Beige Book
January 14, 2004
Summary
Prepared at the Federal Reserve Bank of Kansas City and based on information collected before January
6, 2004. 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.
Reports from Federal Reserve Districts suggest that the nation's economy has continued to
improve since the last survey. The strongest report came from the San Francisco district,
which said its economy expanded soundly. Most other districts also gave quite favorable
reports, saying their economies improved, strengthened further, or grew at a moderate pace.
However, Cleveland, Chicago, and Dallas reported only slow or modest growth, and St.
Louis said conditions were mixed. Retailers and manufacturers reported that prices were
generally steady despite increases for raw materials.
Holiday retail sales were generally positive across the country, and auto sales either
improved or held steady in most districts. Manufacturing activity increased in nearly all
districts, and New York, Philadelphia, and Kansas City noted some growth in factory
employment. Housing remained strong, particularly in the Boston and San Francisco
districts. Commercial real estate was still weak, although a few districts reported signs of
firming. Travel and tourism activity increased considerably, and gains were reported in most
other service industries as well. Bank loan demand was flat or slightly lower, with credit
quality generally unchanged. Energy and agricultural activity was steady in most districts,
although the appearance of mad cow disease created considerable uncertainty in the cattle
industry.
Along with the increase in overall economic activity, many districts reported modest
improvements in labor markets. These improvements took the form of reduced layoffs or
modestly increased hiring, although new hiring was still quite minimal in several districts
and most types of workers remained easy to recruit. Health care and other employee benefit
costs continued to rise. However, with labor markets still slack, wage pressures remained
generally subdued. Retail prices were generally flat, with some districts reporting less
discounting of holiday retail prices than in previous years. Manufacturers in most districts
also held their selling prices steady, despite substantial increases in the prices of some raw
materials such as steel and natural gas.
Consumer Spending
Reports on holiday retail sales were generally upbeat across the country, particularly for
sales during the last two weeks of 2003. San Francisco gave the strongest report, saying
robust sales led to considerable year-over-year gains. Holiday sales were also quite solid in
the Boston, Philadelphia, St. Louis, and Kansas City districts. Most other districts reported
more modest year-over-year sales growth, although some of these districts noted an
improvement in sales at the end of December. Cleveland, on the other hand, said retailers
were generally disappointed by sluggish sales during the holidays. All districts reporting on
store inventories said stock levels were generally in good shape for 2004, and all districts
reporting on expectations for future retail sales anticipate continued improvement in the
months ahead.
Looking across product categories, sales of high-end items were characterized as especially
strong in several districts, including New York, Philadelphia, Atlanta, and San Francisco.
Likewise, electronics and home furnishings sold well in many districts. On the other hand,
sales of apparel were reported to be soft in the Philadelphia and Cleveland districts, and San
Francisco noted heavy discounting at lower-priced apparel stores. Indeed, sales at discount
stores in general were reported to have been below plan in several districts, including New
York, Cleveland, and Kansas City.
Reports on auto sales were also generally positive, with most districts reporting either steady
or improving sales at the end of the year. Cleveland, St. Louis, and Minneapolis
characterized new vehicle sales as "strong" or "solid" in December, although St. Louis
reported that sales of used cars were not as robust as sales of new cars. Richmond, Chicago,
and San Francisco all noted some improvement in vehicle sales from previous months,
while Atlanta, Kansas City, and Dallas said sales were mixed or flat. Philadelphia noted that
a seasonal slowing in auto sales resulted in a buildup of inventories, and dealers in the
Cleveland district were worried about their ability to sell all of their 2003 models.
Otherwise, though, districts reporting expectations for auto sales were generally optimistic
about 2004.
Manufacturing
Nearly all districts reported increases in manufacturing activity in December, and several
districts noted that factory employment had begun to edge up as well. Chicago reported
broad-based improvement across manufacturing industries, and Dallas and San Francisco
said factory activity increased in a variety of sectors. Philadelphia, Richmond, and Kansas
City noted strong orders in December, and Boston said several firms had been "pleasantly
surprised" by recent increases in orders. Factory employment was reported to have posted
modest overall gains in the New York, Philadelphia, and Kansas City districts, and factory
jobs also reportedly picked up in select industries or for select occupations in the Boston,
Richmond, and San Francisco districts.
Looking across industries, primary metal manufacturing was said to be improving in the
Philadelphia, Cleveland, and Richmond districts, and production of various high-tech goods
continued to rebound in the Boston, Dallas, and San Francisco districts due to increased
capital spending by customers. Several districts also noted increases in the production of
industrial machinery, building materials, and transportation equipment. On the negative side,
St. Louis reported layoffs in the biotechnology, food, and tobacco industries. Petrochemical
producers suffered from overcapacity in the Dallas district and continued to lay off workers
in the Atlanta district. In addition, producers of paper goods in the Boston and Philadelphia
districts reported some weakness.
Manufacturers across the country generally expect factory conditions to continue to improve
in the months ahead, and several districts noted that capital spending in 2004 will be
somewhat higher than in 2003. Much of the increased spending will go towards replacement
of outdated IT and other capital equipment, but both Chicago and Kansas City reported a
few firms plan plant expansions as well. Exceptions to the optimistic outlook included
textile producers in the Boston and Richmond districts, who continue to suffer from excess
capacity.
Real Estate and Construction
Residential real estate activity remained robust, with home sales and new construction
reported to be strong in most districts. In the Boston district, home sales in Massachusetts
continued to rise at double-digit rates, while housing activity in other parts of the district
returned to more normal levels following boom conditions during the last two years. In the
San Francisco district, home sales increased and home price appreciation remained solid. In
most other districts, home sales and single-family homebuilding were reported to be holding
steady at high levels. The only districts reporting some slowdown in overall housing activity
were Chicago and Dallas. Contacts in the Chicago district said some easing was inevitable
given the previous boom, but Dallas reported that high inventories of existing homes were
becoming a concern. Both Boston and Kansas City reported that the high-end market was
weaker than the entry-level market, although tentative signs of a turnaround in high-end
construction were noted in Kansas City. The multifamily market remained weak in the few
districts reporting on this sector, the only bright spot being a modest recovery in apartment
rents in New York.
Commercial real estate activity remained weak, although there were signs of improvement
in a few districts. In most districts, commercial real estate markets and nonresidential
construction were described as soft with little improvement expected in the near term.
Commercial builders in the Cleveland district viewed 2003 as a weak year and did not
expect conditions to improve for at least the next six months. In the Chicago district,
vacancy rates remained elevated in most segments of the market, and contacts saw no
indication of a firming in demand at the end of the year. On a more positive note, however, a
few districts reported either a pickup in activity or improvement in expectations for the
future. For example, Atlanta reported that commercial construction activity was still
generally weak but that leasing activity continued to improve. In the Dallas district, the
office market remained soft, but contacts were increasingly optimistic that the worst was
behind them. The strongest report came from the Richmond district, where contacts were
highly encouraged by a pickup in leasing activity late in the year.
Tourism and Services
Travel and tourism activity improved substantially. Boston, Richmond, Minneapolis, Kansas
City and San Francisco all reported a surge in visitors to ski resorts due to very good snow
conditions, while Atlanta noted increased optimism about winter tourism in Florida and
New Orleans. Boston also reported a positive outlook for international bookings due to the
lower dollar and promotional airfares. Demand for hotel rooms in New York remained
strong, as brisk leisure travel activity more than compensated for a continued slump in
business travel. In other reports on business travel, Atlanta observed a modest increase in
convention bookings, while Boston noted increased spending on corporate entertaining and
higher bookings for corporate meetings in 2004.
Activity in other service industries generally expanded as well. Several districts reported
increased demand for freight transport services. For example, Cleveland observed busy
trucking activity serving retailers, Dallas reported increased rail shipments of lumber due to
strength in construction, and San Francisco noted that exports and holiday imports kept
several seaports operating at capacity. Looking at other sectors, Dallas reported robust
growth in legal services, Philadelphia noted improved demand at marketing firms, and New
York cited unusually brisk hiring for office jobs. Boston reported little change in overall
demand for insurance, with slightly higher sales of long-term care products but lower
revenue from large-property insurance. On a negative note, Richmond indicated lackluster
activity at several business support and technical firms.
Banking
Overall demand for bank loans either remained unchanged or declined somewhat in most
districts. Home mortgage lending continued to fall due mainly to lower refinancing activity.
Banks in the Chicago district reported that new mortgage originations were also slowing
somewhat, although such lending remained fairly strong. Demand for consumer loans fell
somewhat in the New York and St. Louis districts and rose in the Philadelphia and Kansas
City districts. Business loan demand increased in the Philadelphia, Richmond, and St. Louis
districts but held steady or weakened in other districts. Banks in the Richmond district
attributed the increased demand for business loans to the stronger economy and were
optimistic about lending prospects for 2004. In the Chicago and San Francisco districts,
banks reported more inquiries about lending terms from small businesses, even though
overall business lending remained flat.
Credit quality and lending standards were little changed in most districts. Credit quality was
described as stable in the Philadelphia district, although some banks reported higher defaults
on consumer loans. Banks in the New York district reported fewer delinquencies in all loan
categories except business loans. In the Chicago district, business loan quality improved, but
home mortgage loan quality eroded slightly. The only changes in credit standards were in
the New York district, where they were tightened slightly for non-mortgage loans, and in the
Chicago district, where some large banks were said to be loosening standards on business
loans in an effort to boost lending.
Natural Resources and Agriculture
Activity in natural resource industries generally held steady. Ore mining in the Minneapolis
district continued at a strong pace, as some mines produced near capacity while other,
previously shut, mines reopened. Energy activity in the Dallas district was little changed,
but contacts noted continuing excess capacity in the oil services and machinery industry. Oil
and gas drilling in the Kansas City district remained unchanged at levels considerably
higher than a year ago, while Minneapolis reported a decrease in both oil and natural gas
exploration. Looking ahead, natural gas producers in the Kansas City district plan increased
capital spending in anticipation of continued strong production, but contacts in both the
Kansas City and Dallas districts expect some decline in oil production in coming months.
While most districts reported steady conditions in the farm economy, the appearance of mad
cow disease created substantial uncertainty in the cattle industry. Farm incomes were
supported in the Chicago district by strong hog production and by rising corn and soybean
prices, while incomes in the Kansas City district were maintained by high soybean prices
and still-elevated cattle prices. In the San Francisco district, farmers benefited from strong
holiday sales of cut flowers and Christmas trees. Crop conditions in the Atlanta and Dallas
districts were reported as stable. However, farmers in some parts of the Minneapolis and
Kansas City districts continued to suffer from drought, and Richmond reported harvest and
planting delays due to excessive precipitation. The emergence of a case of mad cow disease
in Washington state resulted in a great deal of uncertainty for cattle ranchers. Contacts in
several districts noted substantial declines in cattle prices due to foreign bans on U.S. beef
exports. The uncertainty was causing ranchers in the Kansas City and Dallas districts to take
a wait-and-see approach toward herd adjustments. San Francisco, on the other hand,
reported that the appearance of mad cow disease was boosting sales of range-raised beef.
Labor Markets, Wages, and Prices
Most districts reported modest improvements in labor markets in December. San Francisco
noted a pickup in hiring, Minneapolis reported more hiring announcements than layoff
announcements, and Kansas City said layoffs dropped considerably. Likewise, demand for
temp workers increased in the Philadelphia and Richmond districts, and Chicago said the
seasonal decrease in temp employment this year was less than in the previous two years. On
the other hand, hiring was said to be quite minimal in several districts. Cleveland, for
example, noted that most firms still do not plan to increase payrolls in the near future. In
addition, while hiring improved somewhat in the Atlanta district, firms generally remained
reluctant to add full-time staff. Both Kansas City and Dallas noted some pickup in demand
for high-tech workers, although such workers were still easily recruited in the Kansas City
district and some types of high-tech and telecom work in the Dallas district continued to be
outsourced overseas. Acute labor shortages were generally reported only for select health
care fields, with some hospitals in the Atlanta district recruiting overseas to fill open nursing
positions.
Wage pressures generally remained subdued throughout the nation, but most districts
continued to report greater upward pressure on health care and other employee benefit costs.
Chicago, Kansas City and San Francisco described wage increases as "weak" or "modest"
and Boston stated that wages were mostly stable. Exceptions were reported in the Dallas
district, with wages subject to downward pressure in the airline industry but upward
pressure in certain occupations such as skilled mechanics. Meanwhile, districts consistently
reported that employee benefit costs continued to increase. San Francisco said that the
improving job market was making it harder to shift increases in health care premiums to
workers, resulting in slightly higher growth of total compensation.
Most districts reported little change in final goods prices, but costs of some raw materials
rose noticeably. Retail prices were generally stable. Atlanta, Kansas City, Dallas, and San
Francisco all reported less discounting of holiday retail prices than in previous years,
although a few other districts said holiday discounts were similar to last year. In
manufacturing, the most widely cited increase in raw materials costs was for steel. Contacts
in the Cleveland district said steel producers were raising prices to cover the increased cost
of their own inputs, such as scrap and iron ore, and that steel prices were likely to continue
rising through the first quarter. Price increases were also reported in some districts for
copper and aluminum. In the Boston district, prices of lumber and plywood were reported to
have fallen back somewhat from the highs reached in the third quarter, but contacts in other
districts said these prices were still well above year-ago levels. In most districts,
manufacturing firms were reported to still be having difficulty passing input costs on to their
customers. In the Dallas district, petrochemical producers held their selling prices steady in
the face of sharply rising natural gas prices, and trucking firms kept their rates unchanged
despite higher fuel costs. The only signs of a change in pricing power were in the New York
and Kansas City districts, where some firming in selling prices was reported.
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First District--Boston
The economy appears to be improving in the First District. Retail activity reportedly picked
up in the closing months of 2003, and travel and tourism are said to be strengthening.
Demand for products of most contacted District manufacturers was higher in the fourth
quarter than a year earlier. With the exception of cost increases for some metals, wood
products, and oil and gas-related items, prices are generally stable or falling. Residential real
estate markets in New England remain strong. Insurance activity has leveled out. Hiring
plans in most sectors are modest, but contacts report no planned layoffs.
Retail and Tourism
A majority of First District retail contacts report an increase in sales, ranging from 6 percent
to 15 percent, in the fourth quarter compared with prior-year sales. A furniture retailer notes
a slowdown in business due to snow storms in the first half of December, but strong sales
later in the month made up for the losses. According to contacts in the lumber and
homebuilder sector, residential construction and home renovations continue to positively
affect their business. Responding companies report that employment and wages are mostly
stable. Vendor prices are generally holding steady; with the exception of lumber and
plywood prices, which declined slightly after a dramatic increase in the third quarter.
Inventories are in line with sales and capital spending is on target with plans, as some
companies prepare to replace equipment and software in 2004.
Leisure travel has reportedly picked up in northern New England, as skiing attracted many
travelers in December. Contacts note that international bookings look positive for the
upcoming months, as the weak dollar attracts travelers and airlines offer promotional fares.
Domestic travelers continue to favor drive-to destinations and last minute trips. Though
occupancy rates in the accommodations sector have reportedly improved compared to recent
months, revenues are not increasing at the same rate -- most travelers are choosing
moderately priced motels with "package" deals over pricier accommodations. In the Boston
area, corporate entertaining is said to have strengthened in December compared to a year
earlier, and bookings for corporate meetings in early 2004 have also improved.
Most retail contacts are optimistic about 2004 and foresee continued improvements in the
coming months. While some respondents are pleased by the stock market and consumers'
willingness to make big-ticket purchases, they express concern about potential terrorist
attacks and rising interest rates.
Manufacturing and Related Services
About two-thirds of First District manufacturing contacts report that demand in late 2004 is
up from a year ago. Various firms say they have been pleasantly surprised by upticks in the
fourth quarter. For example, a diversified durable goods manufacturer whose business had
been "bouncing along the bottom" had a double-digit increase in orders in November.
Companies making supplies and equipment for the semiconductor industry indicate that
their customers' purse strings appear to be loosening. And a computer hardware firm notes
improved order patterns in the fourth quarter. On the other hand, a manufacturer of office
equipment has yet to see any positive signs, and a publisher says demand for publications
remains fairly sluggish.
Most selling prices remain flat to down. In some cases, manufacturers have been able to
counteract downward pressures by introducing innovative products. By contrast, costs for
copper and oil and gas derivatives are reportedly sharply higher than a year ago.
A biotech company is making large additions to its workforce, but most other contacts are
making only modest increases or modest decreases to their U.S. headcounts. Any new hiring
tends to be focused on professional and technical positions, and is often connected to new
product development, sales, or support. Pay increases are expected to average 2 percent to 4
percent in 2004, about the same as in 2003.
Most manufacturers anticipate that their capital spending will be modestly higher in 2004
than in 2003. Although life sciences companies are adding to their overall capacity, most
contacts' capital plans are motivated by the desire to lower the cost of production, improve
maintenance of their capital stock, or change their product mix. Various contacts report that
they are continuing to be cautious in their capital spending.
Manufacturing respondents are generally anticipating that revenues will increase in the
coming year, but despite their increased optimism they remain uncertain about the strength
or durability of the recovery. Contacts in textiles and paper products express particular
concern about their sectors.
Residential Real Estate
Residential real estate markets in New England remain strong. In Massachusetts, the number
of sales of both detached houses and condominiums increased by double digits in each of
the past four months and the number of sales beat the previous record for the state. Prices
have increased as well, although price increases have been more modest, with the average
sale price rising at a rate of 7 percent to 10 percent a year.
Markets in the rest of New England have been stable; most contacts report steady prices and
modestly active markets. Inventory has started to build in some areas, creating more
"normal" markets, compared to extreme shortages many states experienced in the past
couple of years. High-end homes, in particular, remain on the market longer, while low- and
mid-priced homes sell quickly in most places. Contacts report typical seasonal slowdowns
and expect that activity will pick up pace in the spring.
Insurance
Contacts indicate that overall demand for insurance has not changed much since October
2003. While demand for property and casualty insurance is still good, pricing in large
property insurance has declined by as much as 10 percent as fewer risks are expected, so
revenue growth from domestic sales has slowed down. Demand for life insurance remains
roughly unchanged, with only long-term care products selling better than average.
While no layoffs loom in the first quarter of 2004, hiring remains subdued; however, capital
budgets are beginning to expand as companies start to renew postponed capital projects.
Respondents expect the first quarter of 2004 to be largely flat due to slower sales growth in
the continental U.S. No major price changes are expected in 2004, in contrast to much of the
past year.
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Second District--New York
The Second District's economy showed further signs of strengthening in late 2003. Retailers
report mixed, but moderately positive sales results for December, with a late-month surge
making up for weather-related weakness in the first half of the month. While retail staffing
levels were reported to be little changed from last year, hiring activity in other sectors was
characterized as relatively brisk. Consumer confidence retreated slightly in December, after
reaching a one-year high in November. On the other hand, business contacts indicate further
improvement in manufacturing activity at year end.
Housing markets showed continued strength in the fourth quarter, and particularly in
December, though new construction was hampered by harsh weather. Manhattan office
vacancy rates held steady in December, while asking rents edged up further from low levels.
Profits in New York City's financial industry remained strong in the fourth quarter, though
off from the robust levels of the third quarter and a bit shy of expectations. Wall Street
employment is said to be rising, albeit gradually, and bonuses are expected to be up 18
percent to 20 percent from last year. Finally, bankers report further weakening in demand for
consumer and especially home-mortgage loans but further declines in household
delinquency rates.
Consumer Spending
Retailers report mixed but moderately favorable sales results for the holiday season-late
November and December. Same-store sales at major retail chains ranged from gains of 1
percent to 5 percent, compared with a year ago. For the most part, sales were above plan at
the more upscale chains but somewhat below plan at discount chains. Moreover, a number
of general merchandisers note a shift in the mix of sales toward higher-end merchandise.
Separately, an industry survey of large and small retailers across New York State shows
gains averaging 2 percent to 4 percent, which were considered a bit below plan.
After a rough start--with sales in the first half of December hampered by weekend
snowstorms--the month ended on a strong note; virtually all contacts indicate brisk sales
both right before and right after Christmas. Most retailers indicate that inventories ended the
year in good shape, though there were scattered reports of excess stocks in certain
categories. Retailers note that selling prices were steady to down modestly from last year's
holiday season, and most indicate little change in peak staffing levels. Separately, based on
the Conference Board's survey of Middle Atlantic (NY, NJ, PA) residents, consumer
confidence retreated slightly in December, after climbing to a one-year high in November.
Construction and Real Estate
Residential real estate markets continued to show strength in the final months of 2003, while
New York City's office market held steady. A contact in New Jersey's homebuilding industry
reports that there has been no discernible change in the state's persistently strong housing
market but that construction activity was disrupted by weather in the first half of December.
Manhattan's co-op and condo market has shown signs of strengthening: a leading appraisal
firm reports that sales were brisk in the fourth quarter, particularly in December, which is
typically a slow month, with a notable recovery in transactions at the very high end. Also,
selling prices appear to have accelerated in December, particularly for smaller units.
Manhattan's rental market has recovered modestly in recent months, though rents are still
more than 15 percent below their peak levels of late-2000. There is also a large volume of
newly constructed or converted rental apartments in the pipeline.
Manhattan's office market was steady in December, with Midtown's (Class A) vacancy rate
edging down from 10.8 percent to 10.6 percent but Lower Manhattan's rate rising from 13.7
percent to 14.2 percent. However, there is still a good deal of sub-lease space available, and
a fair amount of new or rehabilitated office space is scheduled to come on line in 2004,
more than offsetting conversions from office to residential use. Asking rents, though still
well below a year earlier, continued to edge up.
Other Business Activity
A New York City employment agency, specializing in office jobs, reports that hiring activity
was unusually brisk in December, which is usually a slow month. Hiring has been fairly
broad-based, with encouraging strength in the financial sector, though this contact notes a
persistently large number of unemployed tech workers. A contact in New York City's
securities industry reports that profits retreated somewhat in the fourth quarter and, though
still robust, were less than expected. Still, Wall Street bonuses are expected to be up 18
percent to 20 percent from last year; while these are typically paid out in January and
February, an industry contact anticipates somewhat later payouts, on average, in 2004.
Manhattan hotels report that demand for rooms remained strong in December, for the fourth
month in a row. While data on occupancy rates and room rates are not yet available, most
hotels report brisk bookings. An industry contact notes that business travel remains in a
slump, but that leisure travelers are more than picking up the slack.
The manufacturing sector ended the year on a positive note. Most contacts in the district
report further improvement in business activity as the year ended, as well as some leveling
off in selling prices, which had been declining. Similarly, Buffalo-area purchasing managers
indicate an acceleration in new orders, production activity and employment, as well as
slower deliveries and higher selling prices.
Financial Developments
Small to medium-sized banks in the district again report decreased demand for consumer
loans and especially for home mortgages, over and beyond normal seasonal weakness.
However, demand for commercial loans was little changed. Lower overall refinancing
activity was reported by the vast majority of bankers.
On the supply side, bankers indicate a slight tightening of credit standards in all loan
categories except residential mortgages. No bankers report an easing of standards. Interest
rates for commercial loans held steady while rates for household loans were mixed:
residential mortgage rates increased, on balance, while rates for consumer loans generally
declined. Average deposit rates were little changed. Finally, delinquency rates again
decreased for all categories of loans except commercial and industrial loans.
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Third District--Philadelphia
Business conditions in the Third District improved in December. Manufacturers reported
increases in orders and shipments compared with November. Retail sales of general
merchandise for the Christmas shopping season posted solid increases compared with a year
ago. Banks reported modest growth in lending, and investment companies reported
continuing increases in activity. Companies in a variety of service industries gave generally
positive reports, although most indicated that their business was expanding only slightly.
The consensus outlook in the Third District business community is for continued
improvement in 2004. Manufacturers forecast increases in shipments and orders. Most of
the retailers surveyed in December expect sales to move upward steadily in the new year.
Auto dealers expect sales in 2004 to match, and perhaps slightly exceed, sales in 2003.
Bankers expect modest increases in lending during the year. Service companies anticipate
moderate growth.
Manufacturing
Third District manufacturers reported continuing gains in activity in December. Half of the
firms polled during the month indicated that orders had increased compared with November
while less than one in 10 noted decreases. Shipments increased at just under half of the
firms and declined at only a very few. Although most firms said their order backlogs were
steady, almost one out of five reported that their backlogs were growing. Order backlogs at
area plants have been moving up at a modest, steady rate for the past several months.
Business conditions were relatively stronger for firms producing industrial materials,
transportation equipment, and metal products. Conditions have softened for makers of
lumber products, after a relatively long period of strong activity, and for firms making a
variety of paper products. While most of the firms surveyed in December reported steady
employment and working hours, the number adding employees or extending hours increased
noticeably during the month compared with prior months this year.
The region's manufacturers forecast continued improvement. Somewhat more than half of
the firms contacted for this report expect increases in shipments and orders during the first
half of 2004, and less than one out of 10 expect decreases. On balance, area manufacturing
firms plan to add workers and extend work hours during the first half of 2004, and they plan
to increase capital spending as well.
Retail
Third District retailers generally reported that sales for the Christmas shopping period met
or slightly exceeded their expectations. On average, current dollar sales of general
merchandise were up around 5 percent, with some stores reporting slightly smaller gains and
a few reporting higher increases. Much of the season's sales came in the week before and
after Christmas. Sales performance varied by type of merchandise. Sales of consumer
electronics and home furnishings were relatively strong, but sales of apparel and jewelry
were relatively weaker. Several merchants noted that more shoppers purchased higherpriced merchandise this year compared with last year, but there seemed to be less impulse
buying. Store executives said price markdowns this year were about in line with past years
and, in general, they were not left with excessive post-Christmas inventories. Looking
ahead, most of the retailers surveyed in December expect steady sales growth in 2004 at a
moderate rate.
Auto dealers reported a seasonal slowing in December that has left some with high
inventories. Nevertheless, most are optimistic that sales in 2004 will at least match sales in
2003. They expect manufacturers to offer incentives as needed to keep the sales rate from
slowing.
Finance
Third District banks contacted for this report generally indicated that loan volumes
outstanding were increasing modestly. Business and real estate lending were on the rise at
most of the banks surveyed. Most banks also reported growth in consumer lending, but the
extent of the gains varied; some banks were posting fairly strong increases, but some said
consumer loans were barely moving up. In general, banks indicated that credit quality has
been stable. However, some noted increases in defaults on personal loans. Some banks also
reported that they are reexamining the financial conditions of a number of their business
borrowers, although most banks said commercial credit quality has been steady.
Bankers in the District expect moderate growth in lending to continue in 2004. They report
growing optimism among their commercial borrowers, although they expect only modest
increases in business activity and financing needs at firms in the region. Bankers also expect
some gains in consumer lending and residential mortgage lending during the year.
Investment companies in the District have seen stepped up activity in the past few months.
Inflows to equity funds have increased markedly while inflows into bond funds have been
steady. Mutual funds and stock brokerages expect growth in activity in 2004, although they
anticipate increases in costs if new regulations on trading activity are imposed.
Services
Service firms contacted in December generally reported slight strengthening in growth
compared with prior months. Demand for general business services has edged up, and firms
involved in various marketing functions also noted some recent improvement after a
prolonged slow period. Information technology service companies also reported some
stronger growth, with much of their new business related to systems integration and network
security needs. Employment agencies indicated that both seasonal and fundamental demand
for temporary workers has picked up. Reports on permanent hiring were mixed. On balance,
the pace of hiring was just edging up, with relatively stronger demand for employees in the
service, finance, and transportation industries. Looking ahead, most service companies
expect moderate growth in 2004, with some building of momentum as the year progresses.
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Fourth District--Cleveland
The economic environment remained relatively unchanged in recent months, as the slow
and steady improvement in business conditions that marked the September-October period
continued in November and December. Most manufacturers indicated that production levels
stayed at least steady in the last two months of 2003. And while retailers expressed
disappointment at sluggish holiday sales, sales levels, nevertheless, inched up as the year
ended. Conditions in the construction industry seemed largely unchanged as well, as
residential builders saw demand stay strong, and commercial builders continued to wait for
demand conditions to improve. Shipping firms saw a pick-up in activity that began in the
late summer continue, while banks reported mixed loan demand and a slowing in the rate of
core deposit growth.
As in reports of recent months, most firms indicated that they do not plan to increase
staffing levels. Unlike in recent months, however, reports of rising input prices seemed more
widespread.
Manufacturing
Durable goods producers, in general, reported that production levels remained steady in
November and December, continuing the pattern of the last several months. Relative to a
year ago at this time, durable goods production in the District appears to have increased
slightly. Nondurable goods producers saw slightly higher levels of production in November
and December than in September and October and also reported increases in production
relative to the November-December period in 2002.
Durable and nondurable goods producers alike reported lower inventory levels than at this
time a year ago, and most indicated that inventories were at acceptable levels. The use of
overtime was also widespread among both durable and nondurable goods producers, though
neither group at this point reported plans to expand their employment rolls. In fact, about
half of the durable goods producers contacted said they plan to trim their workforces in the
near future. Rising input prices--over the last year and last several months--were also
reported by a majority of respondents in the manufacturing sector. Durable goods producers
in particular indicated increases in metals prices, notably steel and aluminum.
An increasing number of contacts in the domestic steel industry reported rising new orders
in recent weeks, a decided difference from the previous few months. Reports suggested
steady demand from automotive and appliance makers and improving demand among
industrial equipment producers and truck and trailer manufacturers. Lead times at steel mills
are reportedly on the rise, and some respondents indicated that their order books were full
through the end of the first quarter. Accordingly, a few respondents indicated that factory
utilization was rising to accommodate the robust demand. While some firms increased work
schedules slightly in response to the increase in demand, many firms have maintained
normal work schedules and do not plan to add to their workforce. Prices for both flat-rolled
and structural steel have continued to rise in recent weeks, as mills attempt to offset the
rising costs of raw materials such as scrap, iron ore, coal, and natural gas. Steel prices to
noncontract customers have increased over the last six weeks and, according to contacts,
could continue to increase through the first quarter.
For the November-December period, the District automobile plants that we track saw a
slight increase in production relative to the same period a year ago. However, of the five
major automakers with facilities in the District, two saw significant gains in production on a
year-over-year basis, which masked moderate declines in production for the remaining
three.
Retail Sales
In general, District retailers reported less robust sales activity in November and December
than they had anticipated. After expressing optimism at the time of the last report about the
coming holiday selling season, many retailers reported that their sales had not met
expectations. Responses from contacts at specialty retailers ranged from those who cited
soft sales to those who indicated modestly increasing sales from a year ago. Most contacts at
discount stores reported lower-than-expected sales gains. Finally, department stores in the
District continued to fare worse than other types of retailers, citing year-over-year sales
declines. While apparel sales remain soft, contacts continued to note that furniture and other
consumer durables were selling well, as were electronics, novelty gifts, and personal care
items.
Several contacts reported increases in promotional activity over the last six weeks of 2003,
through temporary price reductions or coupons. Price reductions for apparel items were
especially prominent. Nevertheless, many retailers also reported that their promotions were
no more aggressive this year than last. In general, input prices remain flat. Inventories are
reported to be flat or down relative to this time a year ago and continue to be tightly
managed.
New car sales were reported to be strong at the end of December, and up from the levels in
November and at this time last year. Contacts reported that strong incentives continue to
attract car buyers. Inventories, however, remain large, and some dealerships reported that
they are concerned about their ability to sell enough of their older stock before the end of
the model year. Used cars sales remained steady for dealers in the six weeks ending 2003.
Construction
Residential builders reported that activity slowed somewhat in the last two months of 2003,
though most of this slowing was attributed to seasonality. Nevertheless, sales levels were
strong, and similar to those at this time last year. Most builders saw stronger sales in 2003
than in 2002, and several expect 2004 to be better still. A few larger builders also noted an
improvement in their profit margins in 2003, driven largely by lower costs. Cost pressures,
in general, remain muted. Although lumber, oriented strand board, and plywood costs
remain high, they have not risen recently.
Commercial builders reported little improvement in conditions in November and December
from previous months. And, relative to the last two months of 2002, about as many builders
saw more activity in the last two months of 2003 as saw less. In general, 2003 was a weak
year for commercial construction in the District, and most contacts don't expect conditions
to change significantly for at least six months into 2004. In general, labor and materials
costs remained steady.
Trucking and Shipping
After increasing in the fall, trucking and shipping activity in the District remained robust at
the end of 2003 and outpaced the levels of activity at the end of 2002. Contacts reported that
most of the strength in demand was attributable to clients in the retail sector. Despite strong
demand, some firms reported that their amount of activity was below expectations, though
others reported operating at almost full capacity.
Carriers cited concerns about new EPA regulations regarding engine performance, recent
increases in insurance costs, and new hours-of-service regulations that all could add
significantly to costs. Fuel costs, however, have so far remained stable.
Banking
Commercial loan demand remained mixed across the District's banks during the six weeks
ending 2003. Consumer loan demand also continued to weaken, as the number of mortgage
refinancings that banks brokered fell further. Core deposits grew only modestly for most
contacts, while a few contacts reported no growth in core deposits. Some contacts reported
an improvement in their institution's net interest margin.
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Fifth District--Richmond
Overview
The Fifth District economy expanded at a moderate rate in November and December, led by
continued signs of a rebound in manufacturing activity. Manufacturers reported solid gains
in shipments and December new orders posted their strongest increase in over a year.
District retailers recorded generally steady sales growth through the holidays while services
firms said their revenues increased only slightly. In real estate markets, residential activity
remained upbeat and commercial leasing activity picked up during the final two months of
2003. District bankers noted somewhat higher demand for commercial loans but said that
slower refinancing activity put a lid on residential mortgage lending. Tourism was strong,
with special events and an encouraging start to the ski season supporting activity. In
agriculture, excessive precipitation hampered field work and limited small grain planting.
Retail
Overall, retailers in the Fifth District experienced steady sales growth over the holiday
season, with sales generally meeting projections. A discount store in Chesapeake, Va.,
reported strong customer traffic and revenue growth in December in part because area
competitors held off price cuts until just a few days before Christmas. Hardware and lumber
stores in Columbia, S.C., and Richmond, Va., reported that their sales grew modestly. But
not all stores posted gains. Contacts at a department store and a large bookstore in textiledependent central North Carolina said they met their sales goals, but added that they had set
their revenue targets somewhat below year-ago levels. Most automobile dealers in the
District said that sales grew moderately and they looked for a pickup in automobile sales in
coming months, leading some dealerships to increase hiring.
Services
District services firms said customer demand grew only slightly in November and
December. Despite heightened terror threats, District airports reported strong passenger
traffic in November and December. In addition, a Baltimore, Md., financial services firm
said customer demand remained positive and they were hiring. But several professional,
scientific, and technical services firms reported that their business had flattened toward
year-end, as did an administrative and support services firm in lower Maryland. Adding to
the lackluster tone, freight transportation operations in North Carolina and Maryland said
that demand was essentially unchanged from six weeks earlier.
Manufacturing
District manufacturing activity grew at a solid pace in November and December, led by
modest growth in shipments and a strong increase in new orders. New orders increased
notably in December, especially at primary metal and industrial machinery manufacturers.
An electronics equipment manufacturer in Maryland told us that while his shipments were
nearly flat in December, new orders picked up and several of his customers had asked for
expedited delivery in the months ahead. A North Carolina boat manufacturer reported
increased sales and suggested that a "better economy" was boosting the demand for boats,
leading him to expand hiring. In contrast, apparel and textile manufacturers saw few signs of
firming in recent months. Contacts in these industries said they continued to lose market
share to Far East producers and several noted that they would trim capital spending further
in 2004 because of reduced sales, lower capacity utilization and poor cash flow.
Finance
District bankers reported negligible loan growth in November and December as softness in
residential mortgage refinancing largely offset modestly higher commercial lending.
Although mortgage lending for new purchases was steady, residential mortgage refinancing
dwindled; a banker in Richmond, Va., said the "refinancing boom was gone," adding that
30-year mortgage rates would have to drop below 5-3/4 percent to spark another round of
refinancings. On a brighter note, contacts said demand for commercial loans rose. A
Charlottesville, Va., lender said commercial lending had been stoked in recent weeks as
local economic conditions strengthened and area retailers netted higher sales. Most financial
contacts expressed optimism regarding lending prospects for 2004; a Richmond, Va.,
banker, for example, expected commercial lending to grow by 7 percent in the upcoming
year.
Real Estate
The pace of residential real estate activity remained generally strong since our last report,
although the holidays damped buyer traffic somewhat. A real estate agent in Fredericksburg,
Va., described the market there as "incredible" and "across-the-board-good" while an agent
on Virginia's Eastern Shore said that housing demand was "pretty hot right now." A realtor
in Odenton, Md., said that houses were staying on the market a little longer and some
closings were being put off until after the holidays, but she expected sales to be "wild" again
in January. An agent in Fairfax, Va., was less upbeat, however, noting that sales growth
there had trailed off in recent months though the level of activity remained high. Home
prices were reported to be generally flat across the District.
According to commercial realtors, leasing activity in the Fifth District picked up over the
final two months of 2003. "Conditions are surprisingly good here--the year finished with a
flurry," noted a contact in Columbia, S.C., where leasing activity in office, retail, and
industrial space was strengthening notably. Activity was also on the upswing in Charlotte,
N.C., where a realtor reported increased interest in industrial space. Strong conditions
continued in the Washington, D.C., and Richmond, Va., retail markets--the Washington,
D.C., contact was "pretty upbeat" about leasing activity and a Richmond realtor reported
"smooth sailing" over the past two months. Overall, rents held firm and vacancies were
down slightly across the District.
Tourism
Tourist activity strengthened in the District in late November and December. Celebratory
events associated with the First Flight Centennial in Kitty Hawk, N.C., boosted tourism on
North Carolina's Outer Banks in mid-December. In Myrtle Beach, S.C., tourism received a
lift as military personnel began to return from Iraq. Contacts at several ski resorts in western
areas of the District said that holiday bookings in December set records. A Virginia ski
resort operator reported that heightened concerns over airline safety since December 21 had
generated increased business while his counterpart at a resort in West Virginia credited
ample snowfall for the increase in activity there.
Temporary Employment
Contacts at temporary employment agencies in the District generally reported modest
increases in the demand for workers since our last report, and most expected continued
increases in demand in the coming year. An agent in Raleigh, N.C., said he was seeing
strong demand for sales representatives, accountants, and engineers, adding that all
indications pointed to even stronger hiring of temporary workers in 2004. And an agent in
Gastonia, N.C., also expected stronger demand for placements over the next few weeks
citing more spending by consumers and a brighter economic outlook.
Agriculture
Excessive precipitation since our last report hampered field work and limited small grain
planting activity in many areas of the District. Farmers in North Carolina made only slight
progress in harvesting cotton and soybeans because of the rainfall. Soybean harvesting was
behind schedule in Maryland as well. Many field activities were delayed in Virginia and
West Virginia because of severe flooding in late November. On a brighter note, cotton and
soybean harvesting was nearing completion in South Carolina and the apple harvest was
finished in Virginia.
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Sixth District--Atlanta
Summary
Reports from the Sixth District indicated that the pace of economic growth remained
favorable during November and December. District retailers gave encouraging early reports
on holiday sales and most contacts noted that activity met or exceeded year-ago levels. Auto
sales were mixed, with foreign models outperforming domestic brands. Strength in the
District's residential housing markets continued, whereas commercial construction remained
generally weak. Reports noted modest improvement in the industrial sector, and some
contacts reported an increase in capital spending during November and December. The
District's tourism and hospitality sector continued to improve late in the year. Responses
from the financial sector were also mostly positive. Labor market reports firmed a bit in
November and December, although employers remained cautious. Prices were described as
stable overall.
Consumer Spending
Initial reports from District retailers indicated that holiday sales met or exceeded year-ago
levels. Contacts noted that the combination of lean inventories and strong sales resulted in
fewer discounts than in recent years. In particular, less discounting was noted after
Christmas. Several contacts reported that high-end merchandise did well over the holiday
season. Electronics and home-related products were also strong sellers. Generally, retailers
were upbeat about their prospects for first-quarter sales.
Vehicle sales in November and December were mixed, according to reports from auto
dealers. Some contacts noted that December is traditionally a low-volume month, although
foreign model sales were quite strong late in the year. Most contacts reported that a
reduction in the level of incentives had not significantly reduced sales or floor traffic at
dealerships.
Real Estate
District single-family housing markets ended the year strongly, with both construction and
sales continuing at a steady pace. Commercial markets were mixed. Commercial
construction remained generally weak in November and December, while leasing activity
continued to improve. Local industry analysts reported that improvements in the commercial
real estate market were expected in 2004.
Manufacturing and Transportation
District contacts reported that manufacturing production continued to recover in November
and December, and industrial energy sales had stabilized in some parts the District. Some
contacts noted that previously delayed capital spending plans have been revived, especially
IT equipment and infrastructure. Reports cited increased confidence in the sustainability of
economic growth, tax law changes, and the need to replace outdated and worn equipment as
reasons for the pickup in capital spending. Auto parts producers continued to announce
plans for new plants, and tractor and trailer producers reported increasing orders over last
year. New military contracts boosted activity for shipyards and military equipment
suppliers. Less positively, Louisiana's petrochemical industry continued to pare employment
rolls.
District trucking contacts continued to report gains in seasonal freight demand late in the
year. Airfreight tonnage improved from year-earlier levels for both domestic and
international cargo in Atlanta and Miami.
Tourism and Business Travel
The District's tourism and hospitality industry continued to improve at year-end. In Miami,
restaurants were said to be hiring aggressively, and south and central Florida tourism
officials were upbeat about the current tourist season. Tennessee hotel occupancy rates were
picking up in November and December from a year earlier as well. New Orleans tourism
industry officials were upbeat about the first half of 2004, and Atlanta contacts reported a
modest increase in convention bookings for 2004.
Banking and Finance
Responses from the financial sector were mostly positive. Deposit growth held steady or
improved in much of the region from a year ago. Commercial loan demand, however,
remained weak. Credit quality continued to strengthen and past due loans at banks were
below year-ago levels. Most banks were reported to be moving ahead with capital
expenditures to improve operating efficiency.
Employment and Prices
Reports on hiring were more positive in November and December than in previous reports,
but employers continued to be cautious regarding adding full-time staff. Several businesses
reported that they were keeping a lid on current payrolls but were increasing the amount of
outsourcing. In south Florida, seasonal hiring was reportedly stronger than it has been for
several years. Hospitals throughout the District continued to recruit internationally to help
meet the nursing shortage.
Most reports indicated that businesses were not raising prices. But one report did note that
increases in raw material costs were being passed on to customers, whereas wage and
benefit increases were not being passed on. Prices for timber products remained high
because of relatively low supplies and strong housing construction activity in the District.
Agriculture
Conditions remained mostly favorable for the District's crops. The harvest of sugar cane,
citrus crops and vegetables was underway in some areas. The discovery of mad cow disease
in Washington was expected to have an effect on the region's economy through lower cattle
prices.
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Seventh District--Chicago
Summary
Seventh District economic activity continued to improve modestly in late November and
December. On average, consumer spending picked up modestly, driven by a surge in buying
during the last few days of the year. Business spending also increased modestly.
Construction and real estate activity slowed somewhat. The manufacturing sector continued
to pick up, and the improvement was broad based. Overall lending activity was relatively
flat at the end of the year. Upward retail price pressures remained generally subdued, while
reports of increasing input costs became more frequent. Cattle prices fell significantly on
mad cow concerns, but remained above year-ago levels. Meanwhile, corn and soybean
prices rose in December, partly due to improved export prospects.
Consumer spending
Overall consumer spending picked up modestly in late November and December. Retailers
reported that holiday sales results were somewhat stronger than a year ago, and were
generally in line with their expectations. Sales were particularly robust during
post-Christmas promotions, as consumers snapped up deeply discounted merchandise and
redeemed gift certificates. District auto sales showed a similar pattern, as dealers reported a
flurry of sales in the last few days of December. One contact with a regional theater chain
indicated that movie ticket sales also improved markedly toward the end of the month. By
contrast, casual dining sales were said to be flat. Tourism and travel-related spending picked
up modestly, and was slightly ahead of a year ago. Many contacts expect tourism and travel
spending to accelerate in 2004 with a general improvement in overall economic activity.
Business spending
Business spending continued to increase as 2003 drew to a close, but the gains were
generally modest. Many businesses continued to repair and replace existing equipment, but
there were few reports of capital expansion. Temporary help firms noted that the number of
workers on assignment showed a seasonal decrease, but the decline was not as pronounced
as in the previous two years. One contact also said that average hours per assignment, which
typically fall toward the end of the year, held firm in December. Business contacts were
increasingly confident that demand will continue to firm in 2004, and many have boosted
their hiring and capital spending plans.
Construction/real estate
Overall construction and real estate activity appeared to moderate in December. On the
residential side, builders and realtors noted that property showings and sales softened
toward the end of the year, though the level of activity remained strong. At least part of the
slowdown was attributed to the onset of winter weather. But contacts also said that some
moderation was inevitable after exceptional housing market strength in the summer and fall.
Still, builders and realtors expect that low mortgage interest rates and an improving job
market will buoy home sales in 2004. Nonresidential construction and real estate activity
changed little from our previous report. Vacancies remained elevated in most commercial
segments and rents were still depressed. Contacts said there was little indication that
demand for commercial properties had firmed at the end of the year, but December is not
typically an active month for property inquiries.
Manufacturing
District manufacturing activity continued to improve moderately in December, and the
improvement appeared to be widespread. According to contacts, a wide array of
manufacturing firms boosted production to meet increasing demand. Manufacturers'
inventories remained very lean and there was little evidence that firms were rebuilding
stocks in December. However, with strong new orders, low inventories, and improving
earnings, contacts were confident that the recovery in manufacturing would continue to gain
momentum in 2004. Manufacturers of consumer goods said that demand should hold at high
levels, while producers of capital equipment expected the equipment replacement cycle to
pick up steam.
Banking/finance
On balance, overall lending activity was fairly flat. On the consumer side, mortgage
applications in December remained well below levels reached earlier in 2003. Refinancing
activity has dropped off considerably, and while still fairly strong, new mortgage
originations have slowed somewhat. One lender said that margins on mortgage loans
continued to tighten through the end of the year. This lender also noted that household loan
quality eroded slightly in December, particularly in the bank's mortgage portfolio. On
balance, business loan volumes were again flat, although some banks reported increasing
inquiries, particularly from small firms. Furthermore, as several lenders pointed out,
business borrowing typically slows toward the end of the year. Business loan quality
continued to improve modestly. One contact said that a few large banks were loosening
standards on business loans in order to boost lending.
Prices/costs
Upward retail price pressures remained largely subdued, while reports of rising input costs
increased. Retailers said that intense competition and value-conscious consumers combined
to keep a lid on price increases. More manufacturers, meanwhile, reported rising input costs,
flat output prices, and narrower margins. Contacts specifically cited increasing energy,
insurance, and employee benefits costs. One contact said that steel prices continued to rise,
despite the government's recent decision to drop import tariffs. Wage gains remained
relatively weak.
Agriculture
After rising to record levels during the fall, cattle prices dropped substantially following the
discovery of a single cow with mad cow disease on the West Coast. Cattle prices have since
stabilized and remained above year-ago levels, but much uncertainty persists. Some industry
analysts said that import bans by key trading partners will curb demand for the District's
high-quality beef. Milk production picked up nationally, pushing prices down further. Hog
production remained strong, as packers sought to keep profitable lines running. Corn and
soybean prices rose in December as export prospects improved. Drought conditions receded
in western portions of the District, though some areas still need a lot more moisture by
spring for the new crop year.
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Eighth District--St. Louis
Business conditions in the Eighth District were mixed at the end of 2003. Some contacts in
manufacturing and services reported improved employment and investment conditions,
while other contacts in manufacturing and services reported layoffs, plant closings, and flat
or reduced capital spending. Retail and auto sales increased in November and December
compared with the same months of 2002. Home sales were still up in most of the District,
but commercial real estate markets continued to be slack. Loan demand at a sample of small
and mid-sized banks declined slightly between early September and early December.
Manufacturing and Other Business Activity
Business activity in the Eighth District experienced mixed conditions since our last report.
Some manufacturing contacts reported increased employment, facility expansions, and
increased capital spending, while others reported decreased employment, facility
consolidations, and flat or decreased capital spending. Plant openings and expansions were
concentrated in the building materials, automobile, and auto parts industries. In contrast,
firms in the biotechnology, food processing, and tobacco industries announced plant
closings and cutbacks. In the services sector, contacts in the health care and banking
industries announced plant openings and expansions. A District hospital reported they
would add additional acute-care beds and would hire new employees. In contrast, a major
airline announced that it would close its call center, eliminating additional jobs in the
District.
General retailers reported increased sales in the last two months of 2003. Sales at clothing
and discount stores were up from last year, as was traffic at many District malls. In some
areas of the District, contacts estimate that consumer spending increased as much as 15
percent compared with the same months of 2002. A major discount retail chain is opening
three new stores in March 2004 and will be hiring new employees. Similarly, many new car
dealers reported strong sales at the end of 2003. Some contacts cited the continuation of
incentives as one reason for strong sales. Many contacts reported that, because of the strong
new car market, the used car market has not been as robust. Both retailers and auto dealers
are cautiously optimistic about strong sales throughout 2004.
Real Estate and Construction
As 2003 came to an end, home sales continued to do well in the Eighth District. November
year-to-date sales in the Memphis area were up by 9.2 percent compared with November
2002. November year-to-date home sales were up by 17.0 percent in northern Kentucky and
in southern Indiana, as well. Residential construction was up in most of the District's
metropolitan areas compared with November 2002. Construction was brisk in northeast
Arkansas, with no slowdown in sight. October year-to-date permit levels increased by 2.0
percent in the greater St. Louis metropolitan area, and contacts reported that residential
construction is steady in west Tennessee.
Commercial real estate markets remained slack in most of the District. In St. Louis, the
industrial vacancy rate fell to 7.3 percent in the fourth quarter (from 7.5 percent in the third
quarter); the office vacancy rate, however, increased by 1.7 percent to 17.2 percent.
Louisville's third quarter office vacancy rate was 20.4 percent, a modest increase from 19.7
percent in the second quarter, while the industrial vacancy rate fell to 8.7 percent from 9.1
percent in the same time frame. The Memphis area's third quarter vacancy rates were 15.3
percent for the office market and 19.9 percent for the industrial market. Commercial
construction seems to be improving throughout the District. Contacts in Danville, Kentucky,
and northeast Arkansas reported that construction is strong, and contacts in west Tennessee
reported plans for several new projects.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks were down 4.4
percent between early September and early December. This decrease stems primarily from
real estate loans, which declined by 6.3 percent over the same period. Commercial and
industrial loans increased 4.4 percent over the same period. Loans to individuals and loans
to commercial banks declined slightly by 1.7 percent and 0.3 percent, respectively. At the
same time, total deposits at these banks showed a modest decrease of 0.4 percent.
Agriculture and Natural Resources
Although the impact of the mad cow disease on the District remains to be determined,
District prices of beef cattle for slaughter rose from November to mid-December, except in
Illinois. Meanwhile, commercial red meat production and cattle and calf slaughter decreased
in November compared with November 2002. Coal production in Illinois, western
Kentucky, and Mississippi declined slightly in December compared with the same month
last year. December year-to-date production for the District was down 4.5 percent from
2002. Contacts anticipate that the price of natural gas will be higher in 2004 because of the
depletion of last year's stock, which will affect nitrogen fertilizer prices when the planting
season arrives.
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Ninth District--Minneapolis
From mid-November through December the overall Ninth District economy grew at a
healthy pace. Residential real estate, manufacturing, consumer spending, mining and
tourism were up, while commercial real estate was mixed and the energy and agricultural
sectors decreased. Labor markets were stable. Wage and price increases were generally
moderate; however, significant price increases were noted in heating costs and scrap metal,
and significant decreases were noted in beef.
Construction and Real Estate
Commercial building was mixed. A commercial real estate firm report revealed that the
amount of industrial space absorbed in the second half of 2003 exceeded the amount vacated
by 1.1 million square feet in the Minneapolis-St. Paul area, the highest absorption rate
during the past three years. While the vacancy rate for industrial space was large, absorption
could top 2 million square feet in 2004, according to the report. Office vacancy rates
remained over 20 percent, including sublease space, in the downtown areas of Minneapolis
and St. Paul. A city official expects faster growth in commercial construction in Sioux Falls,
S.D., during 2004 compared with 2003.
Homebuilding continued to expand at a strong pace. Housing units authorized increased 9
percent in district states for the three-month period ended in November, compared with a
year earlier. In Rochester, Minn., a city report showed stronger homebuilding activity in
November compared with last year. Home sales were down slightly in the Minneapolis-St.
Paul area from a year earlier; nevertheless, year-to-date gains had already surpassed total
sales in 2002. Relatively high vacancy rates for apartment rentals were reported in the
Minneapolis-St. Paul area. In Billings, Mont., November home closings were 16 percent
higher than last year.
Consumer Spending and Tourism
Retail sales during the holiday season were generally up from a year ago. A mall in North
Dakota reported same-store sales up about 3 percent during the holiday season compared
with a year ago. A Minneapolis area mall manager reported about a 1 percent gain in sales
overall, with some stores reporting no increase and others strong gains. Strong traffic from
Canada boosted retail sales, according to a chamber of commerce representative in North
Dakota. A Montana mall manager said sales were about even compared with a year ago. A
major Minneapolis-based retailer reported same-store sales during the first four weeks of
December were up from last year, but were running below its plan for a 4 percent to 6
percent increase.
Bank directors reported solid new and used car sales, particularly for large SUVs and pickup
trucks. A South Dakota auto dealer association representative noted that recent vehicle sales
were higher than last year.
Tourism activity was generally up from last year due to solid snowfall in several areas of the
district. Downhill ski reservations in northwestern Montana were above a year ago. Early
snowfall helped boost cross country skiing in northwestern Wisconsin, while a recent large
snowfall in Montana and South Dakota has spurred a significant jump in skiing and
snowmobiling compared with last year. A Minnesota ski resort reported strong visit
numbers, about the same as last year. In contrast, a recent warming trend in Michigan's
Upper Peninsula has drastically slowed winter activity; up to 80 percent of reservations in
some areas were canceled during the holidays.
Manufacturing
Manufacturing activity increased. A December survey of purchasing managers by Creighton
University (Omaha, Neb.) indicated overall improved manufacturing activity in the Dakotas
and Minnesota. In addition, several manufacturers expect growth in sales and capital
expenditures in 2004. A Minnesota capital equipment supplier noted that orders increased
significantly over the last two months. An expansion at a milling plant in North Dakota was
recently announced. A plastic product producer plans to expand in the Upper Peninsula. In
Montana, an adhesive label company is building a manufacturing facility. However, a
sawmill in Montana reduced production in December because of weather conditions.
Energy and Mining
Activity in the energy sector decreased slightly, while the mining sector increased.
Mid-December district oil and natural gas exploration amounts decreased from early
November levels. Most major district operating iron ore mines continue to produce at near
capacity, and a previously shut mine reopened. The Great Lakes shipping season was
extended for 10 days to accommodate additional taconite shipments. However, a mine in the
Upper Peninsula temporarily shut down a kiln due to mechanical problems. In Montana, a
molybdenum and copper mine reopened. Several mines reported strong prices for their
products.
Agriculture
Agricultural economic conditions deteriorated. The cattle industry faced disruption as the
U.S. Department of Agriculture discovered a cow infected with mad cow disease. Several
countries closed their borders to importing U.S. beef and live animals. The price of cattle
subsequently decreased. Due to the large crop harvest and shortages of storage space and
rail cars, record amounts of grain were stored on the ground in North Dakota. Meanwhile,
even with a late December storm, drought conditions continue to exist across most of the
district.
Employment, Wages and Prices
November district employment was stable, although recent signs of growth were noted.
Nonfarm employment was down almost 1 percent in district states in November compared
with a year ago.
Hiring announcements included a telemarketing business based in Duluth, Minn., that plans
to hire as many as 100 employees. Two airline reservation centers in Minnesota will boost
employment by about 200 workers due to company consolidation from another state. In
South Dakota a financial services company will soon add over 150 jobs, a teleservices
company will employ 130 new workers, and a marketing company plans to create 100 new
jobs over the next year. A temporary staffing agency survey showed that 24 percent of
employers in Minneapolis-St. Paul expect to hire more workers during the first quarter of
2004 and 13 percent expect to reduce payrolls. Last year 20 percent expected to increase
payrolls; 16 percent planned reductions.
In contrast, a plastics plant will soon shut down in southern Minnesota, affecting almost 100
employees. Previously announced plans to lay off about 700 workers at a South Dakota
computer company are under way.
Wage increases were generally modest. For example, according to a recent contract
agreement at a freezer plant in Minnesota, employee pay is frozen during the first year of
the contract and increases slightly in each of the following two years; the employee share of
health insurance premiums won't increase, but copayments will. State employees in South
Dakota will not receive pay increases in 2004.
While price increases were generally modest, significant increases were noted for residential
heating and scrap metal, while beef prices dropped. According to bank directors, overall
price increases were modest. One director noted that commercial property insurance prices
were leveling after a period of significant increases. Residential heating costs were up about
20 percent in November from last year, while scrap metal prices were up over 45 percent.
Beef prices fell steadily following the discovery of mad cow disease in late December.
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Tenth District--Kansas City
The Tenth District economy strengthened further in December, and contacts were generally
optimistic about future activity. Holiday retail sales were quite solid, labor markets firmed
slightly, and manufacturing continued to expand. Winter tourism activity got off to a strong
start, and the housing and energy markets remained strong. On the negative side,
commercial real estate markets remained weak. The district farm economy remained strong,
but contacts were somewhat uncertain about future conditions due to the appearance of mad
cow disease. Wage and price increases generally remained modest, although some materials
prices continued to rise rapidly.
Consumer Spending
Retailers were generally pleased with holiday retail sales. Most stores reported December
sales were well ahead of a year ago, and many managers said it was their best Christmas
season since 2000. A few discount stores, however, reported year-over-year gains were
slightly less than they expected. Among product categories, sales of electronics were
particularly strong, although managers generally reported solid sales of nearly all types of
items. An exception was winter apparel, which suffered from unseasonably warm weather in
most areas of the district. Store managers were generally satisfied with inventory levels
following the holidays and plan few adjustments heading forward. Most managers were
optimistic that solid year-over-year sales growth would continue in coming months. Sales of
motor vehicles generally held steady in December but were still below year-ago levels in
some areas of the district. Looking ahead, most auto dealers expect sales to be stronger by
the end of winter. Tourism activity in the district was strong over the holidays. Airport
traffic continued to increase in most cities, and most Rocky Mountain ski areas reported an
increase over last year's near-record holiday season.
Manufacturing
District manufacturing activity continued to expand in December, and expectations for
future output remained high. Compared to the previous survey, most plants reported slightly
higher levels of capacity utilization and modest increases in employees and hours.
Consistent with the recent increases in activity, supplier delivery times lengthened slightly,
and several manufacturers reported difficulties obtaining materials, particularly steel.
Expectations for future production remained very high, as the volume of new orders
continued to rise and a sizable backlog of orders emerged. More firms than in previous
surveys also plan to increase capital spending in the months ahead, primarily to replace
outdated equipment but also in some cases to expand capacity. On a negative note, some
meat-packing plants in the district have laid off workers or warned of future cutbacks due to
the impact of mad cow disease on their export business.
Real Estate and Construction
Residential real estate activity in the district remained quite solid in December, while
commercial real estate activity was still weak. Single-family housing starts continued at a
strong pace in most district cities. Construction of entry-level homes provided most of the
strength but, for the second survey in a row, some builders also reported signs of a
turnaround in high-end single-family construction. Most builders expect home construction
to be steady through the rest of the winter. Builders reported few difficulties obtaining
construction materials, in part because of weakness in commercial and multifamily building
activity. Heading forward, a few builders were concerned about the availability of lumber,
but they generally did not anticipate sizable problems in obtaining materials. Although still
quite high by historical standards, home sales continued to ease from summer peaks in most
district cities, and realtors generally expect sales to be flat through the winter. In an
exception to the trend, home sales in Denver have finally begun to pick up, and Denver
realtors expect activity to continue to rebound in coming months. Mortgage lenders reported
further declines in mortgage demand, due largely to continued easing in refinancing activity
but also to slower home sales. Most lenders believed refinancing activity had neared a
bottom, and they expect total mortgage demand to be flat to slightly higher in the months
ahead. Commercial real estate activity in the district remained weak in December, as office
vacancy rates showed little or no improvement. Realtors generally expect little change in
commercial real estate markets in the months ahead.
Banking
Bankers report that loans edged up and deposits remained unchanged since the last survey,
boosting loan-deposit ratios slightly. Demand increased for consumer loans and home equity
loans, making up for a decline in the demand for home mortgage loans. Demand for other
loan categories remained unchanged. On the deposit side, liquid accounts, small time
deposits, and large CDs all held steady. All respondent banks left their prime lending rates
and consumer lending rates unchanged. No changes in lending standards were reported.
Energy
District energy activity remained strong in December, as energy prices rose further. The
count of active oil and gas drilling rigs in the region was unchanged from the previous
survey but still nearly 50 percent higher than a year ago. District energy contacts expect
natural gas production to remain high in coming months but for oil production to decline
slightly. Most district energy firms plan modest increases in capital spending in 2004, with
an emphasis on natural gas.
Agriculture
The district farm economy remained strong in December, although the appearance of mad
cow disease and continued drought in some areas caused concern about future conditions.
Farm incomes continued to benefit from the high soybean and cattle prices that emerged in
the fall. Despite higher incomes, however, farmers remained reluctant to expand their
operations and make large investments. While soybean prices are generally expected to
remain strong, uncertainty surrounding mad cow disease and plummeting cattle prices were
causing some ranchers to take a wait-and-see approach before making additional
investments in their cattle herds. In addition, the district's winter wheat crop remains dry and
timely moisture will be needed for a good harvest.
Wages and Prices
Wage and price increases generally remained modest in December, although some materials
prices continued to rise rapidly. Labor markets were still slack around the district. However,
layoffs subsided considerably and more firms than in previous surveys reported problems
finding and retaining workers. Among the workers reported to be in shorter supply were
entry-level bank tellers and retail clerks, skilled technicians, and rig workers. Some builders
also offered bonuses or new benefits in an effort to retain craftsmen. In addition, some
contacts reported tentative signs of increased demand for tech workers, although such
workers were still easily recruited. Most firms continued to offer only cost-of-living wage
increases, while benefit costs continued to rise rapidly. As for prices, many retailers reported
less pre-Christmas discounting than in previous years, and stores generally expect less
post-holiday discounting as well. One retailer also anticipates raising prices slightly in
coming months in order to match expected price increases by suppliers. Builders reported
prices for construction materials remained well above year-ago levels in December, and
prices are expected to ease little in coming months. Manufacturers reported a large rise in
materials prices, especially for steel, and many expect price increases to continue in the near
future. Contacts also expect an increase in freight costs due to recent legislation governing
trucker hours. Manufacturers' finished goods prices continued to firm and managers
increasingly expect to be able to pass some of their cost increases through to customers in
the near future.
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Eleventh District--Dallas
Eleventh District economic activity expanded modestly from mid-November to early
January. Contacts expressed optimism about the outlook for 2004 and are increasingly
taking steps to increase capital spending and hiring as a result. Manufacturing activity
continued to recover, while the demand for business services strengthened modestly.
Retailers reported that holiday sales were good but not great. Conditions were mostly
unchanged for the energy industry and for real estate and construction firms. The beef
industry has been disrupted by fears of "mad cow" disease, but there was little change in
other agricultural conditions.
Prices
Energy prices are higher. Natural gas prices jumped over 40 percent in December. U.S.
crude oil prices were up in response to OPEC production restraint, terror uncertainties, cold
weather, higher tanker rates and very low crude inventories in the U.S. In December, crude
inventories twice set records for the lowest levels ever seen during the month. OPEC has not
responded to prices above their announced target range for a variety of reasons including a
weaker dollar and expectations that supply will be stronger in the spring. Heating oil prices
have been volatile but ended the period up slightly-responding to cold weather, a spike in
natural gas prices, and higher crude prices. The price of regular gasoline was stable at $1.48
to $1.50 per gallon throughout the period, although December pump prices were the highest
ever for a December. Gasoline demand has been running at rates above the five-year
maximum all year, including November and December.
The spike in natural gas prices was a shock to large users like petrochemical producers.
Domestic producers absorbed the additional costs, hurting profit margins. Prices for plastic
resins remained stable in December. High natural gas prices have led to a moderate rise in
the price of cement, sand, gravel and aluminum, and one respondent expressed concerns
about being driven out of business by natural gas cost pressures.
Transportation firms reported concerns over rising fuel prices, although their ability to pass
these cost pressures onto selling prices is mixed. Intense competition is keeping trucking
prices unchanged, but strong demand is allowing some price increases for rail shipments.
Airlines say selling prices continue to be soft.
Producers of primary and fabricated metals say input prices have skyrocketed. Shortages of
steel, scrap and rebar were reported. Apparel prices continue to face downward pressure
from tough global competition. Prices for most telecommunications and electronics products
continue to decline. Retailers say that prices are declining at a slower rate. Auto dealers
report that input prices and manufacturer incentives are unchanged, but selling prices
continue to decline.
Labor Market
The labor market appears to be strengthening slowly with scattered reports of increased
hiring. Still contacts report concerns about rising costs for health care and other employee
benefits, including an increase in the Texas unemployment tax. Rising wage pressures are
reported for some types of workers, such as skilled mechanics and clerical workers.
Temporary service firms say wages and salaries have increased 3 percent to 4 percent in the
past quarter, but individuals that were making about $15 an hour in 2001 are currently
making about $13.50 an hour. Financial stress continues to exert downward pressure on
wages and employment levels in the airline industry.
Manufacturing
Manufacturing activity was improved for most products, including food, metals, lumber and
paper products. Apparel producers reported no change is sales growth over the past month
and say tough global competition continues to put pressure on the industry. An exporter of
manufactured equipment noted an increase in projects in the Middle East following the
capture of Saddam Hussein.
Demand for construction-related products, such as concrete, brick and glass, has been better
than expected, which contacts attribute to favorable weather conditions. The outlook is
"cautiously optimistic." Producers are cautious because of high natural gas prices and
uncertainty about interest rates, but are optimistic because of productivity improvements
achieved by modifying the mix of fuel content and the start of new public and commercial
construction projects.
Respondents in high-tech manufacturing reported a continued moderate growth in orders
with a slight acceleration in orders for latest-technology products and research. One
respondent noted that the recent improvement in the economic outlook has motivated
companies to increase their investment in cutting-edge technology so that they can stay
ahead of the competition. Inventories were reported to be close to desired levels with
retailers keeping lean inventories, and one manufacturer reporting that they were trying to
build inventories. Contacts said they continue to outsource functions such as logistics and
information technology to companies in the U.S. and overseas. Most contacts expect sales to
grow at a 5 percent to 10 percent annual rate over the next three-to-six months.
Telecommunication manufacturing firms reported continued slow recovery, with demand up
slightly and inventories declining slowly. The decrease in inventories and the growth of
broadband use has helped to boost future prospects for the industry, although a robust
recovery is not on the horizon. Domestic employment levels are not expected to increase,
but plans to hire or outsource in the Asian Pacific region, particularly China, could boost
worldwide employment.
Refiners raised production levels in response to cold weather and higher heating oil prices.
Imports of refined products have been running at high rates, above the five-year maximum.
Petrochemical markets continued to be plagued by overcapacity, despite rising demand from
an improving U.S. economy. High natural gas prices have resulted in the loss of most export
markets, further worsening the overcapacity situation. Producers are also facing growing
competition from foreign producers for domestic markets.
Services
Legal firms reported robust growth in the fourth quarter. Litigation activity was still strong,
and transactional/venture capital activity continued to strengthen. One contact noted a
slowdown in bankruptcy work. Accounting activity was flat.
Temporary service firms reported only a slight increase in activity. Demand is strongest to
supply health care workers, but orders grew considerably for IT and light industrial.
Demand for workers to supply call centers and administrative/clerical positions have been
weaker than expected.
Transportation firms, including trucking, airline and rail, reported increased demand. Rail
shipments of grain have been boosted by good crop yields in the U.S. and higher demand
from abroad. There has also been an increase in rail shipments of lumber and wood as a
result of sustained growth in the housing construction market. The airline industry continues
to improve modestly. Holiday demand was stronger in 2003 than in 2002, but demand was
weaker than expected, which contacts attribute to the increased homeland security alert
status.
Retail Sales
Retail sales started the holiday season slowly but ended it with a flourish. Overall contacts
said that sales were good but not great. The industry remains very competitive, but contacts
say there are fewer massive promotional efforts because consumers expect low prices and
aren't attracted to the "loud noise of discount." Inventories are in good shape. Auto sales
remain flat.
Construction and Real Estate
On the commercial side, office market fundamentals remained weak, but respondents are
increasingly optimistic that the worst is behind them. Still, most contacts don't expect a
major improvement in office markets until late 2004 or early 2005. Industrial real estate
continues to perform relatively well, and most contacts in that industry are cautiously
optimistic that demand will remain steady in the first quarter.
On the residential side, multifamily markets remain soft, with little change in demand.
Apartment construction has subsided some, according to contacts, but there are still
significant projects in the pipeline. While vacancy rates have flattened, there continues to be
downward pressure on rents. Single-family builders say demand is flat to down, and fierce
competition is keeping a lid on price increases. Contacts in the existing home market remain
concerned about the amount of inventory available to buyers. Most single-family
respondents were guarded in their outlooks, hoping for a pickup in job growth in 2004.
Energy
Crude oil demand has been at levels well above the five-year average since October, but
there has been little change in energy activity. The domestic rig count remained near 1100
and drilling in the Gulf of Mexico is at a depressed 100 rigs. International drilling continues
to improve. There continues to be excess capacity in the oil services and machinery industry,
leading to sluggish pricing and moderate profits. In 2004, producers expect U.S. oil drilling
to decline roughly 7 percent from current levels. International activity is expected to
increase 6 percent.
Agriculture
Crop conditions were mostly unchanged, but the first U.S. case of "mad cow" disease led to
a significant drop in cattle prices. Thirty-five international markets closed their borders to
U.S. beef. Contacts consider U.S. beef safe but say cattlemen may delay liquidating herds,
reducing beef production in 2004. Some contacts were hopeful that Mexico and Canada
would soon re-open their borders to U.S. beef. However, most contacts were uncertain about
how the American consumer would respond while the extent of the disease in the U.S. is
being determined.
Return to top
Twelfth District--San Francisco
Summary
Reports from Twelfth District contacts indicate that the economy expanded soundly in late
November and December, representing a slight improvement from the previous survey
period. Consumer and producer prices generally were stable, although respondents noted
increases in some energy and material costs. Wage and salary increases remained modest,
with the growth rate of total compensation edging up. District retailers reported robust
holiday spending by consumers, with higher sales and less discounting relative to last year.
Manufacturing activity in the District continued to expand, representing a pickup in the pace
of growth in several sectors. District housing markets remained strong and commercial real
estate markets showed further signs of improvement. With the exception of cattle
ranchers--who were affected by the discovery of mad cow disease in Washington state-conditions among District agricultural producers remained solid. Reports from District
banking contacts indicated that demand for commercial and industrial loans remained
subdued, though demand for small-business loans improved slightly.
Prices and Wages
District contacts generally noted little change in prices in the recent survey period.
Exceptions to this pattern were for natural gas, homebuilding materials, and certain
manufacturing inputs such as steel plate. Contacts said that stiff competition among
domestic businesses continued to constrain pricing power.
Despite a pickup in hiring, wage and salary pressures in the District remained modest in
recent weeks. However, contacts noted that, as job markets have improved, companies have
found it more difficult to shift increases in healthcare premiums, workers compensation
insurance premiums, and other employee-related costs to workers. As a result, the growth
rate of total employee compensation has edged up for many employers.
Retail Trade and Services
District contacts indicated that sales of retail merchandise were brisk in late November and
December, with both dollar sales and unit sales up considerably relative to last year. In
general, retail contacts reported limited holiday season discounting, especially for
electronics, jewelry, and high-end apparel. Discounting was prevalent among low- to
moderate-priced apparel sellers. Most contacts reported that holiday sales met expectations,
leaving retail inventories in balance heading into 2004. Automobile dealers reported some
improvement in sales in December, boosted by renewed financing incentives and year-end
discounts on remaining 2003 models. In California, the reversal of the October increase in
the vehicle license fee reportedly contributed to a pickup in sales; this allowed most District
auto-dealers to run down inventories that were accumulated in October and November.
Business conditions for District service providers continued to improve, with several noting
firmer demand. Advertising and marketing firms reported a rise in contracts for print and
radio advertising campaigns. Demand also strengthened for accounting and legal firms,
stimulated by interest in corporate pension planning and tax preparation services. Contacts
at West Coast ports indicated that improved export traffic and holiday season importing kept
several District seaports operating at capacity in December. Demand for preventative and
outpatient healthcare services continued to grow in the District. Conditions in the District
travel and tourism sector remained strong; several contacts noted a surge in travel associated
with unusually good conditions in prominent ski areas.
Manufacturing
District manufacturing activity increased further in late November and December, with the
pace of growth accelerating in many sectors. Makers of machine tools, building materials,
furniture, and construction equipment noted that growth of sales and orders for their goods
accelerated in recent weeks. One District machine tool maker said that the recent demand
surge nearly filled company order books for 2004. Orders for and sales of semiconductors
and other high-tech products continued to grow, boosting capacity utilization at several
plants. A weaker dollar helped District apparel makers expand output, but most continued to
operate below full capacity. Improved demand for manufactured goods reportedly surprised
some raw material and equipment suppliers; several manufacturers noted that they were
having difficulty obtaining inputs in a timely fashion. Although most manufacturers in the
District remained cautious about expanding payrolls, a few contacts noted that they have
begun to hire highly-skilled workers.
Agriculture and Resource-related Industries
With the exception of cattle ranchers--who were affected by the discovery of mad cow
disease in Washington state--conditions among District agricultural producers remained
solid. Contacts reported strong seasonal sales of cut flowers and Christmas trees over the
holiday season. Prices for most other agricultural goods reportedly were stable and
inventories generally remained in balance. Export bans on beef and beef products associated
with the discovery of a case of mad cow left several traditional cattle ranchers and feed lots
in the District with excess inventories. The mad cow scare has benefited some organic beef
ranchers; sales of range-raised beef reportedly rose considerably in recent weeks.
Real Estate and Construction
District residential real estate markets remained robust during the most recent survey period.
Sales of new and existing homes increased throughout the District and home-price
appreciation remained solid. Conditions on the commercial side improved slightly, with
office vacancies and lease rates stabilizing in most markets. Several commercial landlords
noted that businesses have begun to take advantage of the low-lease rate environment to
obtain more desirable locations or more desirable office space. In San Francisco, for
example, businesses have begun to move from surrounding suburbs to the city of San
Francisco. Contacts in other areas of the District report tenants moving from Class B to
Class A office buildings.
Financial Institutions
District banking contacts indicated that commercial and industrial lending remained
subdued in late November and December. However, demand for small-business loans
reportedly improved slightly in some areas, and contacts noted increased inquiries about
rates and loan terms. Mortgage lending remained healthy but down from the prior survey
period and from the same period a year ago.
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Last update: January 14, 2004
Cite this document
Federal Reserve (2004, January 27). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20040128
@misc{wtfs_beige_book_20040128,
author = {Federal Reserve},
title = {Beige Book},
year = {2004},
month = {Jan},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20040128},
note = {Retrieved via When the Fed Speaks corpus}
}