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Prepared at the Federal Reserve Bank of Atlanta and based on information collected before October 20, 1997. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Most District reports characterized early autumn's economic activity as moderate to strong in most areas. Retail sales in most Districts in September were weaker than anticipated, with some pickup in October. Automobile sales were mostly slower. Manufacturing activity accelerated or remained at high levels for most Districts, and the outlook was generally positive. Despite the residential real estate markets' recent uneven performance, activity remains at elevated levels overall, and most commercial real estate markets continue to perform at strong levels. The energy extraction sector continues to strengthen. Labor shortages have intensified for key sectors, such as the high-tech and energy extraction industries. Yet, reports of increasing wage pressures are infrequent. Prices remain stable, as competitive factors and resistance from buyers are making it difficult for producers to pass on any cost increases. As harvesting progresses, recent rains have had varying effects on crops nationwide. Commercial lending remained strong in many Districts, while consumer lending was more mixed.
Consumer Spending
Most Districts report that retail sales were mixed during September and early October. Atlanta, Chicago, Dallas, New York and Philadelphia said that sales did not meet some retailers' expectations, and sales declined in Philadelphia. Atlanta, Chicago, Cleveland, New York, and Philadelphia merchants said that unseasonably warm weather put a damper on sales in September, particularly apparel. However, in the Chicago, Cleveland, Dallas, and New York regions the advent of cooler weather in October reportedly has boosted sales.
Retail sales growth remains moderate in the San Francisco District despite slow apparel sales in parts of the District. In Minneapolis, recent sales have been good with back-to-school sales stronger than normal.
In the Atlanta District, home-related product sales were strong and, in New York, several retailers noted a resurgence in home goods sales. Appliance sales were said to be strong in both Boston and Cleveland. In Richmond, however, big-ticket items weakened further. In most Districts, retail inventories remain at desired levels.
Looking toward holiday sales, retailers in Atlanta, Chicago, Kansas City, and Dallas are optimistic concerning their prospects. Many retailers note their only concern is finding seasonal employees.
Most Districts reported that automobile sales were down at least slightly. Total automobile sales were down in the Cleveland, Kansas City, and Philadelphia Districts, although demand for light trucks and sports utility vehicles remain strong in Kansas City and Philadelphia.
Tourism and Convention Business
Tourism appears to have strengthened from a year ago, according to most reports. Tourism spending has recently picked up in the Minneapolis District. Mild weather has boosted visitors to attractions in the Richmond District. Travel and tourism is strong in California and Utah, although fears of El Nino have caused some cancellations for the winter season. Atlanta reports that in Florida, room rates are up and hoteliers are encouraged by advance bookings. Cruise ship vacation demand out of Florida is up with unusually high levels of bookings.
Manufacturing
Manufacturing activity continued to grow in many parts of the country. Plants were operating at high levels relative to capacity in the Kansas City, Chicago, Dallas, and Cleveland Districts. St. Louis and Minnesota report healthy sales by manufacturers. In San Francisco, wood product production and expansions in food processing are occurring in addition to the strong growth in aircraft and high-tech equipment. San Francisco also reports transportation shortages, causing difficulties for production and delivery. Richmond notes that growth in shipments increased in many industrial sectors, and New York reports a broad improvement in the region's manufacturing sector. In the Boston District, makers of aircraft parts and computer-networking equipment are posting rapid growth, and the semiconductor industry is increasing production. In Minneapolis, computer-related producers are also doing particularly well. Production of heavy equipment is accelerating from already high levels in Chicago. Dallas and Atlanta report that demand for oil and gas equipment also remains strong. Increased sales are prompting plant expansions and employment gains in the St Louis region's factory sector. Steel plants are operating at high levels in the Chicago District and the strength is expected to last for the remainder of the year. Atlanta reports that new contracts have spurred shipyards to operate at capacity levels. Atlanta and Boston also note that factory contacts are mostly optimistic that the coming year will see a continuation of current trends in the manufacturing sector. Less positively, Minneapolis reports that restructuring continues to result in significant layoffs in their factory sector, and weakness persists in Atlanta's large apparel sector.
Real Estate and Construction
Residential construction and sales have been uneven. Chicago noted a pick up in construction and new home sales. An unexpected demand for housing also boosted residential homebuilding in Dallas. In the Richmond District, homebuilding starts have been flat to down recently. Construction is said to be down from last year's levels in Kansas City and St. Louis, while homebuilding is characterized as generally strong in Minneapolis and San Francisco.
Commercial construction continues to grow. In Boston and Chicago, construction of most types is at higher levels recently. Office markets in Atlanta, Dallas, and San Francisco continue to tighten. Industrial space is difficult to find in areas of Atlanta, Minneapolis, and San Francisco. However, in Dallas, new supply is expected to exceed demand by year-end. In Minneapolis, many firms are planning expansions.
Financial Services
Overall, bank lending was mixed across Districts and loan types. Commercial loan demand increased in many areas of the country. Cleveland, St. Louis, Philadelphia, Kansas City, Atlanta, and Chicago reported that commercial loan demand continued to grow. Consumer lending slowed in Atlanta, St. Louis, Cleveland, and Philadelphia but increased in New York and Richmond. Residential mortgage demand was described as strong in Chicago and Richmond, up slightly in Atlanta, and slowing in Dallas. Mortgage refinancing continued to increase in New York and Richmond, while holding at a constant level in Cleveland.
Bank credit standards remained steady in Cleveland and increased in Philadelphia and Chicago. Some of the slowdown in consumer borrowing has been attributed to the deterioration in consumer balance sheets and increased credit restrictions, according to reports from the Atlanta and Philadelphia Districts respectively.
Agriculture and Natural Resources
Good weather helped the harvests in Chicago, Minneapolis and San Francisco. Recent rains were too late to offset the drought damage to the corn crop but helped soybean, cotton, and peanut yields in Richmond. Rainfall also assisted small grains and winter pastures in Dallas. However, heavy rains have caused concerns about the cotton crop in St. Louis. Harvesting was slowed in San Francisco by shortages of seasonally employed laborers and fierce competition for transportation needed to get harvests from field to market. Scattered instances of rural rail disruptions were reported in Chicago and in the St. Louis District. They have hampered some crop shipments. Oil and gas industry activity is increasing in the energy producing regions of the nation.
Wages and Prices
Many Districts report tight labor markets and hiring difficulties in some occupations, but there are few reports of wage or price pressures. In Dallas, business service firms' revenue growth has slowed because there are not enough workers to meet increasing demand and, in San Francisco, a shortage of skilled workers is beginning to limit activity in some industries. Temporary employment agencies in Cleveland are having trouble meeting demand. Job turnover in the Minneapolis/St. Paul area is reportedly nearing 30 percent. A contact in Chicago notes that some manufacturers are "desperately short of people," especially for entry-level positions, and retailers in that District are already concerned about finding holiday help. A severe shortage of people with technical and computer skills is hurting some companies in the Atlanta District. Atlanta and St. Louis report that some companies are trying to encourage job training that would better address current business needs. Although increases in wages generally remained limited to computer-related occupations or those in the energy extraction industry, several Districts noted growth in other forms of compensation, such as expanded merchandise discounts, benefits for seasonal workers, and referral awards. Prices of inputs and finished goods remain stable for most Districts.
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