March 6, 2002 Summary

Skip to content Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report

Prepared at the Federal Reserve Bank of Boston and based on information collected before February 26, 2002. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of the Federal Reserve officials. A majority of Federal Reserve districts report some signs of improvement in economic conditions in January and early February. The Boston, Philadelphia, Richmond, Atlanta, Minneapolis, and San Francisco districts note some pickup in activity, Chicago cites a more positive tone, and Kansas City and St. Louis say that economic activity is weak, but there are some bright spots. Cleveland indicates that although some positive signs continue to emerge, overall business conditions in the district have neither improved nor deteriorated compared with the end of last year. New York reports mixed signals, and Dallas notes continued weak activity. Most districts say that manufacturing activity is generally weak, but selected industries in some areas are showing more positive results. Boston, New York, Philadelphia, Atlanta, Dallas, Richmond, Kansas City, and San Francisco report modest improvements in retail sales recently compared with the end of last year. Retail results were more mixed in the other districts. Districts indicate that residential real estate markets are generally stronger than commercial markets. Reports on demand for bank loans are mixed across the districts. Warm, dry weather figures prominently in agricultural reports. Warm weather and the slow global economy have contributed to weaker energy demand. Labor markets continue to be slack in most districts, with many citing business contacts who have suspended bonuses, frozen wages, or skipped annual salary increases. However, contacts at temporary employment firms in several districts suggest employment is bottoming out, and new hires in selected occupations are said to be in short supply. While wage and price pressures are described as "subdued" to "largely nonexistent," business contacts in many districts mentioned rising health insurance costs. Firms in most districts indicate that their purchase and selling prices are generally stable, but Dallas reports upward pressure on services prices and declining prices for chemicals and paper, while Cleveland notes an increase in spot market prices for steel. Retail Most districts report that retail sales during January and February were unchanged from a year earlier, but several noted improvement in early 2002 compared with late 2001. In addition, the Philadelphia, Atlanta, and Kansas City districts say that sales were higher in early 2002 than a year earlier. New York, Richmond, Atlanta, Kansas City, and San Francisco indicate that while tourism continues to be weak, it has improved since the second half of 2001. Home furnishings and appliances were reported to be growing strongly in the Cleveland, Richmond, Atlanta, St. Louis, and Kansas City districts. Philadelphia, St. Louis, Dallas, and San Francisco note that motor vehicle sales remain solid, but are down from the rapid pace set in the fourth quarter of 2001 because price promotions have ended; Dallas also reports that automobile dealer profit margins are lower. Wage and price pressures in the retail sector are virtually nonexistent. Retail employment is said to be stable in Boston, but down in the Richmond and San Francisco districts. Most districts indicate that retail contacts expect flat to slightly increasing sales during the first half of 2002; only retailers in the St. Louis and Philadelphia districts expect somewhat stronger sales growth during this period. The Boston, Cleveland, and Kansas City districts say that retailers expect sales growth to resume at a modest pace during the second half of 2002. Manufacturing Manufacturing activity is reported to be generally weak but showing signs of improvement in at least some industries. The most positive reports come from Philadelphia and Richmond, indicating "moderate" or "solid" growth in manufacturing shipments and orders during January and February. Many districts report that recent manufacturing activity has been "mixed." By contrast, Kansas City says manufacturing production "fell further below year-ago levels," while Dallas says it "remained weak." Among districts commenting on expectations for this year, all signal that either a majority or a growing fraction of manufacturers expect higher production by the second half of the year. Cleveland and Chicago report a pickup in automotive production in response to higher demand; decreases in other districts were said to be due partly to winter storm conditions. Boston, Chicago, Dallas, and San Francisco note stabilization or slight improvement in demand for high-tech products, which their contacts attributed largely to lean finished goods inventories in these sectors. St. Louis and Dallas indicate that petrochemical and oil refinery production has been sluggish. Reports on most other industries are mixed, with increased production in some parts of the country and decreased production in others. Throughout the nation, manufacturers are said to be experiencing flat or declining costs for materials and energy. Selling prices are reported to be mostly flat, but several districts mention modest increases in steel prices from low levels. Some districts comment that manufacturers are no longer cutting back on labor to the same degree they did in 2001. For example, Cleveland mentions that manufacturing employment has fallen but that widespread layoffs in steel and aerospace appear to have subsided. Manufacturers in the Philadelphia and Richmond districts also are said to be reducing regular employment but holding steady or increasing the length of the workweek. Nonfinancial Services Although services industries were mostly sluggish or flat in recent months, selected industries reported improvements. Boston notes rising demand for software products and related services. In the Cleveland district, for the first time in more than a year, significant numbers of contacts in the trucking and shipping industry noted improvement. Dallas reports that law firms and accounting firms note strengthening demand for work on litigation, bankruptcy, auditing, and taxes. Demand for communication services improved in the San Francisco district. Conditions in the temporary labor market continue to be slack in most reporting districts, but the worst seems to be over. District reports suggest that widespread layoffs have subsided and demand for workers appears to be stabilizing. The Richmond district is the most upbeat, with reports of strengthening demand for temporary workers in recent weeks. Atlanta notes improvement in outplacement activity, even though labor market conditions remain weak. Other districts indicate that ample supplies of labor are still readily available, although certain areas of employment in some districts bucked the sluggish trend. The legal industry in New York exhibited strong demand for temps; employers in the Richmond district are seeking light industry workers and customer service representatives; and, in Dallas, demand was strong for administrative and clerical positions, and in the banking and retail industries and some professional services. Banking and Finance Loan demand is generally mixed in the reporting districts. Dallas, Kansas City, New York, and San Francisco report falling overall demand while Atlanta, Cleveland, Philadelphia, and Richmond report mixed results. Overall lending activity is picking up in St. Louis and Chicago. Demand for consumer loans is down or continues to be soft in the Cleveland, New York, and Philadelphia districts, but Atlanta is experiencing growth in demand. Commercial and industrial loan demand is similarly mixed, with Philadelphia and St. Louis reporting increasing demand, Cleveland and Kansas City showing lower demand, and the Chicago, Dallas, New York, and Richmond districts all indicating stable or mixed demand. Mortgage and refinancing loan volumes are steady to strong in the Atlanta, Chicago, Kansas City, and Richmond districts, with only New York and Philadelphia reporting slowing demand. New York, Philadelphia, and San Francisco all report stricter loan requirements, while the requirements in Chicago, Dallas, Kansas City, and Richmond are reportedly unchanged. Delinquency rates are stable in Chicago, Cleveland, Dallas, and New York. Cleveland and Philadelphia report some decline in loan applicant quality. Richmond reports that stock market investors are "in a holding pattern," and Atlanta's contacts note that there is little new money entering the venture capital industry. Real Estate and Construction Real estate markets are mixed, with commercial markets almost universally said to be weak while the residential segment remains strong. Increased office vacancy rates are reported in the Boston, New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco districts. The rise in available commercial space has been exacerbated by active sublease markets and additional construction in some areas. Office rents have declined moderately compared with a year earlier. Consequently, commercial construction activity has slowed in most reporting districts. Residential markets remained steady or strengthened during the last two months. Home sales and demand for houses are reported to be strong in the New York, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco districts. Lower-priced home sales are especially strong, while demand for the high-end segment of the market has weakened in a few districts. New York, Philadelphia, Chicago, and Minneapolis note increased home sale prices compared with a year earlier. New home construction was unchanged or increased in Cleveland, St. Louis, and Minneapolis, but was lower than a year ago in Kansas City. Agriculture and Other Natural Resources The unusually warm, dry weather in much of the country dominates news from the agricultural sector. The dry spell has resulted in poor conditions for the winter wheat crop or has reduced winter pasturage in the Richmond, Minneapolis, Kansas City, and Dallas districts. As a result, Dallas district ranchers are reducing their herds. But in San Francisco, where farmers have already cut their inventories of cattle and field crops, they now report improved prices. Despite producer concerns about the farm economy, Kansas City district bankers indicate that farmers' balance sheets remain strong, thanks to steady land values and government support. St. Louis contacts also report a slight rise in land values. Looking ahead, Dallas notes that preparation for the corn and cotton crop is on schedule, and that, despite a cotton surplus and low prices, farmers are planning to plant as normal. In the St. Louis district, farmers expect to plant less wheat and cotton than last year; however, they are waiting for passage of the federal farm bill before finalizing their plans. According to the Atlanta and Dallas districts, the second warmest U.S. weather on record for November through January plus global economic weakness have damped demand for heating oil and natural gas and have kept prices low. Minneapolis reports that drilling activity has fallen slightly in recent weeks, while Kansas City notes that the district's count of active oil and gas drilling rigs remains near the two-year low hit in late 2001. In the Dallas district, energy activity shows signs of bottoming out and stocks of crude oil, heating oil, and natural gas are all well above last year's levels. Because firms storing natural gas will not want to hold it over the summer, many Dallas contacts expect significant downward pressure on natural gas prices this spring. In the case of mining, Minneapolis iron ore production is up slightly from late 2001 levels and is nearing more normal levels. In Kansas City, higher coal prices have encouraged increased activity. Return to top         Boston