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Economic activity continued to show steady gains throughout the District in March and early April. Manufacturers saw steady increases in production in the six weeks through the middle of April, relative to earlier this year. Construction activity also appeared to strengthen, though rates of home building were below those of this time last year. Commercial lending remained relatively robust. And the demand for trucking and shipping services was strong and broad-based. While retailers reported that sales were weaker-than-expected in March and early April, this was thought to be partly attributable to Easter's arrival in April.
In general, hiring remained relatively limited across the District. For firms that were hiring, outside of a few specialties, employers appeared able to find the workers they needed; there were no reports of any accumulating wage pressure. Staffing services companies, however, did report that those seeking jobs were able to find them more quickly than in the recent past. Regarding cost pressures, contacts reported increases in the prices for cement, various metals, and petroleum products, and some ability to pass price increases through to end users. Nevertheless, retail prices remained relatively flat.
Manufacturing
Contacts continued to report steady increases in production at the District's durable goods facilities in March and early April, with production levels generally above those of this time last year. Orders for future shipments were also strong. Steel producers saw strong demand from an array of industries, though shipments to the auto sector were mixed, as some American automakers attempt to reduce capacity. At District auto assembly plants, production rose roughly 5% on a year-over-year basis. Durable good producers generally planned to spend as much or more on investment outlays through the next six months as they are currently spending. More hiring also appears to be occurring, with additional increases in staff planned. Finally, firms reported increases in input costs, especially for various metals and petroleum products, with only some firms able to offset these increases through price changes.
Production showed slight increases for many manufacturers of nondurable goods in March and early April, relative to earlier this year. And new orders showed increasing strength as well, suggesting that production may continue to improve in the months ahead. Nevertheless, current production levels remain less than those of a year ago. In general, nondurable goods manufacturers are not investing in additional capacity. Most firms are also not adding to their staffs. Like durable goods producers, many nondurable goods manufacturers mentioned increases in metals and petroleum prices, though some petroleum-derived products were actually less expensive than earlier this year.
Retail
Year-over-year sales gains were generally weaker-than-anticipated at District retail outlets in March and early April. However, contacts cautioned that these comparisons were problematic since Easter fell in late March last year, but mid-April this year. Some weakness was also attributed to increases in gasoline prices, particularly at discounters and others offering lower-price point merchandise. While sales at specialty-apparel shops were weaker-than-expected, drug stores and grocers generally reported sales above the levels of this time last year. Most contacts reported that markdowns and promotional activity were within the normal ranges. Hiring in the industry continued to be limited.
Sales of new and used automobiles improved slightly in March, relative to the beginning of this year. However, sales of new domestic nameplates remained at relatively lower levels. Contacts reported attempting to more effectively manage their inventories, and trim the number of vehicles on their lots, given that holding costs have increased.
Construction
Residential builders reported a slight increase in sales in March and early April, relative to earlier this year. Nevertheless, some of this increase relates to regular seasonal fluctuations. Compared to this period a year ago, most builders reported a reduction in sales. Most contacts expect sales in 2006 to be below the totals of recent years. Accordingly, prices are rising less rapidly, with many builders more willing to discount than during the previous two years. Regarding input costs, most contacts reported that their materials costs remained relatively stable in March and April. Some builders said concrete costs continued to increase, though several said that lumber costs fell. Few firms reported hiring in recent weeks, while subcontractors were thought to be more available than typical for this time of year.
For firms involved in commercial construction, sales increased slightly relative to earlier this year, and were also up relative to a year ago. In addition, most commercial contractors reported that their backlogs were strong. Demand was driven in part by health care providers and educational establishments; construction of new office space was relatively less robust. Increases in materials costs were more widely reported among commercial contractors. Many builders reported increases in steel, cement, and petroleum-product prices. Still, most builders have been able to pass through these costs increases. Hiring remained relatively limited in the industry, and while subcontractors seem to be readily available at present, some contacts were concerned that there will be shortages soon.
Banking
In March and early April, commercial loan demand increased slightly among smaller lenders in the District, and remained steady at bigger banks. The latter also reported that lending for commercial real estate remained strong. Consumer loan demand was more mixed across institutions, though the issuance of mortgages and autos loans appeared in general to fall from previous levels. Contacts expressed concerns about narrow net-interest margins, though credit quality continued to be described as strong. Finally, contacts reported that their core deposits rose in recent weeks.
Transportation
Demand for trucking and shipping services remained strong through early April, though some contacts reported a slight softening in activity in March. As fuel prices trended up in March and April, contacts expressed concern over the level of fuel costs. However, these costs continue largely to be passed through to end-users using surcharges. Moreover, many contacts believe that they can raise their base rates if needed, given the strength of demand. Drivers remain in short supply, according to contacts, though wage rates were generally unchanged. As previously reported, capital spending in the industry is strong, as firms attempt to purchase trucks that don't need to meet impending EPA guidelines.
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Philadelphia