggested that the bulk of new temporary hiring
was done by small employers rather than large. Still, most businesses remained very
reluctant to add permanent full-time help, although there were a few reports of increasing
worker hours.
Construction and Real Estate
As has been true for some time now, District real estate markets were strong on the
residential side and weak on the commercial side. New home sales were again robust, with
one contact's comment that "business is great" generally summing up builders' sentiment.
Sales of first-time-buyer and trade-up homes continued to drive the market, although there
were a few reports of a pickup in the luxury segment. Traffic through builders' annual "Fall
Parade of Homes" was very high in most areas, leaving builders more optimistic that new
home sales will remain strong well into the fall. Existing home sales were also very strong
in most parts of the District. Commercial activities appeared to slow somewhat. Some
contacts said that the number of office property tours and prospects fell recently, after
picking up through the summer. On balance, office vacancy rates were flat in the third
quarter, and rents remained under downward pressure. Light industrial vacancies remained
elevated and there were some concerns that big-box retail space was overdeveloped.
Manufacturing
Manufacturing activity continued to expand in late August and September. Nationally, light
vehicle demand exceeded some automakers' expectations over the summer months, which
helped bring inventories down to desired levels sooner than anticipated. Despite stronger
sales, automakers did not report any changes to production schedules. A leading producer of
home appliances said that shipments picked up in recent months as distributors replenished
depleted inventories. Some heavy equipment industries were seeing a "pretty good
recovery," according to one contact, and even though inventories were rising, the inventoryto-sales ratio continued to decline. Medium-duty truck dealers were also said to be
rebuilding inventories, helping to boost shipments in September. Some producers of
machine tools noted increases in price quotes, new orders, and shipments. Moreover, one
contact suggested that the increase in demand for machine tools was coming from customers
across a wider range of industries. Despite little change in demand, domestic steel
production improved modestly as imports continued to fall.
Banking and Finance
Overall lending activity remained relatively soft, although bankers reported slight increases
in both household and business loan demand. Residential refinancing activity increased
somewhat from its summer lull, but remained well below the peak reached in June. One
banker said that margins on mortgage loans were being squeezed as firms that had built up
"a huge mortgage lending infrastructure" competed for a smaller pool of potential
borrowers. Some contacts also noted modest increases in home equity and credit card
volumes. Household loan quality was reported to be largely unchanged. Business loan
demand remained very soft on balance, though there were scattered reports of improvement
in some segments. A few bankers noted increased lending to small businesses, and one saw
a pickup in middle-market lending. For the most part though, large corporate borrowers
remained on the sidelines. Business credit quality was said to be improving, and there were
no changes reported for standards and terms.
Prices and Employment Costs
On balance, there was little change in the pricing and cost environments. Manufacturers of
some products said that a weaker dollar enabled them to raise output prices from very low
levels. However, producers of other goods attempted to push through price increases with
limited success. Many retailers indicated that the long trend toward steeper discounts may
be coming to an end, with one adding that "prices simply can't go much lower." Business
contacts continued to report that higher energy and insurance costs were squeezing profits.
To keep the rise in employment costs down, more employers were planning to shift higher
health insurance premiums to their workers. In addition, several contacts reported that firms
continued to limit and/or delay merit pay increases.
Agriculture
Crop conditions generally stabilized during September after deteriorating during August due
to heat and lack of precipitation. In eastern portions of the District, however, harvesting was
running behind average since fields were too wet and crops were maturing late. Corn yields
across the District were coming in close to normal or above, but soybean yields were mostly
below normal. Widespread spraying for aphids kept soybean yields from falling more, but
boosted input costs. On balance, expectations for farm income have been reduced,
potentially stressing farmers' cash flows and thus generating concerns about loan
repayments. As a result, slower capital expenditures in farming are expected for the District,
except for repairs. Nonetheless, strong competition between farmers and nonfarm investors
persisted, driving farmland values and rental rates higher. With less development in some
areas, there are signs that the role of tax-deferred exchanges in pushing up land values has
begun to slow.
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Eighth District--St. Louis
Contacts in the Eighth District indicate that the region's economy is showing modest signs
of improvement. Favorable reports in the manufacturing and services industries suggest that
economic activity increased since the last survey, although announcements of plant closings,
downsizing, and layoffs remain. Retail sales increased in September compared with 2002
levels, but auto sales declined over the same period. Home sales rose in most of the District
in August, while commercial real estate markets remained weak. Loan demand increased
over the past three months at a sample of small and mid-sized banks in the District.
Manufacturing and Other Business Activity
The Eighth District's manufacturing sector appears to be expanding. Reports of plant
openings, product-line expansions, increased spending on research and marketing, and new
jobs created continued to appear since the last survey. Manufacturers in the automobile and
automotive parts, motor, fuel processing, hand tools, sealing products, photography, food,
clothing, medical devices, health, and beauty industries were among those who announced
such moves. In the services sector, firms in the banking, communications, entertainment,
and hotel industries announced improvement in business activity and plans for expansion.
Despite the positive outlook, there have also been several announcements of plant closings,
downsizing, and layoffs. Affected industries include utilities, electrical transformers,
packaging, shipping and transportation, chemicals, hardware, plumbing, brass, steel, fabrics,
furniture, food, and airlines. A troubled auto plant has received state aid to limit local job
cuts. Firms in the food, health care, and beauty industries recently were granted tax freezes
for several years in return for job creation in the District.
General retail sales in the District improved slightly in September compared with the same
month last year, with several retailers reporting increased in-store traffic. Strong-selling
products included clothing, appliances, discount items, furniture, and back-to-school items.
Among the products that were not moving were seasonal merchandise and cookware. Auto
dealers report that sales have increased slightly in recent weeks, but they are still below
2002 levels. They attribute this increase to a higher use of rebates, deep discounting, and
better finance terms. Contacts report, however, that they will offer fewer incentives on 2004
models. Recent sales of imports, SUVs, trucks, and used cars have increased, while sales of
domestic, passenger, and new cars have decreased. Several contacts report that their
inventories are higher than desired, particularly for used cars. Both general retailers and car
dealers appear optimistic that sales will improve over the rest of the year.
Real Estate and Construction
Sales of single-family homes through August continued to increase in most of the District.
August year-to-date sales in northern Kentucky increased by 18.0 percent compared with
those in the same month last year. In the Memphis area, year-to-date sales increased by 9.7
percent, with an increase of 6.1 percent between July and August 2003. In the northeast
Mississippi area, however, the stock of homes for sale was at historic highs. In August,
year-to-date single-family housing permits were up in most of the District's metropolitan
areas compared with August of last year. In the greater St. Louis area year-to-date permit
levels increased by 1.0 percent. Housing starts were up in southern Indiana and northeast
Arkansas. Residential construction was also strong in western Tennessee and northeast
Arkansas.
The office and industrial real estate markets are still sluggish in most of the District.
Contacts in the St. Louis area anticipate a slight decrease in office and industrial vacancy
rates in the third quarter. Commercial construction activity is slowly improving in most of
the District. New shopping malls and movie theaters are being built in central Kentucky, and
contacts in southern Indiana and the Memphis area report that commercial construction is
improving.
Banking and Finance
Total loans outstanding for a sample of small and mid-sized District banks were up 3.5
percent between early July and early September. This increase stemmed mostly from real
estate loans and leases, which increased by 4.9 percent. Loans to individuals increased by
1.9 percent, while loans to commercial banks decreased by 1.0 percent. Over the same
period, total deposits at these banks were up by 0.7 percent.
Agriculture and Natural Resources
Recent weather has had mixed effects on agriculture. While rains slowed row crop maturity
in some areas, damaged some tobacco during the harvest in Kentucky, and pushed back
harvesting of hay and cotton, recent drier conditions have aided corn and soybean maturity
and provided favorable conditions for quickening the harvest. Current reports indicate that,
except for sorghum, the majority of crops lie in the good-to-excellent range. Improved by
recent rains, more than 50 percent of pastures and hay also lie in this range.
Corn yields appear good, but harvesting is still behind its average pace. Soybean maturity
and harvest lag nearly 50 percent behind average in Illinois and Missouri, while they are at a
better-than-average pace in Mississippi. Sorghum maturity and harvest are behind average
by over 70 percent in Illinois. Cotton harvest lags by nearly 50 percent due to previous wet
conditions, while hay and rice crops are roughly on schedule. Farmers are now beginning to
plant winter wheat. The condition of livestock continues to be good, as are soil moisture
levels.
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Ninth District--Minneapolis
Overall Ninth District economic activity increased in late August and September.
Residential real estate, manufacturing, agriculture, consumer spending and mining grew.
Meanwhile, tourism was mixed, and commercial real estate and energy were down slightly.
Labor markets were soft. Wage and price increases were generally moderate; however,
significant price increases were noted in natural gas, freight and health insurance, with
decreases in gasoline.
Construction and Real Estate
Commercial real estate activity was down. According to a local business magazine,
landlords of commercial property in the Minneapolis-St. Paul area have recently offered
generous incentives to prospective tenants, such as payment for improvements, free
furniture and discounted monthly rent. In addition, contracts awarded for large building
projects in Minnesota and the Dakotas were down 3 percent for the three-month period
ending in August compared with the same period a year ago.
Home building and residential real estate activity grew. Housing units authorized in the
Minneapolis-St. Paul area were up 15 percent in September compared with last year. The
number of closed home sales in the Minneapolis-St. Paul area was 25 percent higher in
August compared with a year ago, while the median home sale price increased 9 percent. A
Montana bank director reported that real estate sales and prices have been up steadily in the
Bozeman area, with no immediate signs of a slowdown. Another bank director noted that
refinancing activity dropped significantly during early September in southwestern
Wisconsin, but signs of recovery were seen by the end of the month.
Consumer Spending and Tourism
Overall retail sales grew modestly. A major Minneapolis-based department store and
discount retailer reported same-store sales in August up 5.7 percent compared with a year
ago. A representative of a nationwide retailer noted strong back-to-school sales at stores in
North Dakota. Storeowners in southwestern Montana reported solid back-to-school sales
activity. Two mall managers in North Dakota reported recent sales about at last year's strong
levels. In southwestern Wisconsin, recent sales for men's and women's apparel were soft, but
jewelry sales were up from a year ago. A representative of a Minnesota-based women's
apparel retailer expected September same-store sales to finish flat to up slightly. Some store
managers noted that federal tax rebate checks sent to taxpayers with children may have
helped strengthen sales. In contrast, high-end stores in two Minneapolis-area malls reported
recent sales behind last year's.
Auto sales were slower in September compared with July and August. Showroom traffic
was slow in September, and truck orders were down in rural areas, according to an auto
dealers association representative in Minnesota.
Tourism activity was mixed. Visits to Glacier National Park were down significantly due to
fires, while August visits to Yellowstone National Park increased compared with July. A
bank director reported strong bookings for fall conferences and the ski season at hotels in
the Bozeman, Montana, area. Tourism conditions were mixed among attractions in
Minnesota, according to a tourism official; summer tourism picked up in August relative to
a slow start earlier in the summer. In South Dakota visits to Mount Rushmore increased
about 5 percent in August compared with a year ago.
Manufacturing
Manufacturing activity was up slightly. A September survey of purchasing managers by
Creighton University (Omaha, Nebraska) indicated overall increased manufacturing activity
in the Dakotas and Minnesota. As evidence, a South Dakota video display producer had the
busiest fall season in the history of the company. A Minnesota manufacturer of snowmobiles
and ATVs plans to build a large research and development site in the district. Advisory
Council on Small Business and Labor members reported generally increased manufacturing
production and orders. However, a large meat company announced plans to close a
processing plant in Minnesota.
Energy and Mining
Activity in the energy sector decreased slightly, and the mining sector increased. September
district oil and natural gas exploration levels decreased slightly from mid-August. However,
most major district operating iron ore mines are producing at near capacity. Metal prices
firmed up, and several Montana mines plan to renew or upgrade operations. "The future is
looking better every day," commented a Montana mining official.
Agriculture
Agricultural economic conditions improved in September from August. The U.S.
Department of Agriculture reported higher prices, as Wisconsin farmers and ranchers were
expected to receive 4 percent more for milk and 6 percent more for beef cattle in September
compared with August. The district experienced a large harvest of small grains, and winter
wheat plantings have started. The USDA reported big increases in wheat and oat yields, and
production in 2003 compared with 2002 for most district states. For example, North
Dakota's wheat production increased 46 percent from 2002 to 317 million bushels. Due to
drought, which was eased somewhat by September rains, row crop harvests started early this
year. The USDA reported mixed conditions for Minnesota's row crops, as 30 percent of corn
and 24 percent of soybeans were rated good, while 29 percent and 33 percent, respectively,
were rated poor or very poor.
Employment, Wages and Prices
Labor markets were soft with some layoffs reported. In South Dakota a computer
manufacturer will lay off 650 workers by the end of the year. In Minnesota, a computerstorage product manufacturer recently cut about 150 jobs companywide, while a
telecommunications equipment and services company recently laid off 100 employees. Also
in Minnesota, a software company just announced plans to cut 80 jobs, and an office product
manufacturer laid off 55 workers.
In contrast, a mine opening in Montana will likely create 400 jobs by year end. A temporary
staffing agency survey showed that 32 percent of employers in Minneapolis-St. Paul expect
to hire more workers during the fourth quarter and 13 percent expect to reduce payrolls. Last
year 23 percent expected to increase payrolls; 11 percent planned reductions. Initial claims
for unemployment insurance in Minnesota decreased 8 percent in August compared with a
year ago.
Increases in wages and salaries were moderate. For example, a teachers union in Minnesota
recently agreed to an average salary increase of 2.5 percent the first year and 1.2 percent the
second year of a two-year contract.
Price increases were generally moderate, with significant increases noted in health
insurance, natural gas and freight, while gasoline prices were down. Several members of the
Advisory Council on Small Business and Labor mentioned that overall price increases were
minimal, while health insurance rates increased well over 10 percent in 2003, compared
with last year. Natural gas prices were recently 15 percent above last year's levels;
double-digit increases on fuel bills are expected this winter. An owner of a trucking
company in Montana reported that recent freight rates were notably higher than a year ago.
Gasoline prices in Minnesota decreased 21 cents from mid-September to the end of the
month.
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Tenth District--Kansas City
The Tenth District economy continued to expand in late August and September.
Manufacturing strengthened further, and more firms than in previous surveys reported
increased hiring and investment. Retail sales excluding autos rose slightly, housing activity
remained strong, and the farm and energy sectors improved. On the other hand, auto sales
fell after rising earlier in the summer. Commercial real estate markets also remained weak,
although they showed some signs of stabilizing. Wage and price increases were generally
modest, but some materials prices rose sharply.
Consumer Spending
Excluding autos, retail sales in the district continued to edge higher in late August and
September and were at or above year-ago levels at most stores. Among product categories,
sales of shoes, men's and children's clothing, and most home items were strong, while sales
of women's apparel and electronics were somewhat sluggish. Nearly all retailers expect
sales to continue to increase slightly, although several managers reported they would not be
confident about fourth quarter sales until consumer sentiment improved somewhat. Most
stores were satisfied with inventory levels and plan typical seasonal increases to stocks in
coming months. In contrast to sales at retail stores, sales of motor vehicles in the district fell
somewhat in late August and September after increasing earlier in the summer and were
below year-ago levels in most states. Auto sales in Colorado were particularly weak,
although dealers there reported a slight pick-up in buyer traffic near the end of September.
Most dealers expect new car sales to improve in October. Despite slower auto sales since the
previous survey, most dealers reported that inventories of unsold cars remained manageable,
due to cautious inventory building in recent months. Several dealers also reported that used
car prices have firmed recently, as fewer leased cars have been coming back on the market.
Reports on late summer tourism activity at mountain resorts in the district were generally
positive, and convention business in Denver was strong.
Manufacturing
District manufacturing activity increased considerably in late August and September, and
managers remain optimistic about future output. Plants generally reported higher levels of
capacity utilization than in the previous survey, and the volume of new orders continued to
rise. In addition, several firms reported further increases in hours and a modest expansion of
employment. Moreover, capital spending rose above year-ago levels, as several firms added
new production space and increased their purchases of machinery and IT equipment. On the
negative side, contacts in the aircraft manufacturing industry reported that their shipments
and orders continued to slide. Several other contacts reported difficulties obtaining steel
plate and tubing. Looking ahead, most manufacturers expect continued expansion of
production and orders for the remainder of the year, along with modest increases in
employment. In line with these expectations for stronger factory activity, firms also
anticipate some building of inventories of raw materials in coming months.
Real Estate and Construction
Residential real estate activity in the district remained strong in late August and September,
and commercial real estate markets showed signs of bottoming out. Single-family housing
starts maintained a rapid pace in most district cities, although some builders reported a slight
easing in activity. Starts of entry-level homes continued to be particularly strong. Most
builders expect single-family construction to stay solid for the remainder of the year,
provided mortgage rates remain low. Several builders reported difficulty obtaining plywood,
but other building materials remained generally available. Home sales were steady in late
August and September and above year-ago levels throughout the district. Most realtors
expect sales to remain flat for the rest of the year and anticipate only modest increases in
home prices. Mortgage lenders reported a sharp drop in refinancing activity. Inquiries about
refinancing picked up slightly at the end of September, but lenders generally expect
refinancings to continue to slow. Demand for home purchase loans is expected to hold
steady. Most commercial real estate markets in the district showed some signs of firming in
late August and September after weakening earlier in the summer. Sales of office space
increased slightly in some cities, while absorption and vacancy rates were largely
unchanged. However, realtors do not expect much improvement in office markets for the
foreseeable future, as most markets have at least some excess supply.
Banking
Bankers report that both loans and deposits increased slightly since the last survey, leaving
loan-deposit ratios largely unchanged. Demand edged up for residential construction loans,
home equity loans, and consumer loans. Demand for other loan categories was little
changed, with increased demand for home purchase mortgages helping offset the slowing in
refinancing activity. On the deposit side, gains were widespread across categories. All
respondent banks held their prime lending rates steady, and most banks also left their
consumer lending rates unchanged. No changes in lending standards were reported.
Energy
District energy activity continued to expand moderately in late August and September, as
energy prices remained relatively high. Although natural gas prices fell slightly in
September, they were still 50 percent higher than a year ago and are expected to remain
elevated in coming months. The count of active oil and gas drilling rigs in the region
continued to edge higher in September and was well above year-ago levels. The increase in
activity led to greater demand for skilled rig workers, and energy contacts generally expect
drilling activity to remain solid through the winter.
Agriculture
Agricultural activity in the district improved in late August and September, boosting
prospects for farm income this year. Cattle profits made a strong rebound after prices
reached an all-time high in early September, and yields on the district's corn harvest were
better than a year ago. Also, recent moisture has provided excellent planting and growing
conditions for the winter wheat crop in many areas. Farmland values throughout the district
remain strong, and bankers report higher repayment rates and lower renewals and extensions
in their farm loan portfolios. On the negative side, early yields on the district's soybean crop
have been below average due to the effects of this summer's drought, and financial concerns
persist for farmers located in areas of prolonged drought.
Wages and Prices
Wage and price increases were generally modest in late August and September, although
some materials prices rose sharply. Labor markets were still quite slack around the district.
However, the rate of layoff announcements slowed to a three-year low, and more businesses
than in previous surveys said they were increasing their hiring plans. Most firms were
offering only cost-of-living increases in wages, while benefit costs continued to rise rapidly.
Some retailers reported discounting prices to clear out back-to-school merchandise.
Otherwise, retail prices were unchanged and are expected to be flat to slightly higher in
coming months. Manufacturers reported some firming in finished goods prices, but they
continued to lack the ability to fully pass input cost increases through to customers. Among
manufacturing and construction materials, prices for steel, petroleum-based products, and
plywood rose considerably. Manufacturers expect some materials prices to continue to rise
and anticipate only modest increases in their pricing power.
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Eleventh District--Dallas
Overall Eleventh District economic activity showed signs of slowly improving in September
and early October. While reports were uneven in many sectors, there continues to be
cautious optimism that the recovery is strengthening. Still, most companies indicated a
reluctance to expand their payrolls without the certainty of a permanent pick-up in demand.
Manufacturing activity was improved, with some industries reporting increased sales and
optimism. Signs of strengthening demand were also appearing in the service sector, although
reports are mixed. Contacts say that retail sales are slowly and erratically improving. There
was little change in the energy industry, financial services, or construction and real estate
markets. Overall agricultural conditions remain in good shape despite some weather-related
crop damage.
Prices
Overall price pressures were mixed. Overcapacity and weak demand has led to falling prices
for paper and boxes, which are now at a 20-year low. Most energy prices were lower, but
remain at fairly high levels. Crude oil prices fell steadily in September from $32 to $27 per
barrel, adding back a dollar or so in late September after OPEC surprised the world with a
cut in production. The production cut was equal to Iraq's current production, and many saw
OPEC's action as making room for Iraq's return to OPEC. Crude inventories were about 10
percent below normal through much of the period, and held steady in the last couple of
weeks despite a decline in refinery demand due to seasonal maintenance.
The blackout in the northeast knocked out six U.S. refineries or about 3 percent of U.S.
production and caused a brief jump in wholesale gasoline prices. The loss of production
came at a critical moment, with gasoline inventories about 6 percent below year-earlier
levels and Labor Day looming as the biggest driving day of the year. The spot price rose
from $.95 to $1.12, but has since fallen back to $.90 or below. Pump prices have fallen back
as well. Heating oil prices have fallen steadily throughout the period, as inventories of
distillates have returned to healthy, year-ago levels.
Natural gas prices softened in recent weeks from $5 per thousand cubic feet to $4.50, as
larger than normal increases in inventory kept the industry on track to refill storage to
normal levels by the start of the heating season on November 1. Consumption of natural gas
continued to decline, and contacts believe natural gas is being diverted to storage. Most
observers continue to see gas production capacity shrinking one to three percent this year.
Petrochemical prices mostly fluctuated with feedstock costs. Plastic product prices were
mixed, with polyethylene and polypropylene up because of increased demand, and
polystyrene down due to weaker demand.
Some prices are higher. The high and rising cost of health insurance was mentioned by
many industries, and was noted as one of many deterrents to hiring. Prices are higher for
some food products despite steep competition because higher input costs are being passed
along to consumers. Some manufacturers indicated concerns about the high cost of utilities.
Steel producers say that selling prices are beginning to rise despite stiff competition.
Manufacturing
Manufacturing activity was mixed but optimism continued to improve for some firms. Sales
have picked up for most construction-related products, including lumber, stone, brick and
fabricated metals. Demand is slower, however, for primary metals and paper products.
Demand for food products is unchanged and below the level of a year ago. Contacts
attribute the weaker than normal demand to declining orders from restaurants. One contact
explained that upscale restaurants were scaling back last year and now all are ordering less.
Many high-tech manufacturers reported that production, orders and sales have continued to
grow at the good pace set in the second quarter. Demand was reported to be strongest from
the Asian and U.S. markets. Inventories were reported to be very lean, as desired. Most
respondents expect growth to continue at a good pace over the next six months with one
respondent saying that for the first time in a long time his outlook is for "reasonable,
sustainable growth."
Refiners' margins spiked along with wholesale prices for gasoline, but margins have fallen
back along with price to some of the lowest levels of the year. The lower margins should
lead refiners to schedule routine maintenance over the next few weeks, pulling about 3
percent of U.S. production off line at any given time.
Petrochemical producers reported little change in basic petrochemicals, as demand was
slightly weaker, overcapacity persisted, and profits were weak. Basic chemical producers
report losing export markets due to higher costs associated with high natural gas prices,
making it difficult to judge domestic demand.
Services
Activity in the service sector continues to show signs of improvement but remains uneven.
Demand gains for temporary staffing have been inconsistent, but contacts say the outlook is
more optimistic and feel that intentions to hire are improving.
Transportation firms reported mixed activity. Airlines reported higher load factors but lower
profits. Trucking firms reported slower activity. The rail industry reported a marked increase
in shipments of grain (exports)--the result of good crop yields in the U.S. and poor harvests
overseas.
Legal firms reported some improvement but with continued caution about the outlook. In
the last month, contacts report a steady stream of litigation and bankruptcy work and a
noticeable increase in transactional and venture capital work. Accounting firms also say
activity increased in the past month, primarily for tax work but with some improvement on
the transactional side.
Retail Sales
Retailers report signs of gradual improvement, but sales growth remains uneven. Some
contacts said that there was a noticeable slowing of sales after the tax payments were spent.
Others indicated some worsening of the indicators they use to measure the financial viability
of consumers. Department stores noted improved sales of women's apparel. Competition
remains stiff, and two large retailers report that selling prices are down about 2 percent from
a year ago. Automobile sales remained soft and are mostly driven by incentives, rebates and
low-cost financing.
Financial Services
Financial service contacts reported similar conditions to the last report. Contacts continued
to report gradually improving attitudes and expectations, but only a moderate increase in
lending activity because many potential borrowers remain cautious about going forward.
Mortgage lending, including refinancing, remained strong, partly because borrowers rushed
to close as rates edged upward. Most contacts expected this rush to slow by now, but say it
is still pushing mortgage lending volumes up. Commercial and industrial lending is mildly
positive. Interest and traffic is up but customers remain cautious and are still unwilling to
pull the trigger. Mergers and acquisitions activity is also picking up leading to higher fee
income. Larger banks with more ties to financial markets are experiencing growth in this
area, which is positively impacting earnings. Contacts say that asset quality is stronger, and
deposit growth continues to be strong
Construction and Real Estate
There was little change in construction and real estate markets. The single-family market
recorded steady demand, with August sales of existing homes reaching record highs in
several Texas markets. Single-family builders noted that while demand for new homes was
still at good levels, more incentives were being offered to lure new buyers. Without a pickup
in job growth, many builders don't expect the current pace of demand to be sustained.
The apartment market remained weak. Properties that were in the pipeline before the
downturn are still being built, and demand is low. Occupancy rates are flat to down, and rent
concessions continued. Contacts in the office market noted increased "activity" but said it
was mostly due to local companies re-negotiating leases or moving to new space within a
city. Any significant improvement in the office market will depend on a markedly improved
job picture, according to contacts.
Energy
The energy industry reported little change from the last Beige Book. Domestic demand has
flattened out in recent months along with the U.S. rig count and remained flat in recent
weeks. Contacts say the level of activity is high but disappointing compared to expectations
of earlier this year. Exploration expenditures are up 33 percent this year over last, but they
continue to be weaker than might be expected with the current price of oil and natural gas.
Drilling in the Gulf of Mexico, a critical area for U.S. gas supplies, has remained near 100
working rigs or near the low of the last drilling downturn. International activity continues to
improve slowly, providing good revenues for U.S. producers and service companies.
Agriculture
Harsh weather dramatically reduced the cotton crop in some parts of Texas. Recent cooler
weather and rains have improved topsoil conditions for some remaining row crops and
pastures, however. Vegetable producers in South Texas reported that heavy rains had
delayed fall planting. Pasture conditions for livestock have improved in recent weeks. In
addition, cattle producers are enjoying record high prices, which should result in increased
profitability this year.
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Twelfth District--San Francisco
Reports from Twelfth District contacts indicated some further pickup in economic growth in
September. Despite continued increases in demand, many respondents indicated that strong
competitive pressures continued to hold down prices and that productivity gains continued
to keep hiring at bay. Retailers reported that sales continued to improve and service
providers noted a further pickup in the demand for travel, software, and media services.
Reports indicated that overall manufacturing activity continued to rise; orders strengthened
for manufacturers of semiconductors, apparel, and lumber and wood products. Conditions
for District agricultural and resource-related products were robust in recent weeks.
Respondents indicated that the demand for homes remained strong, while the demand for
commercial real estate remained sluggish. Banking contacts reported an increase in business
loan originations in several District markets; however, mortgage refinancing activity
continued to contract in recent weeks.
Prices and Wages
Most District respondents reported very little upward movement in prices. However, there
were some exceptions. Energy prices were mixed, with gasoline prices falling but with
residential electricity and natural gas prices increasing modestly. Several contacts noted that
prices for lumber and other housing materials have shot up in response to strong demand
from the Iraqi rebuilding efforts. Finally, health care costs appear to be rising rapidly.
Although demand for many goods and services have increased in the District, employment
conditions have continued to languish. A majority of District respondents reported no
immediate plans to increase hiring, although some are optimistic that they will start hiring in
a couple of quarters. For instance, District retailers, service providers, and banks have relied
heavily on employee overtime and improved efficiency to meet increased demand. District
manufacturers have used productivity gains and increased outsourcing to meet demand. In
agriculture, producers have replaced some workers with machines for harvesting.
Retail Trade and Services
District retailers generally reported improved sales in September and early October.
Back-to-school sales reportedly were strong, and department stores placed new orders to
manufacturers after working off inventories of old merchandise in recent weeks.
Automobile sales slipped some in September but remain at a high level; demand for some
domestic brands came in below expectations given the generous financing available, but
demand for foreign brands appeared to remain strong.
Demand in the District for other services strengthened further in September, particularly for
IT and media services. Respondents indicated that this could be explained partly by a pickup
in demand for efficiency-enhancing technologies. Also, contacts reported a pickup in
demand in food and restaurant industries.
Conditions in the District's travel and tourism sectors improved further in September and
early October. In Hawaii, international visitor counts have begun to increase after having
been battered by fear of SARS and the war. Domestic visitor counts continued to be strong.
Hotel occupancy rates have inched up in several District markets. On the down side,
convention bookings have yet to pick up in Utah, and several airlines continue to face
excess capacity.
Manufacturing
Manufacturing activity strengthened overall in September. Semiconductor producers
reported a further pickup in demand for microprocessors, DRAM, and flash memory. As a
result, capacity utilization in high-end fabrication plants is high and inventories are well
balanced. Contacts also noted an increase in demand for storage devices. Demand
conditions remained stable in biotech industries, and a rise in venture capital investment
bodes well for biotech startups. Consistent with the pickup in apparel sales, clothing
manufacturers reported a more positive demand outlook, although there continues to be a
shift from producing apparel domestically to overseas. Demand for lumber and
particleboard has increased, reflecting a surge in demand for projects in Iraq and continued
strength in housing markets.
On the downside, makers of telecommunications equipment and commercial aircraft
continued to face overcapacity and weak orders and sales. Demand for machine tools and
basic metals softened slightly relative to robust activity during the last survey period.
Agriculture and Resource-related Industries
Demand for most agricultural and resource-related products grew in the most recent survey
period. Yields of fruits, vegetables, and nuts were high and inventories were near desired
levels. Demand for District livestock, notably cattle, was strong, partly as a result of
diverted demand from potentially diseased Canadian beef. Overproduction in the wine
industry has led to excess inventories and downward pressure on prices. Prices for other
agricultural goods remained stable and export activity continued to show strength for most
markets.
Real Estate and Construction
Conditions in District real estate remained mixed, with commercial real estate markets still
in a slump and residential markets still solid. Sales of new and existing homes remained
robust, especially in Hawaii, Southern California, and some parts of Arizona. Elsewhere,
there were some reports of moderation in home sales, although sales and prices generally
were up from a year ago. On the commercial side, vacancy rates remained high but littlechanged from the last survey period or from a year-ago. Respondents indicated that rental
rates probably will stay at low levels for the time being, as landlords make concessions to
increase occupancy.
Financial Institutions
District financial institutions generally experienced increased demand in the most recent
survey period. Demand for business loans strengthened in recent weeks, while fierce
competition for quality loans continued to put pressure on margins. Several bank contacts
noted an acceleration of deposit inflows from businesses, which may signal improvements
in general economic conditions. Loan growth was particularly strong in Southern California
and Hawaii, consistent with robust economic activity there.
Mortgage refinance activity declined further across the District, with no signs of pickup
despite a slight decrease in interest rates during the survey period. Origination of new
mortgages for home purchases remained strong, although District bank contacts observed
signs of moderation in some markets.
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Last update: October 15, 2003
Cite this document
Federal Reserve (2003, October 27). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20031028
@misc{wtfs_beige_book_20031028,
author = {Federal Reserve},
title = {Beige Book},
year = {2003},
month = {Oct},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20031028},
note = {Retrieved via When the Fed Speaks corpus}
}