January 15, 2003
Federal Reserve Districts
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Twelfth District contacts reported sluggish growth in economic activity during late November and December, with little change in most industries from trends reported in the previous survey. Regarding prices, reports indicated widespread heavy discounting among retailers and little upward pressure on prices for most other sectors. Increases in wages and salaries were modest, and employers passed on some of the increases in health-care costs to workers. Aside from strength in selected products, holiday spending by consumers was flat to slightly down relative to last year. Conditions in District manufacturing were mixed, with improvements in the sales of selected semiconductor products and expansion in defense-related industries. In contrast, demand in the commercial aircraft and telecommunications markets remained weak. District manufacturers noted continued excess capacity and muted long-term investment activity and research and development (R&D) spending. The weakening of the dollar boosted exports of District agricultural products. Commercial real estate remained stagnant across District markets, while home sales were at elevated levels, although the pace of growth abated slightly. Bank contacts reported continued growth in deposits but continued weak demand for business loans in most areas.
Prices and Wages
Labor markets for most types of jobs appear tilted in favor of employers according to survey respondents, and layoffs continued in selected retail, services, and high-tech industries. District firms passed on some of the increases in health-care costs to workers by requiring them to pay a greater share of premiums, reducing benefits, and/or slowing wage growth. The combination of the increase in costs of employer-provided health benefits, the weak labor market, and limited pricing power in most industries restrained growth in employee wages and salaries during late November and December, according to District contacts.
Retail Trade and Services
The services sector continued to face weak demand in late November and December. Contacts in advertising and related businesses noted that demand for their services was soft in recent weeks. Conditions in District travel and tourism sectors generally were mixed during the survey period; international visitor counts remained weak, while domestic tourism continued to improve. Contacts reported normal hotel occupancy rates in Hawaii in recent weeks, and time-shares continued to provide a stable source of tourism to the state. Moreover, early season ski bookings at District skiing destinations were up from previous years. In some other areas, though, hotels and other lodging establishments continued to struggle with low occupancy rates.
Excess capacity also remained an issue for most other District manufacturers. Contacts noted that capacity utilization generally remained below targeted levels, and it would likely take six months to a year for manufacturers to reach targeted levels at the current pace of expansion. The excess capacity in District manufacturing establishments is expected to be a drag on capital expenditures in the months ahead. Respondents noted that planned R&D outlays by many manufacturing firms also have been curtailed, both in absolute terms and relative to capital expenditures. An exception to the general rule of excess capacity and slow growth in R&D was the biotech industry, with firms reportedly nearing targeted levels of capacity utilization and experiencing continued expansion in R&D budgets in recent weeks.
Agriculture and Resource-related Industries
Real Estate and Construction
Home sales remained at elevated levels, although the pace of growth in sales slipped a bit further in late November and December. Prices for both single family homes and condominiums continued to increase in many District markets.