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Economic activity in the Fourth District showed modest growth since early January with restraint from the auto and housing sectors tempering growth in others.� Production by manufacturers was stable to increasing.� Activity in commercial construction has increased while residential contractors report sales remain stable--at low levels.� Post holiday sales by retailers were disappointing, weather being cited as a primary reason.� Loan demand at banks was flat while core deposits and credit quality were characterized as stable.� Overall, energy-related activity was flat to slightly down.� And demand for trucking and shipping services continues to soften.
On net, employment across the District was reported to be holding steady.� However, staffing firms remain upbeat about the number of job openings.� Three-fourths of our contacts said that openings have increased over the past six weeks and on a year-over-year basis with the greatest demand seen in health care.� With the exception of some energy-related businesses and retailers, wage pressures are largely contained.� Several manufacturers and building contractors reported that material prices, especially metals, are rising.� In response, some District manufacturers increased their prices; results were positive except in the auto and housing markets.� Almost all retailers said that they continue to hold their prices steady.��������
Manufacturing
District manufacturers reported production levels were stable to increasing since early January, with the most notable increases at capital goods producers.� On a year-over-year basis, several manufacturers reported lower production--mainly related to weakness in the auto and construction markets.� For example, most steel producers reported lower shipments on year-over-year basis with several citing weakness in the auto and residential construction markets.� Nonetheless, District auto plants, which mainly assemble small to mid-sized vehicles, reported increased production on a month-over-month and year-over-year basis.� Several contacts noted that increased production is attributable to competition for market share versus real market growth.��
The outlook expressed by most manufacturers is best described as steady to increasing.� Steel producers are expecting a pickup in demand during the second quarter.� Capital expenditures were on-plan for almost all manufacturers as few were concerned about their capacity utilization rates.� About one-third of our contacts indicated they are planning to increase capital spending during 2007 with four producers planning major expansions.� A majority of producers reported a rise in input prices--particularly for metals--since early January.� In response, about half of our contacts said they increased their prices.� Most were successful except in the auto and housing markets.� Hiring was limited during the past six weeks; however almost half of our contacts said they plan to add jobs during the remainder of 2007.� Wage pressures are largely contained; although, several manufacturers reported that benefit costs continue to rise.
Construction
New home sales over the past six weeks have been stable--but at low levels--and down on a year-over-year basis.� Looking forward, almost all residential contractors expect activity in 2007 will be similar to the second half of 2006.� Builders were encouraged by an uptick in traffic and inquiries.� Home prices are reported as stable to slightly down since early January.� Discounting continues to be used as a way of moving existing inventory.� Material costs have stabilized for the most part with a majority of contacts reporting a decline in lumber prices.� Most builders have no plans at this time to lay off additional workers. Activity among the District's commercial contractors has increased for the most part since early January and on a year-over-year basis.� A majority of builders are optimistic in their outlook for 2007 based on the level of inquiries and backlogs.� Segments showing strong activity include health care, public works, and recreation.� Reports on material costs were mixed with most builders saying that prices for concrete and steel are high and continue to rise.� In contrast copper prices continue to fall.� Almost all contractors are holding their prices steady with little change in profit margins.� On net, there was little change in labor force size.��
Retail
Post holiday sales by District retailers were disappointing with several citing the prolonged cold weather as the primary reason. Expectations for Q2 of 2007 are mixed; however, more than half our contacts anticipate stronger sales.� In general, supplier prices and other input costs have remained steady over the past six weeks.� Hiring continues to be limited to new store openings and turnover.� Several contacts reported wage pressures related to pending minimum wage increases.� New car and truck sales during January and February were characterized as slow with better results for foreign makes and used vehicles.� Looking forward, expectations were less than positive for vehicle sales, especially SUVs.
Banking
Since early January loan demand was generally flat; however, a few bankers reported a slight uptick in commercial loans and a small decline in consumer lending.� The market for auto loans and mortgage products can best be characterized as soft.� District bankers reported stability in core deposits and credit quality with a slight increase in delinquencies.� Business and consumer confidence was mixed at the beginning of the year with most sentiments ranging from cautious to improving.��� �
Energy
On net, energy-related activity was flat to slightly down across the District.� Coal producers reported decreases in spot prices ranging 10 to 20 percent since early January and 20 to 40 percent on a year over year basis.� Production was mixed with half our contacts showing increased levels year-over-year and half reporting declines.� Exporting District coal is not viable at this time due to the combination of high sulfur content and low prices.� Minimal wage pressure was reported and there are no plans to hire additional workers.� Oil and gas producers reported production levels were flat to slightly down.� In addition, several contacts reported continuing wage pressures.��
Transportation
Demand for trucking and shipping services continues to soften with most contacts reporting a decline in shipments of auto-related products.� One contact also noted a drop in carpeting and latex deliveries.� Although fuel costs remain relatively stable, trucking companies continue to pass on fuel costs using surcharges and anticipate doing so into the foreseeable future.� Wages remained steady since the beginning of the year.
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Philadelphia