July 26, 2006
Federal Reserve Districts
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The District's economy continued to expand in June and early July, but showed signs that growth was beginning to moderate. Most manufacturers reported steady production in the six weeks ending in early July. Retailers, however, reported a softening in sales, attributing this to high gasoline prices and rising interest rates. While commercial building continued to show modest growth, residential construction has weakened since May. Demand for trucking and shipping services continued to be strong and broad-based. And while commercial and consumer borrowing generally remained steady, there were reports of some deterioration in consumer credit demand.
In general, hiring continued to be limited throughout the District. Staffing-services companies reported that job openings increased only modestly in June. However, demand is still high for healthcare and insurance industry workers. Only a few manufacturers were concerned about wage pressures and this was mainly due to expiring labor contracts. Almost all contacts reported some increase in input costs, especially for petroleum products and metals. Commercial builders, nondurable goods manufacturers, and trucking firms frequently reported that they could pass these costs along to their consumers relatively easily. Retailers, however, reported that they were generally holding prices steady.
Production at the District's nondurable goods facilities also appeared to be steady in the six weeks through early July, but only above year-ago levels for half of the companies contacted. About half also expected activity to improve through the remainder of 2006. However, few firms planned to increase their investment spending in the coming months, and few planned any staff additions.
Among all manufacturers, wage pressures were not widespread, though increases in materials costs were widely reported, in particular for some petroleum-based products and copper. Nondurable goods producers generally sought price increases more frequently than their durable-goods producing counterparts.
Almost all retailers noted that utilities, shipping, and construction costs were up dramatically on a year-over-year basis; nevertheless, product prices were holding steady. Most retailers noted no unusual activity in hiring, however, one contact cited a slow-down due to business uncertainty.
Regarding sales of new vehicles, foreign nameplates continued to outsell their domestic counterparts. Used vehicle sales remained relatively steady. All dealers reported that showroom traffic was down and that, to a significant extent, sales continued to be dependent importantly on incentives.
The District's commercial contractors reported that the economic environment remained better than at this time last year, and that customer inquiries continued to be strong. However, some contractors reported a softening in sales since the end of May. Still, for most firms, backlogs remained relatively strong. Among the segments where sales remained robust were manufacturing, health care, and education. Input cost increases were widely reported, notably for petroleum-products and copper. Most builders reported that they can easily pass these price increases through to their new customers, but aren't generally able to adjust current contracts with existing customers. Few firms changed their staff sizes in recent weeks.