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Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before June 4, 2001. This document summarized comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.
Most districts report that economic activity was little changed or decelerating in April and May. Retail sales and tourism have been slow to flat across the nation. Most districts report that manufacturing activity has declined or remained weak. Commercial real estate markets have softened. New construction, while still at high levels in a number of districts, appears to have leveled off. The agricultural sector has been hurt by adverse growing conditions and higher input costs. Mining activity is stagnant. The one bright spot is the continued growth in energy exploration. Labor markets continue to ease in all districts, although a shortage of workers is reported for some occupations. Wage and price increases are moderate, but significant increases are noted in energy and health care. Lending activity varies based on location and type of loan, although credit quality has slipped in many districts.
Consumer Spending
Districts report that growth in consumer spending has been lackluster. Boston reports spending at or below last year's levels. Spending in New York, Philadelphia, Minneapolis and Kansas City in May was little changed from a year ago. Richmond sees purchases slowing from earlier in the year, and Chicago reports a disappointing May after a stronger-than-expected April. Cleveland and Atlanta report modest growth, and Dallas says consumer spending is flat or up slightly. Weather was noted by a number of districts as a contributing factor to recent slow retail sales.
Auto sales in Philadelphia are lower than last year. Auto sales fell in Kansas City, particularly for trucks and SUVs, but dealers are cautiously optimistic about summer prospects. Minneapolis reports auto sales on par with a year ago in North Dakota, but new car and truck registrations are down from last year in South Dakota. Sales for more fuel-efficient vehicles are "picking up" in Chicago. In Dallas, auto sales are increasing slowly, but year-to-date figures are still below those of 2000. Houston auto dealers report very strong auto sales in April.
Tourism is lackluster. New York reports that Manhattan's hotel occupancy rates in March and April were 10 percentage points lower than a year ago, and average room rates saw the biggest decline in eight years. Atlanta, Chicago and Dallas report slow commercial air travel. High fuel prices and consumer uncertainty appear to be restraining travel to Hawaii, Las Vegas and other high-end destinations in the San Francisco district. In contrast, Richmond reports strong Memorial Day bookings and spending.
Manufacturing
Manufacturing activity decreased or slowed in May for all the districts. Several districts report weak new orders and higher inventory levels. Boston, New York, Philadelphia, Atlanta, Minneapolis, Dallas and San Francisco report weakness in the telecommunications industry. Richmond notes declines in furniture sales. Cleveland reports high steel inventories, while San Francisco states rising inventories of semiconductors. Kansas City indicates that factory stocks are still above desired levels. However, Chicago reports that many contacts say the worst of high inventory levels is over. St. Louis reports planned expansions of output in the high-tech, tobacco and chemical industries.
Real Estate and Construction
Commercial real estate and construction have slackened somewhat in several districts. "Softening," "stagnant," "weak," "flat" and "continued to cool" describe overall activity in most districts. Exceptions include the St. Louis district, where commercial construction is steady, and the San Francisco district, where commercial real estate markets are sound, but with signs of weakening. Nine districts report higher vacancy rates, with increased subleasing activity as company downsizing has led to more available space. Rental rates for leased space are steady to lower in parts of the Boston, New York, Philadelphia, Richmond, Atlanta and Dallas districts.
Residential construction is mixed, while home buying is generally active. Homebuilding is strong in the St. Louis district and expanding modestly in Kansas City; however, homebuilding is soft in the Chicago and Minneapolis districts. Residential real estate markets are fairly buoyant in the New York district, while recent sales increases are reported in Cleveland, Richmond, Atlanta and Minneapolis. In the Kansas City district home sales are flat, while sales have slowed in the Philadelphia, Chicago and Dallas districts. The inventory of homes on the market is low in Philadelphia, but is higher in at least parts of the Minneapolis and Kansas City districts.
Agriculture
Spring plantings are nearly complete across the nation, but difficulties persist. Weather problems are reported in Cleveland, Chicago, St. Louis, Minneapolis, Kansas City and San Francisco. In addition, pest damage is reported in the St. Louis and Dallas districts. Atlanta, Kansas City, Dallas and San Francisco note higher production costs.
Natural Resources Industries
Energy exploration activity is robust due to high prices for natural gas and oil, while mineral mining activity is sluggish. Minneapolis, Kansas City, Dallas and San Francisco report increases in the number of oil and natural gas drilling rigs. The count of active drilling rigs in the Kansas City district reached an eleven-year high. Meanwhile, the Minneapolis district reports weak iron ore, copper and aluminum activity. Iron ore shipments are down and a copper mine and an aluminum smelter remain closed.
Labor Markets
Districts report overall easing in labor market conditions, with tightness noted in some occupations. More people are looking for work, and hiring is considered easier. Information technology workers are having more difficulty finding jobs in the Boston, Cleveland, Chicago, Minneapolis and Dallas districts. Demand for temporary staffing services is soft in the Boston, Cleveland and Richmond districts. Some retailers in New York report a decrease in employee turnover. However, examples of worker shortages include nurses in Atlanta, warehouse and light industrial workers in Richmond, construction workers in Kansas City, and engineers, welders and office workers in some areas of the Dallas district.
Wages and Prices
Most districts saw only modest pressure on wages. The Boston market for all levels of tech workers "has softened dramatically" and dampened wage pressure. Atlanta says new technology workers are being offered smaller compensation packages than last year. Minneapolis sees limited growth in manufacturing wages. In Kansas City, wage pressures "were virtually nonexistent outside of the energy sector," and workers report favoring job security over higher wages. San Francisco says the easier labor market has reduced wage pressure. However, New York, Cleveland, Atlanta, Minneapolis and San Francisco say costs are rising for health care and other employee benefit items, with districts reporting examples of annual increases running as high as 20 percent.
Non-energy prices are generally reported stable. Dallas says that stiff competition, excess capacity and high inventories are keeping prices in check in telecommunications and other industries. High inventories are reportedly keeping prices down in the retail sector and in some cases pushing them lower. Retailers -- particularly of high-end goods -- in Boston, New York, Philadelphia, Atlanta and San Francisco report deeply discounted prices to move overstocked inventories and boost sales. Cleveland, Richmond, Atlanta, Dallas and San Francisco report that manufacturer rebates and other incentives have helped lower car and truck prices. Boston, Cleveland, Richmond, Atlanta and Dallas all report higher lumber prices.
Districts report higher energy prices across the board, with mixed consequences. Shipping costs are up in Cleveland; Dallas reports that rail transport surcharges are increasing; San Francisco says that surcharges are increasing but "price pass-throughs remained partial."
Banking and Finance
Lending activity and credit quality vary by sector and area. Deterioration in credit quality is noted in New York, Cleveland, Richmond, Chicago, Dallas and San Francisco, though not in Philadelphia. Commercial loan demand is up in New York, Philadelphia and Chicago, but down in Cleveland, Richmond, Atlanta, St. Louis, Dallas and San Francisco. Consumer loan demand is subdued in Atlanta, Chicago, St. Louis and Dallas, but mixed in Philadelphia, and up in New York, Cleveland and Kansas City.
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