Beige Book

March 9, 2005

Summary

Prepared at the Federal Reserve Bank of New York and based on information collected on or before

February 28, 2005. This document summarizes comments received from businesses and other contacts

outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.

Information received from District Banks suggests that the economy has continued to expand

at a moderate pace since the last report. All twelve Districts indicated that economic activity

has increased, though Richmond reported some deceleration in the pace of growth, while

Dallas noted some acceleration. Relatively brisk growth was reported in the New York and

San Francisco Districts.

Consumer spending was steady to up moderately, with a number of Districts noting sluggish

auto sales. Retailers were mostly satisfied with current inventory levels and were generally

optimistic about the outlook. Travel and tourism activity were characterized as strong, with a

few exceptions. Reports from most other service industries also showed improvement.

Nearly all Districts reported continued expansion in manufacturing activity. Housing markets

and residential construction activity were described as robust in most areas, but commercial

real estate markets were mixed. Most Districts reported little change in overall loan demand,

though a few indicated some pickup.

Labor markets strengthened in almost all Districts; while wages continued to increase at a

moderate pace, employers in many Districts reported ongoing pressures from higher benefit

costs. Many Districts reported increased difficulty in locating skilled workers for at least

some industries. A number of Districts reported increases in prices for manufactures and

materials, but others noted some easing of input costs; prices of consumer goods and services

were mixed but relatively flat, on balance.

Consumer Spending and Tourism

Consumer spending has been steady to somewhat stronger since the last report. Overall retail

sales strengthened in Boston, Philadelphia, Atlanta, Minneapolis, Kansas City, and Dallas.

However, sales were reported to have been little changed in the other Districts. A number of

reports from retailers indicated that apparel sold well, but others noted weak sales of

electronics and big-ticket items. Automobile sales have been steady to softer in early 2005.

Vehicle sales weakened in Richmond, Kansas City, Dallas, and San Francisco, while sales

were said to be mixed in Cleveland, St. Louis, and Minneapolis. The Philadelphia, Atlanta,

and Chicago Districts reported that auto sales picked up in February, after a sluggish January.

Overall, retail inventories were said to be at satisfactory levels, though automobile

inventories were said to be on the high side in Philadelphia, Chicago, St. Louis, and Dallas.

Tourism showed increased strength in most Districts, though a few reported that activity was

hampered by unfavorable weather. Robust tourism activity was noted in New York,

Richmond, Atlanta, Kansas City, and San Francisco; New York attributed some of the

strength to the Central Park "Gates" exhibit, Richmond cited unseasonably warm weather,

and Atlanta noted some positive effect from the weaker dollar. On the other hand, Boston and

Minneapolis indicated some softness in tourism, partly attributed to an unusual geographic

distribution of winter snow.

Services

Activity in service-sector industries showed signs of strengthening since the last report.

Boston, St. Louis, and San Francisco reported some pickup in demand for information

technology services. New York reported strong conditions in the securities industry, and

Dallas noted brisk demand for accounting services. Widespread strength was evident in the

trucking and shipping industries: conditions were described as robust in Cleveland, Atlanta,

St. Louis, Dallas and San Francisco, and steady in Richmond. Conditions in the airline

industry were mixed: Dallas reported weak conditions, while Chicago noted strong demand

from business travelers, but some softness in the domestic leisure segment. More broadly, St.

Louis and San Francisco cited general increases in service-sector activity, while Richmond

reported that conditions were stable.

Manufacturing

Manufacturing activity was reported as expanding solidly in most Districts, although the pace

of growth has generally not increased since the last report. Many Districts noted particularly

strong gains in durable goods manufacturing. Defense-related production was reported as

strong in the Boston, Atlanta, Kansas City, and Dallas Districts; machine tool production was

described as solid by several Districts; vehicle production remained at a high level, in part

because of the strength in demand for heavy trucks; and construction materials were in high

demand. Steel shipments softened in Cleveland, but were reported as solid in Chicago;

Cleveland cited surging steel imports, whereas Chicago saw imports decline. High-tech

manufacturing activity was reported as growing in the Dallas and Boston Districts but mixed

in San Francisco, where the semiconductor industry showed strength but the

telecommunications industry remained weak.

Sustained increases in the cost of energy, steel, and other materials were widespread.

However, some moderation in the pace of cost increases was reported by the New York,

Philadelphia, and Cleveland Districts, with a faster rate of increase noted only by the

Richmond District. A recent drop in energy prices was cited by some Districts as helping to

stabilize input price increases. The weaker dollar reportedly has stimulated exports in the

Atlanta District, although some Districts cited the dollar's decline as exerting continuing

upward price pressures on imported inputs. Several Districts noted that their manufacturing

contacts were optimistic that the coming year would bring continued growth, with some

seeing expansion of factory headcounts.

Real Estate and Construction

Home sales markets remained strong across most of the nation. New York, Philadelphia,

Richmond, Atlanta, Chicago, St. Louis, and San Francisco continued to describe housing

markets as robust. However, mixed conditions were reported in Cleveland, Minneapolis,

Kansas City, and Dallas. The market for apartments was characterized as soft in Dallas,

mixed in Chicago, but strong in New York. Home construction has been particularly brisk in

the San Francisco and Atlanta Districts, whereas Minneapolis, Kansas City, and Dallas

indicated some pullback.

Commercial real estate markets were, on balance, stable. Office markets were steady in

Boston, New York, Philadelphia, Richmond, St. Louis, and Dallas, with Boston and Dallas

noting substantial ongoing slack in the market. On the other hand, some firming was reported

in the Atlanta, Minneapolis, Kansas City, and San Francisco Districts. Philadelphia, St.

Louis, and Minneapolis reported some pickup in the market for industrial space, but Boston,

New York, and Richmond reported steady to somewhat softer markets. Richmond noted a

slight decline in retail vacancy rates.

There were scattered reports of increases in commercial construction activity. Philadelphia

reported an increase in industrial building, Cleveland reported a pickup in retail construction,

and Richmond noted two major office projects in the pipeline. Some general, albeit modest,

increases in commercial construction were also reported in Chicago, St. Louis, and San

Francisco.

Banking and Finance

Banks reported steady to somewhat stronger lending activity in early 2005. The Philadelphia,

Cleveland, and Richmond Districts noted increases in overall loan demand. Rising demand

for commercial mortgages was reported in New York, Cleveland, Richmond, and Kansas

City, while San Francisco described demand as slowing but strong; Dallas, however, noted an

increase in commercial property foreclosures. Business lending also strengthened in a

number of Districts, but the reports on household loan demand were mixed, suggesting little

change, on balance, for both consumer loans and residential mortgages. Home equity lending

strengthened noticeably in the Philadelphia and Cleveland Districts but slipped in Kansas

City.

Credit standards were unchanged across the board, and loan quality was widely described as

steady and strong. Contacts in Chicago, Dallas, and San Francisco indicated that the lending

environment was highly competitive, leading to narrowing margins, while contacts in Dallas

expressed some concern about excessive supply of funds available to commercial mortgage

markets.

Agriculture and Natural Resources

Above-average rainfall and moisture levels were reported in several Districts, which created

a mix of favorable and unfavorable conditions. In the Dallas, Kansas City, and St. Louis

Districts, heavy precipitation helped planting conditions for the winter wheat crop but proved

problematic for other crops. Improved conditions for livestock grazing were reported in the

San Francisco, Dallas, and Kansas City Districts. Atlanta's citrus industry continued to suffer

from the after-effects of last year's hurricanes, as well as disease.

Activity in the energy industry was reported as buoyant and optimistic, given the continuing

pattern of higher energy prices. The Dallas and Kansas City Districts reported an increase in

active rigs since the last report. Capacity in the industry is being strained by labor and

equipment availability, although activity is expected to continue to improve.

Labor Markets

Labor markets across the nation have been steady to stronger since the last report. Ongoing

improvements in labor market conditions were reported in Boston, New York, Atlanta, and

Minneapolis, and hiring activity has picked up recently in Richmond, Chicago, and Kansas

City. Brisk gains in temporary employment were seen in Boston, Richmond, Atlanta, and

Chicago, while, in Dallas, these job gains fell short of expectations.

Manufacturers were reported to be raising employment in the Boston, Philadelphia,

Cleveland, Chicago, and Minneapolis Districts. On the other hand, manufacturing

employment has been steady to lower, on net, in Atlanta, St. Louis, and Kansas City. A

number of industries have seen tightening labor markets across several Districts. Increased

labor demand was reported in financial services (Boston, New York, Kansas City, and

Dallas), legal services (New York, Minneapolis, and Dallas), and freight transportation and

distribution (Cleveland, Richmond, St. Louis, and Kansas City). There were also reports of

scattered skilled labor shortages in many Districts. New York and Cleveland noted a

dwindling supply of skilled workers to fill job openings generally; and a number of other

Districts reported shortages of skilled job applicants in specific industries, such as trucking,

shipping, construction, energy, health care, and media.

Overall wage increases were characterized as moderate in all Districts. Still, a number of

Districts cited larger wage gains in certain industries, including securities (New York),

trucking (Cleveland and Kansas City), legal services (Minneapolis and Dallas),

pharmaceutical services (Kansas City), and accounting (Kansas City and Dallas). Reports of

ongoing sharp increases in benefit costs, particularly health insurance, were fairly

widespread.

Prices

Retail prices were generally flat or up modestly; however, businesses continued to face rising

input costs, and a number of Districts indicated greater ease in passing along price increases.

Prices for finished goods were reported to be increasing modestly in Richmond and

Minneapolis, but almost all of the other Districts characterized retail prices as flat. Cleveland

and Chicago reported that motor vehicle prices were being reduced by increased incentives

and discounts. A number of Districts also noted ongoing declines in apparel prices.

Despite the stability in consumer goods prices, manufacturers in a number of Districts-including Boston, Cleveland, Kansas City, and Dallas--indicated that they have been finding

it increasingly easy to pass along price increases; Philadelphia producers anticipated greater

ability to boost prices in the near future. Also, truckers in the Cleveland and Atlanta Districts

indicated that they have been offsetting rising fuel costs with surcharges.

A number of Districts reported persistent pressures on input costs, though some noted that

these have eased since the last report. Firms in Boston, Richmond, Atlanta, Minneapolis,

Dallas, and San Francisco reported sizable increases in prices of various raw materials. The

most commonly mentioned were construction materials (especially steel) and fuel. Quite a

few Districts also mentioned continued rapid escalation in health insurance costs, though San

Francisco indicated that these have decelerated. More generally, New York, Cleveland and

Chicago indicated that input cost pressures have abated somewhat since the last report.

Return to top

First District--Boston

Economic activity continues to grow in the First District. Retail and manufacturing contacts

mostly say sales or revenues are ahead of year-earlier levels. Manufacturers express concern

about rising costs. Software and information technology services cite rising demand, while

staffing firms continue to report job growth. Employment is also generally rising, albeit

modestly, among respondents in manufacturing and software and IT services. Only

commercial real estate markets have failed to improve.

Retail and Tourism

Most First District retailers report positive sales growth in January and February, although

the severity of the winter is hurting casual dining and helping pharmacies. Year-over-year

sales ranged from down 4 percent to up 8 percent among respondents. Sales of children's and

sports apparel are strong, and sales of lumber continue to be especially strong.

Inventories are slightly up or beginning to level off according to contacts. Vendor prices are

generally stable, with some exceptions (both up and down modestly) for food-related items.

On the retail side, clothing prices are falling slightly and casual dining prices are up

modestly. Employment and wages are steady. Respondents report flat or rising capital

spending, with the spending concentrated on upgrading technology and opening new stores.

Tourism-related contacts say travel this winter to New England, with the exception of

Boston, has been slow compared to a year ago, largely because of heavy snowfall in

Massachusetts and lower-than-average snowfall in the northern states. Respondents expect

the weak dollar to encourage international travel. They also hope that improved consumer

confidence will boost demand for luxury activities and venues, which have been outpaced by

moderately priced hotels and restaurants during the past year.

Most retailers believe the economy is strong and consumer confidence is recovering. They

anticipate modest 3 percent to 5 percent gains in 2005. Multiple contacts express concern

over health care costs, gasoline prices, and competitive pressures.

Manufacturing and Related Services

Almost all First District contacts in manufacturing and related services report that sales and

orders in late 2004 and early 2005 have been above year-earlier levels. Companies cite

particularly strong gains for defense-related equipment and exports of various kinds. Demand

for semiconductors appears to be recovering after falling into a slump, but sales of some

categories of consumer nondurables are said to be sluggish.

While demand for manufactured goods is generally strong, many firms are concerned about

sustained increases in materials costs, the declining purchasing power of the dollar in foreign

markets, or sharply higher utility bills. Contacts complained of double-digit cost increases for

steel, ceramic products, petrochemicals, rubber, plastics, electricity, and natural gas. Some

respondents have managed to raise their selling prices and productivity enough to offset

margin pressures, but others have not. Several manufacturers report that their customers have

become more willing to pay higher prices. By contrast, a couple of contacts indicate they are

being more choosy in taking on business out of concern that margins may be inadequate.

Selling prices for technologically sophisticated products continue to be flat to down

compared to a year earlier, and these types of firms are not as affected by rising input costs as

other respondents.

A majority of contacted manufacturers are increasing their U.S. headcounts, mostly in

professional and technical positions. Pay increases are generally running in the range of 3

percent to 4 percent. Most respondents intend to keep capital spending roughly unchanged

from the amounts spent in 2004, but some that had recently invested in major productivity

enhancements report that they are bringing capital spending back down to a "normal" level.

Manufacturers tend to see positive business trends continuing in the coming year. Their

biggest concerns relate to margin pressures associated with rising materials costs and

uncertainty about their own pricing power.

Temporary Employment

Temporary employment agencies in the First District continued to experience decent rates of

demand growth in late Q4 and the first two months of 2005. Employment in technical,

manufacturing, financial, and defense-related occupations is up strongly. Respondents are

further pleased that the volume of permanent and temporary-to-permanent employment

continues to grow. The available supply of labor seems to be declining somewhat,

particularly in skilled areas. Most responding temp firms are achieving modest price

increases, or at least an end to downward price pressure. Health insurance, worker's

compensation, and state unemployment insurance costs are rising. Despite other ongoing

concerns such as outsourcing, respondents are generally optimistic about 2005 and beyond.

Commercial Real Estate

Not much changed from November through January in New England commercial real estate

markets. Vacancy rates remain high and rents are low, albeit without substantial deterioration

in the past quarter. Although some contacts report that markets in Boston are "beginning to

firm," others report no improvement. Some parts of the region have experienced positive

market absorption, but several large mergers have led to large amounts of office and

industrial space being added to the Boston market. In 2004, Boston experienced the fourth

consecutive year of negative market absorption, its worst streak on record. Office vacancy

rates remain in the mid-teens in Boston and exceed 20 percent in the suburbs. Nevertheless,

demand for purchasing office buildings remains strong and sale prices for high-rise office

buildings are still very high. Contacts do not expect commercial markets to improve until the

region's economy strengthens and new jobs are added.

Software and Information Technology Services

Business results range from flat to "going well" for First District contacts selling software

and information technology services. Revenues in the most recent quarter (generally ending

in December or January) were 8 percent to 20 percent higher than a year earlier, but several

respondents indicate that all or much of the growth reflects special factors such as foreign

currency gains or acquisitions. All contacts report that their industry is above its recent

bottom, but most note that customers are still very selective; they are watching costs

carefully and buying mission-critical, business-driven, or very high return-on-investment

items.

Contacted companies are adding technology workers and sales staff, although not hiring

aggressively. One firm is continuing a "moderate pace" of hiring, while another indicates its

plans include "only a handful" of net new hires. One responding company just eliminated a

wage freeze that had been in place for over three years; several other firms report 3 percent

annual pay increases. Contacts cite little change in capital and technology spending.

Looking forward, software and IT respondents say the situation is favorable. They expect

more of the same in the next few quarters--revenues and profits are generally projected to

continue growing at current rates.

Return to top

Second District--New York

The Second District's economic expansion has been well maintained since the last report,

while price pressures have been relatively subdued. Manufacturers report continued moderate

growth in activity in February, and some moderation in price pressures. Retailers indicate

that February sales were little changed from a year earlier but generally close to plan;

however, tourism activity is reported to have been unusually strong in early 2005. Residential

real-estate markets showed further signs of strength in January and February, while both

office and industrial markets were stable. The securities industry reports brisk business

activity, as well as a pickup in hiring and compensation. Finally, bankers report little net

change in loan demand and steady to declining delinquency rates.

Consumer Spending

Retailers report that sales were mixed but, on balance, close to plan in February and little

changed from a year earlier. A boost in apparel sales from New York's one-week holiday

from sales tax on moderately-priced apparel (January 31-February 6) and a strong pickup in

sales to tourists appear to have been offset by unseasonably cold and wet weather. A number

of contacts indicate fairly brisk apparel sales but relatively sluggish sales of home furnishings

and equipment. Inventory levels were mostly described as satisfactory. Retail chains indicate

that prices were steady to down slightly, compared with a year earlier. Consumer confidence

was little changed in February, as in January, based on the Conference Board's latest survey

of Middle Atlantic state (NY, NJ, PA) residents.

New York City tourism has been exceptionally strong in early 2005. In January, Manhattan's

hotel occupancy rate was up about 3 percentage points from a year ago, and total revenues

were up roughly 15 percent. More recently, an industry contact reports that most Midtown

and Uptown hotels were completely booked for most of February, largely spurred by visitors

to the Christo "Gates" in Central Park. In the third week of the month, hotel revenues were

reported be up by roughly a third from comparable 2004 levels. Museum attendance was also

said to be exceptionally high in the second half of February. Broadway theater attendance

was sluggish in the first half of February but picked up moderately in the third week of the

month. Finally, Buffalo-area hotels report that occupancy rates have been running roughly on

par with a year earlier, as stronger underlying demand was said to be offset by the

cancellation of National Hockey League games.

Construction and Real Estate

Housing markets were generally characterized as robust in the first two months of 2005. New

Jersey homebuilders note that a modest inventory build-up last December turned out to be

short-lived and that demand remains strong. Moreover, the state's major builders' association

reports particularly strong registration for their upcoming annual conference. Similarly, New

York City's co-op and condo market is characterized as increasingly tight in early 2005,

particularly for smaller (1 bedroom and studio) apartments; overall, prices are reported to be

running 10-20 percent ahead of last year, though the number of transactions is down

somewhat, reflecting a dearth of units on the market. Manhattan's apartment rental market

has been holding steady thus far in 2005, with rents estimated to be up 5 percent from

early-2004 levels; however, the very high end of the market is described as relatively strong,

reportedly buoyed by apartment-seekers shifting from the sales to the rental market.

Commercial real estate markets in and around New York City were relatively stable in the

first two months of 2005. Compared with year-end 2004, office vacancy rates edged down in

Midtown Manhattan and northern New Jersey but edged up in Lower Manhattan and Long

Island; asking rents were also little changed. For all of Manhattan, an industry contact reports

that the volume of available sublease space fell to its lowest level since September 2001.

Industrial vacancy rates held steady on Long Island, in January and February, but edged up in

New York City and climbed to a nearly two year high in northern New Jersey, partly

reflecting new supply of space.

Other Business Activity

Manufacturers report continued moderate growth in activity in February, along with some

moderation in price pressures. Our latest survey of New York State manufacturers indicates

steady growth in manufacturing activity in February; there was a pickup in shipments but a

dip in unfilled orders. Increases in both current and expected selling prices were more

subdued than in recent months. Purchasing managers in the Buffalo area note some

deceleration in manufacturing activity, as well as some moderation in price pressures, in

February. However, purchasers in the New York City area indicate a modest rebound in

manufacturing activity, following some softening in December and January, along with little

in the way of price pressures.

A major New York City employment agency reports that hiring activity remained fairly brisk

in February, but has not strengthened noticeably from late 2004. Our contact indicates that

the quality of job candidates available to meet openings is lower than last year. Most of the

hiring is still reported to be coming from the financial and legal sectors, but there has been a

scattered pickup in other industries such as fashion, pharmaceuticals, and executive

placement. The securities industry has continued to perform well in early 2005; despite some

slowing in equity issuance, other business segments are reported to be strong. Moreover,

employment continues to grow, despite scattered layoffs, and total wages and salaries the first

quarter are estimated to be running 10 percent ahead of a year ago, led by a 15 percent

increase in bonuses.

Financial Developments

Small to medium-sized banks in the Second District report little change in overall loan

demand. Bankers report reduced demand for residential mortgages and commercial and

industrial loans, but steady demand for consumer loans and increased demand for

commercial mortgages. Bankers again report no change in credit standards across all loan

categories. Interest rates rose across all loan categories except residential mortgages, where

rates are reported to be unchanged. Average deposit rates rose, according to 80% of

respondents, with no banker reporting a decline. Bankers report little change in delinquency

rates for the household sector, but slight declines for nonresidential mortgages and

commercial and industrial loans.

Return to top

Third District--Philadelphia

Business activity in the Third District increased in February. Manufacturers reported rises in

orders and shipments during the month. Retail sales of general merchandise were up

modestly compared with the previous month and with February of 2004. Auto sales rose

slightly from January to February but remained below last year's level. Banks and other

lending institutions reported that lending continued on an upward trend. Commercial real

estate contacts described market conditions as steady. Residential real estate agents indicated

that existing home sales were running at a roughly steady pace, with continuing price

appreciation. Homebuilders generally reported a pickup in sales in February after a

slowdown in December and January.

Contacts in the Third District business community generally expect further improvement in

the region's economy in the months ahead. Increases in shipments and orders are expected by

manufacturers during the next six months. Retailers anticipate moderate year-over-year gains

during the spring sales season, but auto dealers say the outlook is uncertain. Bankers forecast

a continued rise in overall lending, with gains in business and home equity lending.

Commercial real estate companies expect market conditions to improve during the year.

Residential real estate agents foresee a pickup in home sales during the spring, but they

expect sales for the year as whole to be somewhat below last year.

Manufacturing

Manufacturing activity in the Third District increased in February. Around four in ten of the

manufacturing firms surveyed during the month reported an increase in shipments compared

with January, and around one in three reported higher orders; around two in ten reported

decreases in these measures. Order backlogs at area plants were virtually unchanged from

January to February, but delivery times increased somewhat. Growing business was reported

among firms in most of the District's major manufacturing industries.

The region's manufacturers generally expect further gains in business activity. Nearly half of

the firms surveyed in February expect their shipments and orders to increase during the next

six months, and slightly more than one in ten expect decreases. On balance, area

manufacturing firms are scheduling increases in capital spending and planning to add

employees.

Third District manufacturers reported rising prices in February. The number of firms

reporting increases in input prices declined from January to February, but the number raising

prices for their own products in February was the same as in January. During the next six

months almost two-thirds of manufacturers expect increases in input prices, and nearly

one-half expect increases in the prices of their own goods. This represents a more widespread

expectation of higher prices than in January.

Retail

Retailers reported moderately increased sales in February compared with January and with

February of last year. Store executives indicated that winter merchandise has been mostly

cleared out through discounting and that spring apparel was selling well. Most of those

contacted for this report said sales in recent weeks have been running close to plan, although

inventories have increased as spring merchandise shipments have been received. Store

executives generally forecast a modest year-over-year increase in sales for the spring selling

season. Most of the retailers surveyed said costs of goods have been practically unchanged

recently, but some expect increases for fall merchandise. Store officials noted continuing

increases in costs for employee benefits.

Auto dealers in the region reported a slight pickup in sales in February compared with

January, although the sales rate remained below the rate in the same months in 2004.

Inventories were described as high, except for some imported models. Most of the dealers

polled in late February said the immediate sales outlook was uncertain, although they

anticipate sales for this year as whole will be down from last year.

Finance

Outstanding loan volume at Third District banks rose in February compared with January,

according to banks surveyed for this report. Nonbank lending institutions also reported

growing loan volumes. Commercial and industrial loans have been increasing, with new

borrowing being done by firms in a wide range of industries. Bankers also reported increases

in personal loans, especially home equity loans and credit lines. Bankers and other lenders in

the District expect overall lending to rise through the year, with further gains mainly in

business and home equity lending.

Real Estate and Construction

Commercial real estate firms in the Third District reported that vacancy rates in the region's

office markets have been roughly steady, on balance, in the past few months. There have

been slight increases in some areas, including Philadelphia's central business district, and

slight decreases in other areas. Rental rates have also been mixed, although recent changes

have been mostly slight. Commercial real estate firms expect office vacancy rates to move

down through the year in most parts of the region as economic activity and hiring expand.

Industrial building vacancy rates have declined slightly in recent months, but rents have been

nearly steady. Commercial real estate contacts noted an increase in speculative construction

of warehouse and other industrial buildings, which they believe reflects optimism among

developers that regional economic conditions are improving.

Residential real estate agents indicated that sales have been roughly steady in recent weeks at

a strong pace. Homebuilders reported a pickup in sales in February after a slowdown in

December and January. House prices continue to appreciate, but some real estate agents

noted that increased asking prices for homes in the highest price range have resulted in a

slower sales rate. Both builders and real estate agents expect the pace of sales to accelerate

somewhat as spring approaches, although they anticipate sales for the year as a whole will be

slightly below last year.

Return to top

Fourth District--Cleveland

Through the first two months of 2005, the economic environment in the District improved

across an array of industries. Reports from retailers signaled a slight strengthening in

business conditions. And production among the District's durable goods manufacturers

generally rose as well, while nondurable goods makers saw steady production levels in early

2005. Residential builders reported better sales in recent weeks, though sales levels were less

than at this time last year, and nonresidential contractors continued to report modest

improvements in their industry. At District banks, borrowing by businesses continued to

strengthen. Finally, demand for shipping services remained robust.

While concerns about increases in some materials prices were reported, most input costs rose

less rapidly or even fell throughout the last several weeks. Plans to expand employment still

seem isolated, though staffing services companies reported that the number of job openings

increased in recent weeks, and is dramatically higher than at this time a year ago. While

contacts indicated that workers were not hard to find, some jobs requiring specific skills were

reportedly becoming more difficult to fill.

Manufacturing

Production at the District's durable goods producers appeared to trend up through the first

two months of 2005. This differs from the final months of 2004, which were marked by flat

or falling production levels on a month-over-month basis. Production also appeared to be up

slightly on a year-over-year basis at most District durable goods facilities, and new orders

have generally grown since the start of the year, leaving many contacts cautiously optimistic.

Automobile production at District facilities was also above the levels of this time last year

despite planned production cuts at some automakers. However, domestic steel shipments

softened somewhat in the early part of 2005, though they remained at high levels. Most

contacts continued to think that the demand for steel was solid, and attributed the declines to

increases in inventories among steel distributors and a surge in imports.

Nondurable goods makers generally reported that production levels were steady for the first

two months of 2005, and about the same as a year ago. Refineries, in particular, reported

strong sales. Most nondurable goods producers did not anticipate a significant change in the

economic environment in the months ahead.

For most manufacturers, input cost increases appeared to abate, especially for food and

energy items. While steel spot prices have fallen in recent weeks, price increases for inputs

into the steel production process--especially coking coal and iron ore--were widely reported.

Additionally, many steel contracts are currently being renegotiated, and may result in

increased effective steel prices for many firms. Few nondurable goods producers planned any

capital additions or hiring; however, hiring plans were more widespread among durable

goods manufacturers. While most durable goods producers planned to keep their capital

spending at about the same levels, those producers that planned increases wanted to expand

capacity to accommodate an anticipated increase in demand.

Retail

Reports from retailers suggested some improvement in the economic environment in early

2005, though contacts continued to note that sales activity was weaker throughout the

Midwest. Discount retailers reported that their sales were generally as expected through the

first two months of 2005 and modestly above the levels of a year ago. One contact suggested

that the improvement in sales was due to declining gasoline prices, which may have left

consumer with more money to spend on other items. Specialty retailers reported results that

were similar to discounters', if more mixed, and contacts expect good sales growth in the

months ahead. Department stores, by contrast, continued to struggle, reporting that sales

throughout the early part of 2005 were down from this time a year ago and below

expectations.

Auto sales were mixed throughout the District, though trucks and SUVs continued to sell

well. Widespread incentives continued to cut the effective prices of new automobiles.

Outside of autos, prices in recent weeks were stable, with a few exceptions. Some apparel

product prices were aggressively reduced according to contacts, while prices for products

made with steel were said to be higher.

Construction

New home sales and customer inquiries improved in early 2005 for most residential builders

relative to the last six weeks of 2004, even after accounting for seasonal factors.

Nevertheless, sales for many District builders were down on a year-over-year basis. Isolated

input cost increases--for items such as steel, concrete, and lumber--that most companies can

only partially offset have put pressure on builders' profit margins. Additional increases in

concrete and lumber prices are anticipated. Regarding the outlook, many builders expect

slower sales in the first half of 2005 than they saw throughout the first half of 2004.

Nonresidential construction activity in the District increased modestly in recent weeks,

relative to the end of last year. Client inquiries also increased in early 2005. Among the

nonresidential construction categories, several contacts cited particular improvements in

building related to the retail sector. However, most nonresidential builders' backlogs remain

light. In general, contractors expect construction activity to improve throughout this year,

albeit at a measured pace. As with residential builders, increases in materials costs were cited

by nonresidential builders, for items such as steel products and insulation. While builders

have attempted to pass these price increases on to their clients, they have had mixed success.

Banking

Large banks in the District generally reported some increase in loan demand among both

their commercial and consumer clients. Loan demand was described as broad-based across

commercial lending categories. For consumers, some large institutions indicated that home

equity lending was especially strong; however, demand for mortgages and automobile loans

appeared to be down somewhat. Smaller banks generally reported less robust activity, with

commercial loan demand increasing only modestly, though more than in the consumer

categories. Many banks noted that their deposit growth was flat or falling, but some contacts

suggested that seasonal patterns partly explain the weakness.

Trucking and Shipping

Activity among trucking and shipping services providers continued to be strong through the

early part of 2005, and above year-ago levels. Moreover, contacts described demand as

strong across an array of industries. Accordingly, despite the strong demand seen throughout

the last year, many firms are forecasting an even stronger 2005. Limited capacity, however,

concerns contacts. Companies continued their attempts to attract workers through better

benefits and wages, but have been unable to draw enough employees to meet demand. Firms

are also planning truck purchases, but there are long lead times for delivery. Finally, any

increases in fuel costs continued to be offset through surcharges.

Return to top

Fifth District--Richmond

Fifth District economic activity expanded at a somewhat slower pace in January and

February as modestly higher growth in manufacturing and tourism was tempered by weaker

growth at services firms and nearly flat retail sales. District services firms reported that their

revenues rose more slowly since our last report, while retailers said that their sales leveled

off. Manufacturing increased at a slightly stronger pace as new orders picked up in January

and shipments increased somewhat in February. District real estate agents continued to

describe housing markets as vibrant and bankers said lending increased in most categories.

Reports on tourism were upbeat, characterizing tourist spending as strong and noting that

some District hotels were booked to capacity in February. Turning to prices, contacts

indicated that increases for most final goods and services remained modest, despite higher

raw material prices in the manufacturing sector. In agriculture, small grains crops were in

good condition and land preparation for spring planting was underway in the District's

southern reaches.

Services

Services businesses reported that their revenues rose at a more moderate clip in January and

February. District freight transportation contacts generally said that their business was steady,

while respondents at health systems and hospitals in North Carolina, Virginia, and West

Virginia gave mixed reports on the strength of demand for health services. The president of a

Washington, D.C., firm providing training in foreign languages reported "some new business,

but not much." Contacts at several catering services noted particularly slow business in part

because of fewer requests from corporate clients. Wage growth softened at services firms,

although our contacts noted that hiring picked up. Prices in the sector continued to rise at a

modest pace.

Retail

District retailers reported that their sales leveled off in February. A contact at a department

store in the Washington, D.C., area said their sales were little changed and indicated that

customers were increasingly looking for "clearance deals." A manager at a department store

in central North Carolina also described sales as relatively flat. Adding to the dull tone, sales

of big-ticket items also remained sluggish. Automobile dealers in southern Maryland and in

the Tidewater area of Virginia reported softer sales, while dealers in central North Carolina

and western Virginia said their sales were little changed. Retail hiring generally slowed

although wage growth picked up somewhat. Prices in the retail sector rose only modestly in

January and February.

Manufacturing

District manufacturing activity expanded at a somewhat stronger pace since our last report.

New orders picked up during the January/February period, and shipments moved higher in

February. Among industries, manufacturers of apparel, lumber and wood products, and

furniture reported the strongest growth in shipments. A furniture maker in Sumter, S.C., for

example, said shipments and new orders were both higher in February, while a counterpart in

Hagerstown, Md., told us that their order backlog was "keeping them busy." A plastics

manufacturer in North Carolina was also upbeat. "Our level of activity is good and backlog is

higher than it's been in years," he noted. But prices of raw materials rose at a quicker pace

and several respondents suggested that higher raw materials costs were squeezing their profit

margins.

Finance

District loan officers reported somewhat stronger loan demand since our last report. Bankers

said that commercial lending increased moderately and that lending for capital spending and

commercial real estate investment had picked up. A banker in Charlottesville, Va., said that

the local economy continued to improve and he expected to "put a lot of [commercial] loans

on the books" in the next few weeks. In addition, a Charlotte, N.C., contact reported that

commercial lending had been "very strong" in that area. Residential mortgage lending was

moderately higher as well, although mortgage refinancing activity was light. A banker in

Richmond, Va., said that home mortgage lending rose in recent weeks and that he expected to

see a decent market in coming weeks since mortgage interest rates remained "pretty good."

Real Estate

Fifth District real estate agents told us that the demand for housing remained strong. An

agent in Odenton, Md., said that the previously "overwhelming" local market was now "more

subdued," but noted that people were still waiting in line to grab residential lots as they

became available. In Richmond, Va., a real estate agent described January and February sales

as "great." He added that the housing market continued to "steam ahead," and complained of

a shortage of inventory. In the Washington, D.C., area, a contact reported a very "positive

housing market" with multiple offers on properties still common. He predicted home sales in

the Anacostia area of the city would rise sharply over the next five years if a proposed new

stadium for the Washington Nationals baseball team is constructed there. Home prices

continued to rise in most areas of the Fifth District.

Commercial real estate agents reported that leasing activity increased only modestly during

the first two months of 2005. "Things have been pretty much status quo since the first of the

year. However, we anticipate a busier spring," noted a contact in Raleigh, N.C. Industrial

leasing remained a weak spot in January and February, while office and retail leasing was

generally flat outside of the Washington, D.C., market. In the Washington, D.C., area, strong

job creation continued to underpin brisk growth in office leasing, and contacts reported that

demand for investment properties continued to outstrip supply in that area. Commercial

leasing agents noted that rents "held steady" during recent weeks and that office and retail

vacancies edged lower. While construction activity has been generally quiet throughout the

Fifth District since the first of the year, a contact in Charlotte, N.C., reported plans for two

new downtown bank buildings.

Tourism

Tourism activity strengthened since our last report. A manager at a ski resort in West Virginia

described the Presidents' Day weekend as the busiest in the history of the resort. A

counterpart at a Virginia lodge noted that the number of skiers was down slightly because of

the unusually warm weather, but said that sales of time shares were up. Tourism along the

coast was also stronger. A contact in Myrtle Beach, S.C., reported significant increases in

bookings for both Valentine's and Presidents' Day weekends--he added that many hotels were

turning business away because they were booked to capacity. On North Carolina's Outer

Banks, spring-like weather boosted holiday bookings and tourist spending.

Temporary Employment

Fifth District temporary employment agencies reported somewhat stronger demand for

workers in January and February. An agent in Raleigh, N.C., said continued recovery in the

local economy had boosted demand for workers from his agency. A Northern Virginia agent

reported that a number of companies in her area were downsizing and would likely need

additional temporary employees as substitutes for permanent staff. Across the District,

workers with administrative and sales skills and those with distribution and warehouse

experience were most highly sought.

Agriculture

Weather conditions across the District varied widely during most of January and February as

periods of mild, dry weather were followed by periods of ice and snow. Farming activity in

North Carolina and Virginia was limited at times by the cold weather. But warmer weather in

parts of South Carolina led to earlier-than-usual land preparation in that area. In addition,

respondents reported that small grain crops were in good condition in most areas of the

District.

Return to top

Sixth District--Atlanta

Sixth District business contacts reported that the pace of economic activity remained quite

positive in late January and February. Most retailers reported steady sales growth and

balanced inventories, and auto dealers noted that sales improved modestly in February.

Homebuilders and Realtors indicated that construction and sales continued to post gains, but

have decelerated in many parts of the District outside Florida. In Florida, conditions

remained very strong. Nonresidential construction contacts continued to report modest

improvement. Reports from the manufacturing sector were mostly positive, and demand for

transportation services remained very strong. Tourism officials in Florida were upbeat, with

contacts in the central and southern parts of the state noting an increase in foreign visitors.

Labor market conditions were generally positive, but businesses continued to approach hiring

cautiously. Price increases were noted for several industrial inputs and building materials,

and contacts continued to note rising healthcare costs.

Consumer Spending

Retail sales continued to grow moderately throughout the District. Gift card redemption

boosted sales in January according to many retailers, and inventories through February were

reported to be generally on target. Merchants noted that sales of women's apparel and

home-related goods were particularly strong. District car dealers reported disappointing sales

in January, but strong promotional programs improved traffic and sales in February. Industry

contacts in Tennessee and Florida reported that commercial and fleet sales were better than

expected.

Real Estate

District home sales and construction continued to be strong in late January and February, but

the pace slowed from a year ago outside Florida where activity continued to be very brisk. In

Florida, builders and Realtors reported very strong activity in housing construction and sales,

especially in vacation areas along the coast. Home price acceleration was noted in many

Florida markets, especially in south Florida, where some contacts expressed concern over

increases in speculative purchases. Nevertheless, buyers continued to line up for new

projects. Reports indicated that nonresidential construction continued to improve very

modestly in late January and February. Office vacancy rates were gradually declining from

high levels in several markets, and lease rates gained some traction.

Manufacturing and Transportation

Reports from the factory sector were mostly positive in late January and February. Several

contacts noted that the weaker dollar was helping stimulate exports. However, a firm that

imports components for computers and televisions cited increasing costs because of higher

import prices. Military spending reportedly remained strong throughout the District.

Although industrial power usage increased recently for some pulp and paper manufacturers,

industrial power usage declined for textile plants. A large home furnishings manufacturer

recently announced the closure of two Georgia facilities, eliminating nearly 600 jobs because

of increased competition from imports.

Demand for transportation services continued to be strong. Contacts noted some plants had

shortened factory hours because of capacity limitations of regional railroads. Freight demand

retained the strong pace seen in recent months, led particularly by healthy gains in

international shipments. Trucking contacts reported strong demand and higher profits; firms

indicated that they were able to raise prices and pass through higher fuel costs to customers.

Tourism and Business Travel

Reports from the tourism and hospitality sector through February remained positive. The

weaker dollar has had a positive impact on the tourism industry in Florida, and the number of

European and Canadian tourists reportedly increased over a year ago. Improvement in

several Latin American economies has also led to an increase in the number of visitors from

that region to south Florida, in particular, where high hotel occupancies, increasing room

rates, and growing restaurant sales were reported. In other areas of the state, hotel operators

were receiving more inquiries than last year and expect stronger bookings ahead. However,

tourism in northwest Florida is rebounding more slowly from the hurricane impacts.

Financial

Financial activity remained strong in the District, though some slowing in consumer loan

demand was noted. For instance, auto financing reportedly slowed in January in parts of the

District. Some banks were said to be paring lending to homebuilders. Commercial loan

demand remained at low levels. Overall asset quality at District banks remained strong.

Georgia companies attracted venture capital in record amounts in the fourth quarter of 2004.

Employment and Prices

Contacts again reported price increases in healthcare and for some industrial commodities.

Energy and building materials prices increased, but contacts also noted an increase in price

volatility for several related goods, which was making it difficult to predict short-term

business costs. For example, a commercial contractor reported that recent steel price quotes

were good for only 10 days. Major Florida theme parks increased their ticket prices. Labor

markets were mixed. Businesses are cautiously hiring in parts of the District. A large

temporary employment agency reported that business in January was up 20 percent over the

same time last year. Help wanted ads were up in parts of the District, which was unusual

based on seasonality. Labor shortages were reportedly keeping builders from fully meeting

housing demand in Florida.

Agriculture

The outlook for Florida's citrus industry continued to be driven by reduced orange and

grapefruit crop estimates. The orange crop, the smallest in over a decade because of

hurricane damage, is now further threatened by the spread of citrus canker disease into the

state's third-largest citrus producing county. On a more positive note, contacts remain

optimistic about global demand for cotton and poultry. Poultry growers in particular are

benefiting from firmer prices, lower costs of feed and strong demand.

Return to top

Seventh District--Chicago

The Seventh District economy continued to expand at a moderate pace in January and early

February. A number of contacts reported that the auto industry was weighing down activity

in other sectors of the regional economy. Consumer spending was again generally subdued,

and business spending continued to increase modestly. Reports on construction and real

estate were mixed by location and market segment. Manufacturing output was relatively

steady, but at high levels. Household loan demand was reported to be flat, while business

loan demand generally expanded modestly. Overall cost and price pressures remained in

check. District farmers formulated their planting decisions against a backdrop of large

increases in seed, fertilizer, and energy costs, as well as lower crop prices than a year earlier.

Consumer Spending

Consumer spending was again generally subdued in January and early February. Only one

large discount retailer noted "solid" sales that met expectations, while other retail contacts

characterized sales as "soft" or "flat." Apparel and home-related goods, like tools, paint, and

decorations, sold well, while sales of electronics were noticeably weak. One retailer in Iowa

reported poor sales of weather-related goods, but noted that the unseasonably warm weather

had an upside: low heating bills should leave area consumers with more cash to spend in

March and April. Light vehicle sales in the District picked up some in February, but a

Chicago-based dealer noted that sales in the area continued to trail those in the rest of the

nation. Vehicle inventories were said to be high, with one dealership declining allocations for

their three largest locations in January and February. A large restaurant chain reported that

sales at Midwest restaurants were increasing more slowly than in previous months. Overall

tourism activity in the District was similar to a year ago.

Business Spending

Business spending continued to increase modestly. Several contacts reported that they held to

their capital spending plans, which call for moderate increases. One large bank noted that

businesses have been borrowing for inventories and equipment. Business air travel was said

to be "strong" on international routes, and the mix on domestic routes had moved more

toward business travelers. Hiring continued at an equal or slightly faster pace than in the

previous reporting period. A Chicago job board reported modest increases in job postings.

Several manufacturing companies said that they are in the process of hiring some additional

workers, and one temporary help provider noted "relatively strong" demand from

manufacturers. Workers in health care, sales, accounting, and finance were all in demand.

Overall, business sentiment was said to be positive, though many contacts qualified the level

of optimism as "guarded" or "cautious."

Construction and Real Estate

Reports on construction and real estate were mixed by location and market segment.

Residential activity picked up in many places during January, with one homebuilder in

Chicago reporting a record month for its sales. In contrast, one contact in Michigan said that

residential activity had been soft and thought it would remain so for the rest of the year.

High-end home sales in Wisconsin were reported to be stronger than low-end home sales.

Apartment vacancies were mixed, with tighter markets in Milwaukee and more openings in

Indianapolis. Commercial development was reported to be quite active in many places. A

contact in Indiana said that people wanted to close deals before interest rates moved higher.

However, a contact in Michigan noted that development there was slow, adding, "The auto

industry is really hurting us now." Rents for commercial space were steady, although a

contact in Des Moines said that many incentives were still being offered.

Manufacturing

Manufacturing output was relatively steady in January and early February, but at high levels.

Steel production continued its solid pace with most markets experiencing good demand.

Driven by strong demand for steel from overseas, imports of steel products into the U.S. have

begun to decline. Inventories for steel products were characterized as "a bit high." Machine

tool makers indicated that orders and shipments were strong, with orders in mid-February the

best in many years. A representative from an aerospace company said that higher oil prices

were actually helping the sales of new, more fuel-efficient planes. Production of heavy

equipment remained strong in January, although there were reports of order inflows slowing

a bit. The strength in heavy machinery was supported by demand for mining and construction

equipment. In addition, production of heavy-duty trucks strengthened further in January. One

industry analyst predicted high rates of heavy-truck production in 2005, although difficulties

obtaining tires and some specialty steel products may limit output. Also, a tool manufacturer

indicated that a truck engine producer was paying above-market prices in order to guarantee

a supply of parts. In the light vehicle market, inventories were well above desired levels for

many market segments, and production in the first quarter has been scaled back.

Banking and Finance

Overall lending activity was little changed from the previous reporting period. Household

loan demand was reported to be flat during the past month, although mortgage lending

improved in January after being soft in December. A contact at one large bank noted that

households have shown a lot of interest in variable rate and shorter-term mortgages. There

were no reported changes in consumer credit quality or standards and terms for household

loans. More than one contact observed that business customers were borrowing with some

hesitation, nonetheless business loan demand generally expanded modestly. Almost all

contacts reported strong demand for equipment loans, and one large bank noted a pick-up in

M&A activity. Several bankers commented that the competitive environment for business

loans was putting pressure on margins and may be narrowing risk premiums. There were no

reports of changes in business loan quality.

Prices and Costs

Overall cost and price pressures remained in check. Wage gains remained modest overall,

though mixed by occupation and industry. A temporary help services firm said there was no

pressure on their billing rates, while an airline enacted new labor agreements that cut wages

for many of its employees. Health insurance costs were a concern for many contacts.

Manufacturers reported that material costs, outside of oil-related products, continued to ease

early into 2005. A few contacts said they increased prices in response to higher material or

labor costs, but by and large price pressures were muted. An area auto dealer noted more

rebate programs in February than in January, but added that the givebacks were still down

from last year. Retailers reported no unusual discounting activity. An airline noted that

domestic yield declines were abating and international yields were increasing.

Agriculture

Farmers in the District were making their planting decisions against a backdrop of large

increases in seed, fertilizer, and energy costs, as well as much lower crop prices than a year

ago. Accordingly, cash flow projections were down for this year. Proposed cuts in

government payments had also added greater uncertainty to the outlook for farm income.

Farmers responded by evaluating ways to cut costs, such as pooling resources and changing

tillage practices. Contacts expected at least some shifting of acres planted this spring from

soybeans to corn due to relative yields, government payments, and the threat of Asian

soybean rust.

Return to top

Eighth District--St. Louis

Economic activity in the Eighth District showed continuing signs of modest growth. In

manufacturing, several contacts reported plans to open plants and expand, while some other

contacts reported plans to close plants and lay off employees. In the services sector, most

contacts continue to report improving economic conditions and job growth. In the retail and

auto sectors, sales were reported as flat or slightly down in January and February with respect

to year-earlier levels. Residential real estate markets continue to be robust, while commercial

real estate remains soft, albeit showing some signs of improvement. Lending conditions are

largely unchanged.

Consumer Spending

Contacts reported that retail sales in January and February were down by less than 1 percent,

on average, over year-earlier levels. While 50 percent of the retailers surveyed noted that

sales levels met their expectations, 38 percent reported that sales were below what they had

anticipated, and 13 percent reported sales above expectations. Seasonal items, food,

housewares, electronics, apparel, and hardware were all strong sellers, while shoes, children's

apparel, and gift items were moving more slowly. Most contacts noted that inventories were

at desired levels. Retailers also appear generally optimistic about sales over the next two

months.

Car dealers in the District reported that, compared with last year, sales in January and

February were virtually unchanged, on average. About 42 percent of the car dealers surveyed

reported decreases in sales, while 38 percent reported increases. About 45 percent of the car

dealers who responded noted that used car and low-end sales had increased relative to new

car and high-end vehicle sales. Approximately 22 percent of the contacts reported increased

use of rebates, while 65 percent reported no change. About 42 percent of car dealers reported

that their inventories were too high, with a few reporting that all types of cars have been

affected by excess inventories. Three-quarters of the car dealers surveyed stated that they are

optimistic about increased sales during the next two months.

Manufacturing and Other Business Activity

Reports from the manufacturing sector in the period since our previous report have been

mixed. A number of manufacturers reported plant openings and expansions, and slightly

fewer contacts reported plant closings and cutbacks. Several small firms in the nonmetallic

minerals, electrical equipment, and household appliance industries announced plans to open

new plants in the District, likely resulting in more than 130 new jobs. Other firms in the

aerospace, furniture, and food processing industries reported plans to expand facilities, add

new production lines, and hire as many as 610 new workers. In terms of employment, these

positive reports were more than counteracted by negative reports. District manufacturers

reporting plans to close plants and reduce the workforce include firms in the beverage,

machinery, plastics, textile mill, and fabricated metal product industries. The closings and

layoffs in these industries would displace as many as 1,480 workers by early 2007.

The District's service sector continues to improve in most areas. Contacts in the utilities,

airport operations, recreation, traveler accommodation, food service, transportation and

warehousing, medical laboratories, and educational services sectors reported new facility

openings and expansions. Other firms in the business support, computer product, and

technical services sectors reported plans to add new operations and hire as many as 255

workers. For example, one firm in the freight transportation industry plans to hire 200 new

workers to meet increased demand in international markets. In contrast, several contacts in

the educational services and health care sectors reported plans to lay off several hundred

employees.

Real Estate and Construction

In the Eighth District 2004 was another banner year for the residential real estate market. In

Memphis, 2004 home sales were up 13.8 percent over 2003. In St. Louis, 2004 home sales

were up 2.6 percent over 2003. In northern Kentucky, 2004 home sales were up 8.6 percent

over 2003. In most of the District's metropolitan areas, except west Tennessee and the greater

St. Louis area, 2004 permits were up.

Commercial real estate markets continue to lag behind residential markets in most of the

District but seem to be slowly strengthening. In Louisville, from the third to fourth quarter of

2004 the overall office vacancy rate declined from 19.5 percent to 19.2 percent and the

industrial market also declined from 9.8 percent to 9.2 percent. In Memphis the year-end

industrial vacancy rate closed 2004 lower at 18.4 percent. Commercial construction

continues to do well in the District, with several new projects in Louisville. Contacts in

Memphis also predict a strong 2005.

Banking and Finance

A survey of senior loan officers at a sample of District banks indicated little change in overall

lending activity in fourth quarter 2004. During this period, credit standards for commercial

and industrial, commercial and residential mortgage, and consumer loans remained basically

unchanged. During this period, demand for residential mortgage loans showed some

indications of weakening, while demand for commercial real estate and consumer loans was

unchanged.

Agriculture and Natural Resources

Recent fieldwork activity seems to have been limited as a result of muddy fields or surplus

soil moisture levels. The current winter wheat crop is mostly in fair or good condition. The

total value of all District field crops declined 6 percent from 2003 to 2004. Missouri was the

sole District state showing an increase. The number of catfish operations and water surface

acres used for production is unchanged from January 2004 in Mississippi, the nation's largest

catfish producer.

Return to top

Ninth District--Minneapolis

The Ninth District economy grew moderately from mid-January through February. Growth

was evident in consumer spending, manufacturing, energy, and mining. However, agriculture

was steady, construction and real estate were mixed, and tourism was soft. Employment grew

modestly, and wage increases were moderate. While overall price increases were modest,

significant increases were noted in heavy equipment and health insurance.

Consumer Spending and Tourism

Overall retail sales increased since the last report. A major Minneapolis-based retailer

reported same-store sales up 9.4 percent in January compared with a year ago. A women's

clothing retailer based in Minnesota reported same-store sales up 19 percent in January from

last year; however, a leather products retailer, also based in Minnesota, reported same-store

sales down 1 percent. According to respondents to a survey of district retailers in February,

44 percent expect sales revenue to increase during the first half of 2005, while 27 percent

expect decreases. A Montana mall manager noted that January traffic started strong, but

tapered toward the end of the month; gift certificate purchases were up over a year ago. A

mall manager in South Dakota noted that sales were about even for February from a year ago

after increasing slightly in January. In contrast, a Minneapolis area mall manager noted that

traffic was down 10 percent in January compared with a year ago.

After strong sales during the holidays, Minnesota car and truck sales were soft in January

compared with a year ago, according to a representative of an auto dealers' association.

However, a Montana association representative indicated that car and truck sales were up in

January and early February compared with a year ago.

Tourism conditions were soft in several parts of the district due to a lack of snow. An official

in South Dakota noted slow winter tourism activity, and a Montana bank director reported

slow snowmobiling activity. Meanwhile, recent spending was up 5 percent to 6 percent over

a year ago in the Upper Peninsula of Michigan due to favorable snow conditions compared

with neighboring areas.

Manufacturing

Manufacturing activity increased. Preliminary results from a survey of district manufacturers

conducted in late January and February by the Minneapolis Fed and the Minnesota

Department of Employment and Economic Development revealed that businesses expect

production, productivity, and profits to increase in the first half of 2005 from a solid second

half of 2004. In addition, a February survey of purchasing managers by Creighton University

(Omaha, Neb.) indicated increased manufacturing activity in the Dakotas and Minnesota. In

North Dakota, an equipment producer is expanding a production facility, and in South

Dakota, a medical supplies maker is adding capacity at a manufacturing facility. A Minnesota

food processor is expanding operations; however, a freezer factory shut down for a week to

reduce inventories.

Construction and Real Estate

Commercial real estate and construction were mixed. Demand for office space in

Minneapolis-St. Paul continued to grow, in particular for offices in the suburbs and

downtown Minneapolis. A Minneapolis real estate firm forecast a rebound in 2005 for the

metropolitan office market, and a doubling of the rate of absorption for industrial space.

However, contracts awarded for large construction projects in Minnesota and the Dakotas

decreased 14 percent for the three-month period ended in January compared with a year ago.

A regional construction industry publication reported an uncertain forecast for the year ahead

due to public funding issues.

Residential construction and real estate were down slightly. January building permits

declined 23 percent in the Minneapolis-St. Paul area from a year earlier and decreased in

Rochester, Minn., as well. However, construction began on a $10.5 million senior living

apartment complex in Sioux Falls, S.D. Development officials there reported a strong start to

the year for residential construction, with 80 single-family housing units and 10 townhomes

permitted through February. In Minneapolis-St. Paul, the number of listings on the market

fell in January, and sale times continued to increase, but median sale prices were up 9.8

percent from a year earlier.

Energy and Mining

Activity in the energy and mining sectors increased. Several ethanol plants and electricity

generating facilities are under construction or planned across the district. Oil and gas

exploration and production were about level from early January through mid-February.

Meanwhile, several mining companies submitted permits to expand or open new operations.

Iron ore production was solid. A bank director noted that capital expenditures in the Montana

mining sector were strong.

Agriculture

Economic activity in the agricultural sector was steady. Lenders responding to the

Minneapolis Fed's fourth quarter (January) agricultural credit conditions survey expected that

overall agricultural income would be flat in the first quarter of 2005, but capital spending

would increase from the first quarter of 2004. The U.S. Department of Agriculture forecast

firm 2005 prices for the district's main agricultural commodities--corn, soybeans, wheat,

dairy and meat.

Employment, Wages and Prices

Employment grew modestly since the last report, with signs of labor market tightening in

some sectors. Welders and machinists were in short supply recently in northern Minnesota as

several manufacturers ramped up production to fill increased orders. According to results of

the survey of district manufacturers, 38 percent expect to hire more workers during the first

half of 2005; 10 percent expect decreases. In contrast, results of the survey of district retailers

show that 10 percent plan to hire more workers during the first half of 2005, while 17 percent

expect to decrease staff levels. In addition, the number of Minnesota job openings in the

fourth quarter 2004 was about the same as in the fourth quarter 2003, according to a state

survey of businesses.

Wage increases were generally moderate. Hired farm workers in Minnesota, Wisconsin, and

Michigan were paid slightly less in January compared with a year earlier. Wages for district

manufacturing workers recently increased over 3 percent compared with a year ago--a

moderate gain, but the highest year-over-year increase since spring 2002. In contrast, a

Minneapolis law firm recently raised the starting salary for associate lawyers more than 10

percent after more than four years of relatively level salaries.

While overall price increases were modest, significant increases were noted in heavy

equipment and health insurance. Bank directors noted that increases in consumer prices for

the three-month period ended in January were relatively modest. Agricultural, construction,

mining and railroad equipment, and machinery prices posted notable increases from

December to January. A bank director in Montana reported that over the past year, increases

for health insurance ranged from 10 percent to 30 percent. Prices for natural gas, oriented

strand board, framing lumber, and iron and steel scrap have decreased during the past few

months, but remain above year-ago levels.

Return to top

Tenth District--Kansas City

The Tenth District economy expanded moderately in late January and February.

Manufacturing and tourism activity increased solidly, energy activity rose from already high

levels, and labor markets continued to firm. In addition, retailers reported modest gains,

home sales rose, and commercial real estate showed some improvement. On the negative

side, auto sales fell slightly, and homebuilding eased. Retail price pressures remained modest.

However, wholesale price pressures persisted, and wage pressures edged higher for some

businesses.

Consumer Spending

Consumer spending in the district rose modestly in late January and February. Retailers and

mall managers generally reported sales were up slightly from last year's solid levels. Sales of

apparel were characterized as especially strong, due in part to post-holiday discounting. Store

managers were generally satisfied with inventory levels, although a luxury department store

plans to increase stock levels more than normal this spring due to expectations of stronger

sales. Overall, retailers anticipate continued modest year-over-year sales gains in the months

ahead. Motor vehicle sales fell slightly from the previous survey and were below year-ago

levels throughout the district. A number of dealers noted some weakening in SUV sales,

which have been particularly strong in recent years. Several dealers also reported stronger

sales of used cars than new cars. Despite sluggish overall sales in recent months, most

dealers were satisfied with inventory levels. Vehicle sales are generally expected to

strengthen somewhat in the months ahead. Travel and tourism activity continued to improve

in late January and February. Hotel occupancy rates were well above year-ago levels in the

Rocky Mountain states, and airport traffic was up solidly from a year ago in most district

cities.

Manufacturing

District manufacturing activity continued to expand solidly. Overall, plant managers reported

increases in production, shipments, and orders compared with the previous survey, and most

firms said activity was stronger than a year ago. Employment at most district plants was

unchanged from the previous survey after rising steadily during the past year. A number of

manufacturers reported difficulties obtaining materials, especially those transported by rail.

These difficulties are generally expected to persist and possibly to worsen. Plant managers

remain quite optimistic about future production and anticipate modest increases in

employment and workers' hours in the months ahead.

Real Estate and Construction

Residential construction activity continued to ease, but home sales rose slightly and

commercial real estate showed modest signs of improvement. Builders generally report that

single-family housing starts were down slightly from the previous survey but still close to

year-ago levels. The strongest starts were reported for moderately-priced homes. No

difficulties were reported in procuring construction materials. Most builders expect steady

construction activity in the months ahead, with starts largely matching last year's strong

levels. Based on reports from real estate agents, home sales in most district cities were up

slightly from the previous survey and from a year ago. As with builders, the strongest activity

was reported for middle-priced homes. Sales of luxury homes were reported as weak in

several cities. Heading forward, nearly all real estate agents expect continued modest

increases in home sales. Mortgage lenders reported a slight uptick in demand since the

previous survey, though loan demand was generally weaker than a year ago. Most lenders

said home purchase mortgages were making up an increasingly large portion of their

business, and several noted a continued shift away from variable rate loans. Lenders

generally expect some increase in mortgage demand heading forward, driven by home

purchase loans. While commercial real estate activity in the district remained weak overall,

some continued small signs of improvement were evident. Absorption rates in several cities

were up from the previous survey, and vacancy rates were down from a year ago in a number

of areas. Commercial real estate agents were also more optimistic about future improvements

in office markets than in the previous survey.

Banking

Bankers report that loans held steady and deposits declined slightly since the last survey,

causing loan-deposit ratios to edge upward. Demand rose for commercial real estate loans,

edged down for home equity loans, and remained unchanged for other loan categories. A few

respondents said business loan demand was lower than expected due to the cautious attitude

of borrowers, but most bankers were optimistic about future loan demand. On the deposit

side, money market deposit accounts and small time and savings deposits both fell slightly.

Almost all respondent banks raised their prime lending rates since the last survey, and most

banks also raised their consumer lending rates. Lending standards were unchanged.

Energy

District energy activity increased slightly from already high levels. The count of active oil

and gas drilling rigs in the region edged up from the previous survey and was well above

year-ago levels. Several contacts continued to report constraints on drilling due to labor and

equipment shortages. Despite these constraints, most contacts expect continued modest

expansion of drilling in the months ahead, as oil and gas prices are expected to remain high.

One contact also said energy firms now expect strong drilling activity to continue for a

longer period than in previous drilling booms.

Agriculture

Agricultural conditions generally remained solid in late January and February. The winter

wheat crop received above average moisture in much of the district, and wheat producers are

optimistic about crop conditions. Pasture conditions also improved, but most cattle producers

do not expect to expand herds this year due to uncertainty about prices and concerns that the

drought may not be over. Rural bankers report that rising energy costs are limiting irrigated

land value gains.

Labor Markets, Wages, and Prices

Wage pressures increased modestly due to a firming labor market, and price pressures

continued at the wholesale level. Labor markets showed further improvement, with hiring

announcements outpacing layoffs. Most types of workers were readily available. However,

many energy firms and some manufacturers reported increasing difficulties finding skilled

workers, resulting in some modest increases in wage pressures in those industries. In

addition, some firms were raising wages more than normal to attract or retain pharmacists,

accountants, and truck drivers. Some types of computer programmers and retail workers were

also reported to be in short supply, but employers were not markedly raising wages for those

positions. Most retailers continued to report flat selling prices compared with the previous

survey and expect little change heading forward. Builders reported further increases in some

materials costs, such as for lumber and gypsum wallboard. Manufacturers also continued to

report rising costs for a wide variety of materials, including petroleum-based inputs and

several metals. In addition, slightly more plant managers than in previous surveys said they

were passing cost increases through to customers. Heading forward, most manufacturers

anticipate continued increases in materials prices and a moderate ability to pass on these

costs.

Return to top

Eleventh District--Dallas

Eleventh District economic activity showed signs of accelerating from early January to late

February. Energy activity continued to strengthen, and some contacts at oil field service firms

referred to conditions as booming. Manufacturing activity was also up, and retail sales were

stronger. Reports from construction, real estate and the service sector were more mixed.

There was little change in financial conditions. Agricultural conditions were favorable.

Prices

Strong demand for crude oil is keeping prices high. Crude oil prices fell below $42 per barrel

in late December but recently moved back over $50 in late February. U.S. inventories of

crude are above the five-year average. Gasoline prices have mostly moved with the price of

crude inputs, and retail prices rose from $1.82 to $1.95 between early January and late

February. Inventories of gasoline products have been helped by high levels of imports and

are the highest February levels of the last five years.

Natural gas prices have stayed in a range of $6 to $6.50 per million Btu. Weather has not

been severe enough to prevent winter inventories from building, and inventories are now 20

percent above the five-year average. Prices have not fallen, despite the strong likelihood the

heating season will end with 1.2 trillion cubic feet of gas in storage. Some contacts expressed

concern that storage might fill sufficiently that some summer gas production could be forced

onto the open market which could lead to volatile prices.

Manufacturers continued to express concerns about rising costs for fuel, transportation and

some raw materials. Some producers noted that these costs were squeezing profits, but there

are more reports of manufacturers being able to pass cost increases to customers. A major

exception was apparel, where prices continue to fall.

Labor Market

Labor markets remained generally slack, and there continue to be few reports of hiring. Still,

conditions are uneven. There are some reports of hiring, such as for legal, accounting and

food manufacturing. There are also reports of workers remaining unemployed for long

periods. In Austin, workers are arriving from California in anticipation of finding work in the

high-tech field.

A lack of qualified workers to support the energy industry has been reported as a significant

constraint to expansion. Trained and experienced crews to work the rigs are a continuing

problem. A large energy firm just announced plans to hire 1000 engineers and technical

workers.

Manufacturing

Overall manufacturing activity continued to strengthen. Demand for food products was up,

and contacts were increasingly optimistic about the year. Demand for apparel products has

been unchanged.

Contrary to the usual seasonal lull in construction during the winter months, manufacturers

of cement, clay, brick, tile and glass continued to report strong demand. Robust demand has

allowed 2 to 7 percent price increases since January. The recent upswing in construction also

stimulated demand for primary metal. Demand for fabricated metals has been strong over the

past couple of months. Inventories of fabricated metals were reported to be high. Some

contacts say the higher inventories were in anticipation of future demand, and others cited

fears of higher input prices.

High-tech manufacturing reported modest to good growth in orders. Contacts expect orders

to continue at these levels, and one respondent noted that there doesn't seem to be any great

new product on the horizon to stimulate a significant acceleration. Manufacturers of

telecommunications equipment reported steady sales. Sales of wireless handsets have been

particularly brisk, and inventories are lower than desired.

Refiner margins have slipped from high levels of the past few months to moderate in recent

weeks because product prices have not kept pace with rising crude prices. Refiners that can

use heavy or high sulfur crude are earning better margins than those relying on more

expensive light sweet crude like West Texas Intermediate. Demand for chemicals has

remained extremely strong and is outstripping capacity. Prices and profits are high for most

chemical products, and significant capital expansion is expected on the Gulf Coast later this

year.

Services

Reports from the service sector remained mixed over the past six weeks. Temporary staffing

firms say demand growth was slower than expected. Contacts are uncertain why their clients

are being cautious, but some thought it might be the result of continued cost cutting.

Demand for accounting services remained very high and increased slightly. Demand has been

strong for work to support business transactions, mergers and acquisitions, seasonal tax needs

and Sarbanes-Oxley regulatory requirements. Hiring continued to increase. Wages, salaries

and fees are also increasing. Legal firms also reported strong demand and increased hiring,

salaries and fees. Litigation activity is flat, but demand is strong to support transactions. The

cost of doing business is going up for most law firms--driven by malpractice insurance,

health insurance and rent.

Demand for wireless telecommunications services continued to strengthen. Contacts say

employment reductions are planned as a result of mergers, and continued consolidation in

telecommunications services is expected.

Airlines are still reporting difficult conditions. Demand has picked up recently, but contacts

say fares are too low to cover costs because distressed carriers are pricing their product

below a profitable level. Respondents say less-than-free market conditions are allowing

bankrupt carriers to stay alive, and these airlines need to liquidate to help the industry

become profitable. High fuel costs also remained a concern.

Rail traffic was strong in the western United States, particularly for metallic ores, crushed

stone, trailers and containers. Demand for trucking has been strong, but rising costs for fuel,

insurance and equipment are a concern.

Retail Sales

Retailers reported stronger sales growth over the past six weeks. While there were some

areas of weakness, such as for home furnishings, contacts said that customers appear to have

more liquidity. Several retailers noted that sales were stimulated by lower gasoline prices but

said the recent rebound in pump prices brings some uncertainty. Inventories were in good

shape. Retailers reported rising input costs, particularly for products containing

petrochemicals, such as plastics. Contacts said the recent strengthening of sales was allowing

more of these cost increases to be passed on to customers. Costs and prices continued to fall

for apparel, however.

Automobile sales in the District continue to be soft, down slightly from year ago levels, with

inventories higher than desired. Railroads also reported moving fewer motor vehicles.

Construction and Real Estate

Construction and real estate markets were mixed. Demand for apartments was soft, and

construction of apartments declined since the last Beige Book. Apartment occupancy

continued to fall in Dallas and Houston, although rents appear to have stabilized, following

declines through most of 2004. Austin's apartment market continues to improve, with less

construction and steady demand. Existing home inventories continued to rise, but contacts

said low mortgage interest rates spurred new home sales, and home construction edged up

following a lull at the end of 2004.

Demand for office space has remained soft since the last Beige Book, but investor activity

was still strong. Leasing activity continued to pick up slowly, but there are very deep holes to

climb out of--especially in Dallas and Austin--according to respondents.

Financial Services

Contacts reported little change in financial conditions. Demand for lending was largely

unchanged, with some contacts reporting a slight increase. There was a slight improvement

in the overall quality of loans, and delinquencies were falling at some community banks.

Foreclosures on commercial and industrial real estate loans were creeping up, however, and

contacts said a lot of money is flowing into the real estate/mortgage sector--perhaps too much

into retail. The financial industry reported that they are watching carefully to be sure that a

real estate bubble does not form in Texas. Competition between lenders remains stiff.

Energy

Energy activity continued to strengthen, and optimism increased significantly. The U.S. rig

count jumped 22 rigs during the past six weeks, including 13 rigs in Texas. Most new rigs

were on land and primarily directed to natural gas. The number of rigs working in the Gulf of

Mexico had weakened to only 93 but rebounded to 100 working rigs in recent weeks. Even

so, activity in the Gulf remained lower than in 2000 and 2001--when the annual averages

were 136 and 148 rigs, respectively.

Oil service companies reported that boom times are back for them, and they say they are

finally sharing in the high prices enjoyed by producers for some time. Capacity is becoming

an issue for many firms, with rigs and other services increasingly being signed up for

multiple jobs to assure availability. Capacity is being added in manufacturing areas (such as

oilfield tools), but activity is still being constrained by a lack of drilling crews, engineers, and

many skill-sensitive service areas. Competition for these workers is heating up significantly.

Agriculture

Land preparation for spring planting moved ahead in drier parts of the District. Aboveaverage rainfall improved soil moisture conditions and spurred growth of winter wheat but

further delayed the cotton harvest and lowered the grade of the crop in West Texas. Ginning

activities were active. Range and pasture conditions generally remain excellent, although

there were reports of varied degree of livestock illness.

Strong global production of corn and cotton continues to push down prices for those crops.

High natural gas prices have pushed up fertilizer and irrigation costs, leading contacts to

expect farmers in the Texas Panhandle to switch away from corn production to crops that

require less water, such as cotton, sorghum or sunflowers. Contacts expressed concern that

the proposal to limit crop subsidies on farm income will affect farmland values farmer's

ability to pay loan debt. Ranchers remain anxious about plans to re-open trade of live cattle

from Canada.

Return to top

Twelfth District--San Francisco

The Twelfth District economy continued to expand at a solid pace from mid-January through

February. District contacts reported little change in overall price inflation, despite significant

increases for selected producer prices. Upward pressure on wages and salaries remained

modest overall. Employers have responded to rising costs for health insurance benefits

largely by shifting some of the costs to workers but also by restraining wage growth in some

cases. Retail sales mostly were stable, although sales of new automobiles slowed; service

providers reported robust demand. District manufacturing activity expanded further and sales

of agricultural products were strong. Home demand remained robust, and demand for

commercial real estate improved. District banks reported solid loan demand and good credit

quality.

Wages and Prices

District contacts reported that overall price inflation remained low in recent weeks. Prices of

inputs to producers rose somewhat, notably for surface transportation services, energy and

petroleum products, and a variety of construction and industrial materials, especially steel.

Consumer prices generally remained stable overall, however, held down by vigorous

competition among sellers and continued gains in production efficiency.

Respondents reported little change in labor market conditions. Employers in most sectors

experienced little or no difficulty filling job openings. The primary exceptions were selected

high-skill jobs in the construction, health-care, and media sectors and jobs in many sectors of

the Hawaiian economy, which has been expanding at an unusually rapid pace of late. Wage

and salary pressures remained modest in the District overall, with average annual increases

mostly in the range of 3 to 4 percent. Most employers faced upward pressure on total

compensation due to large ongoing increases in health benefit costs. While there were

scattered reports of reduced hiring due to these cost increases, most businesses have

responded in other ways: about two-thirds of those surveyed indicated that they have already

shifted or plan to shift at least some of the cost increases to employees, while about one-third

reported that they have reduced wage and salary growth at their firms to offset rising

health-care costs. Several respondents noted slower growth in health-care costs recently, a

trend they expect to continue this year.

Retail Trade and Services

Contacts reported largely stable retail sales compared with the previous survey period. Sales

of retail merchandise in general were reported as "steady." However, sales of new

automobiles weakened; solid sales of imported brands were offset by a dip in sales of

domestic brands, due in part to a reduction in sales incentives by domestic manufacturers.

Among used vehicles, relatively tight inventories held sales down somewhat and prompted

price increases.

Sales of services by District providers have been strong, and they expanded further during

the survey period. Demand for health-care and transportation services remained robust, and

providers of high-tech services reported improved demand of late. Activity was vibrant in the

travel and tourism sector. In Hawaii, domestic visitor arrivals continued at record highs.

More generally, hotel occupancy and average daily room rates reportedly were stable or

improved further in the District's major tourist destinations, including Southern California

and the San Francisco Bay Area.

Manufacturing

District manufacturing activity expanded further from mid-January through February. Robust

construction activity fueled rising demand for wall board, insulation, and other building

materials, and manufacturers of these products reportedly faced significant order backlogs.

Makers of machine tools reported solid demand. Among information technology products,

semiconductor orders and sales have been solid and they picked up a bit in recent weeks; as

in the previous survey period, capacity utilization dipped slightly but is expected to stabilize

at a relatively high level in coming months. Contacts reported that conditions in the

commercial aircraft sector improved slightly, as an increase in orders from Asia offset weak

orders from domestic and European sources. The main exception to solid conditions in the

manufacturing sector was in telecommunications, as makers of communications equipment

continued to struggle with weak orders and substantial excess capacity.

Agriculture and Resource-related Industries

Conditions in District agricultural markets remained solid during the survey period. Orders

and sales of agricultural goods were strong, spurred in part by foreign demand. However,

District contacts reported that the tight supply of trucking and rail services and consequent

rising prices have reduced the competitiveness of some District producers relative to those

outside the region. Recent heavy rains in Southern California had a mixed impact on

agricultural supply, damaging some crops but improving conditions for livestock grazing. In

the energy sector, distribution of natural gas has been expanding rapidly in response to

growth in residential housing, and producers operated at or near full capacity in recent weeks.

Real Estate and Construction

Demand for residential real estate generally remained robust, sustained in part by continued

low mortgage rates. Sales of new and existing homes increased throughout the District, and

home-price appreciation continued at an elevated pace in most areas. As in the previous

survey period, however, in several areas the pace of home sales and price appreciation

slowed somewhat from the highs reached in 2004. Continued solid demand for new homes

kept overall construction activity at high levels in many areas, while rising costs for building

materials prompted some contractors to raise prices. Conditions in District commercial real

estate markets improved further in recent weeks. Office vacancy rates fell and rental rates

increased modestly in several markets, and commercial construction activity picked up

slightly in some areas.

Financial Institutions

District banking contacts reported solid overall loan demand and good credit quality.

Commercial and industrial lending edged up, while demand for construction, commercial

real estate, and residential loans slowed a bit in some areas but remained at high levels

overall. Contacts reported ample availability of credit and noted that a competitive lending

environment has narrowed margins in the banking sector.

Return to top

Home | Monetary Policy | 2005 calendar

Accessibility | Contact Us

Last update: March 9, 2005