September 11, 2002 Summary

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Prepared at the Federal Reserve Bank of St. Louis and based on information collected before September 3, 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. District reports suggest that the growth of economic activity has slowed in recent weeks, with a good deal of variation across sectors. Although Atlanta and San Francisco reported modest improvement, most Districts indicated slow and uneven economic growth, with mixed or scattered experiences across sectors of the economy. Boston and Dallas reported little change in the overall level of economic activity. Retail sales were generally mixed, although seven Districts reported strong sales of home furnishings or appliances. Three Districts attributed slow apparel sales to unseasonably warm weather. Back-to-school supplies were reported to have sold well in three Districts, although another District reported disappointing sales. All Districts noted that retail inventories were at desired levels, with some reporting that inventories are being kept leaner than in the past. Almost all Districts reported an increase in auto sales over 2001 levels, mostly due to aggressive financing and rebate incentives. On the whole, manufacturing activity was sluggish, with a good deal of variation by industry and region. In particular, some Districts reported weakness in the high-tech and building materials industries, although other Districts reported strength in the auto and steel industries. The strength of the tourism sector varied across the Districts, with six indicating an increase in business and four reporting low or mixed activity. Almost all Districts noted that business travel has remained at a low level. Most Districts reported little or no gain in employment in July and August, although three noted that the demand for temporary workers has strengthened. In most Districts, the prices of inputs and final goods increased slightly or remained flat. Despite few signs of pressures on wages, there was widespread concern about the effect that rising health care costs might have on labor costs. Nearly all Districts reported strong residential sales and construction activity. On the other hand, commercial real estate markets remained weak. Banks in all Districts report strong demand for residential mortgages and refinancing, although business lending continued to be weak across the board. Credit quality was described as good and delinquency rates as either stable or declining. Drought conditions have been adversely affecting crops and livestock through most of the West and large areas along the East Coast. The experience elsewhere was more mixed, with yields severely reduced in some areas and near-record levels in others. Oil prices have risen while natural gas prices have been largely unchanged. Natural gas inventories are expected to be at record high levels when the heating season begins. Consumer Spending The retail sales picture was mixed for the nation as a whole in July and August, with some Districts posting declines in sales and others noting slight gains over 2001 levels. Home furnishings and other home products were strong sellers in Kansas City, Atlanta, St. Louis, Cleveland, and New York. Some Districts noted robust sales of back-to-school items while others have been disappointed with sales so far. San Francisco and Boston reported strong demand for large appliances. Several Districts, including Cleveland, New York, and Philadelphia, noted that warm weather was responsible for sluggish sales of fall apparel; others reported that apparel sold well. All Districts noted that retail inventories are in line with expectations, although a few heard that retailers are maintaining leaner inventories than in the past. Chicago, Dallas, and Boston reported that discount stores have continued to register stronger sales than general merchandisers. While Minneapolis noted that mall traffic was strong in August, other Districts reported a drop-off. Overall, retailers are cautiously optimistic about the fall, expecting sales to be flat or slightly up from their 2001 levels. Almost all Districts reported an increase in auto sales over 2001 levels, mostly due to the aggressive financing and rebate incentives offered. Inventories are at desired levels for most contacts, although many dealers are clearing out 2002 models to make room for 2003 models. Most Districts report that dealers are optimistic about sales for the next few months. Manufacturing and Other Business Activity Reports of manufacturing activity indicate that there was little to no growth in July and August, although Atlanta and St. Louis reported modest improvement. Some industries have struggled with sluggish orders while others have experienced moderate gains. Although several Districts noted that overall orders in the high-tech industry are still weak, demand for semiconductors has continued to improve in Dallas and San Francisco. Boston and Cleveland reported that residential appliance activity was up. While Philadelphia reported strong demand for construction materials, Dallas, Minneapolis, and Atlanta have seen declines in demand for these products. According to contacts in the Chicago, St. Louis, and Cleveland Districts, activity in the steel industry continued to increase. These Districts, along with Atlanta, also saw higher production of automobiles and automobile components. Richmond and Atlanta saw increases in orders and shipments of packing materials. New York reported a mild rebound in manufacturing activity in August after a dip in July, while the Kansas City manufacturing sector saw fewer signs of improvement in July and August. Several reports noted that positive attitudes still prevail, but manufacturers have become less optimistic than they were earlier in 2002. Reports from the tourism sector were also mixed across Districts. St. Louis, Minneapolis, Atlanta, Kansas City, Chicago, and New York reported an increase in business, while Boston, Philadelphia, San Francisco, and Richmond observed low or mixed overall activity. Most Districts noted that the duration of leisure visits has declined and that visitors are spending less money per trip. Almost all Districts noted that the level of business travel is low, as is demand for air travel, which has been affecting hotel occupancy rates in some areas. Dallas reported that auditing activity was strong, as was the demand for some legal services. The Atlanta District noted that Mississippi gaming activity has been strong. Boston reported that the temporary employment industry and the majority of software and information technology services have seen flat-to-modest increases in sales and revenue this summer. Trucking firms in Maryland and North Carolina reported soft demand. Labor Markets and Prices Labor markets in several Districts -- Cleveland, Atlanta, Chicago, and Minneapolis -- showed little change since the last Beige Book. In New York, hiring remained sluggish, although some signs of a pickup were noted for August. Firms in Kansas City expressed little interest in new hiring as they wait for further signs of improvement in the economy. Many contacts in Chicago indicated a downward trend in the demand for workers in the retail sector while retail payrolls in Boston and Richmond held steady. Manufacturers in Richmond and St. Louis reported little new hiring, although one manufacturing contact in Chicago reported a modest increase between June and July. The majority of manufacturers in Boston expect only small changes in employment for the rest of 2002. The Boston and Richmond markets for temporary employment experienced stronger demand in recent weeks. In Dallas, call centers and light industrial and manufacturing firms have the most need for temporary labor. Overall, wages were reported to be flat, with virtually no reports of upward pressure on wages. Contacts in San Francisco, however, reported an abundant supply of labor and flat-to-slightly elevated wages. Prices, too, remained unchanged, on average, although Atlanta, Dallas, Kansas City, and Boston reported an increase in steel prices. Prices of inputs and final goods increased slightly or remained flat in most Districts. The prices of building materials were said to be up in Atlanta, although San Francisco and Kansas City reported that these prices remained low in July and August. In almost all Districts there was concern about the rising cost of health insurance, which is leading some businesses to have higher labor costs. Real Estate and Construction Despite the weakness in commercial markets, most Districts, except for Dallas and Philadelphia, reported strong residential sales and construction activity. Contacts in Richmond and Cleveland attributed this vigorous activity to a favorable interest rate environment. In the Atlanta District, strong sales in some Florida markets have created a shortage of homes. July saw the highest number of monthly home closings for the Minneapolis-St. Paul area in five years. Existing home sales for July and August picked up in some Chicago markets. Prices for single-family homes in New York and Minneapolis were up in the second quarter from a year earlier, but apartment rents were reported to be lower than a year ago. Philadelphia and Dallas are the only Districts reporting less than robust residential sales. Real estate agents in Philadelphia reported an easing in the rate of sales in both new and existing homes for July and August. Total home sales remained unchanged in Dallas. Homes priced below $150,000 in Dallas continue to sell, but sales for higher-priced homes are slow. In Kansas City, sales and starts were also stronger for entry-level homes than for higher-priced homes. Commercial real estate markets remained soft in Boston, Philadelphia, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco. Boston, Philadelphia, Minneapolis, and Kansas City noted increased office vacancy rates for portions of their Districts while San Francisco reported unchanged vacancy rates for commercial and industrial space. New York, Richmond, Atlanta, and St. Louis indicated little or no overall change in commercial markets. Commercial construction opportunities slowed in Cleveland, St. Louis, Kansas City, and San Francisco. Commercial realtors and contractors in Kansas City and Boston do not see any signs of improvement in the near future. Banking and Finance Bank loan demand was generally mixed. However, Richmond, Atlanta, and Chicago reported a moderate rise and New York, Kansas City, and San Francisco reported an uneven experience. Demand for mortgages and refinancing remained high across the nation, with Richmond noting a marked increase. Contacts in Philadelphia expressed concern about the sustainability of real estate lending in the absence of growth in other sectors. Business lending continued to be weak in all of the reporting Districts. Demand for consumer loans has been strong in Chicago and Atlanta but mixed in New York and Philadelphia. Delinquency rates were reported to be either stable or declining. However, credit standards have been tightened for commercial and industrial loans. St. Louis noted that such tightening has only occurred for small firms. Credit standards for other loans remained largely unchanged, except in Atlanta, which reported a tightening. Cleveland and Chicago reported no change in the quality of consumer or business loans; Philadelphia, however, noted a mild slippage. Atlanta noted a surge in the number of borrowers looking to shorten the term of their loans. Cleveland reported increased competition across all lines of lending while San Francisco noted an increase only for low-risk lending. Agriculture and Natural Resources Drought conditions across much of the West and portions of the eastern United States have adversely affected both crops and livestock. Although recent rains have improved crop conditions in some areas, hot and dry weather during the middle of the year reduced the corn, soybean, and hay crops in parts of the Richmond, Chicago, Minneapolis, Dallas, and Kansas City Districts. As a result, bankers in the Kansas City District expect crop insurance payments to be a significant source of producers' income this year. Chicago noted that moisture conditions were notably less favorable for crops in Illinois and Indiana than elsewhere in the District, with contacts in central Illinois observing potential corn yields one-third lower than a year ago. In contrast, other portions of the Chicago District expect near-record corn and soybean yields; in addition, San Francisco reported that sales of fruits, vegetables, and nuts were high, spurred in part by strengthened export demand. Prospects for the cotton crop are good in Dallas and St. Louis, and the wheat harvest in Montana is expected to exceed significantly 2001's drought-ravaged crop. Livestock producers in the Kansas City, Richmond, and Dallas Districts have been providing supplemental feed to livestock due to dry weather and poor pasture conditions. Richmond also indicated instances of hauling water to livestock. Richmond, Dallas, and San Francisco reported that livestock farmers were paring herds, with liquidation under way in some areas of the Dallas District. Oil producers in the Dallas and Kansas City Districts reported increased oil prices, while natural gas prices, on average, were largely unchanged. Natural gas inventories declined slightly in the Dallas District but are expected to be at record high levels when the heating season begins. Reports from Dallas, Kansas City, and Minneapolis indicate that the count of active oil and gas drilling rigs remained unchanged in July and August. The Dallas District also noted that foreign drilling activity was down slightly but that revenues were up due to the complexity of the projects. Return to top         Boston