| Skip to content
|
Reports from Beige Book contacts generally indicated a solid pace of overall economic activity in the recent survey period, though with moderation in growth for some sectors. Retailers reported healthy sales growth, and District service providers noted continued high demand for their products. Manufacturing activity cooled in recent weeks, damped by declining export demand and a general slowing in the high-tech sector. District agricultural producers noted that rising inventories and falling prices have squeezed profit margins on many commodities and forced some producers to operate at a loss. Strong residential and commercial real estate demand continued to fuel construction activity in the District. Financial conditions remained favorable throughout the District, and competition for quality borrowers intensified. Respondents continued to be concerned about the tightness of labor markets in their regions.
Business Sentiment
District respondents expect a solid but tempered performance from the national economy and their respective regional economies in the coming year. About two-thirds of the respondents expect U.S. GDP growth to slow to its long-run average pace, leaving the national unemployment rate at or near its current level. Most respondents expect inflation to remain stable, although roughly one-third anticipate an increase in inflation in coming quarters. Nearly all respondents expect economic growth in their region to outpace growth in the national economy over the next year. Respondents are most optimistic about the strength of business investment and consumer spending in their areas. East Asia continues to affect import and export expectations in the District�more than 75 percent of District respondents anticipate further deterioration in their region's foreign trade balance.
Retail Trade and Services
Retailers in most District states reported solid sales growth in recent weeks. Sales were strongest for big-ticket items such as cars, home furnishings, and major appliances, as customers took advantage of seasonal discounting and favorable financing terms. Overall, District retailers reported adequate inventory levels and few problems obtaining merchandise from suppliers. The notable exceptions were for GM products. Respondents reported shortages of "hot selling" GM cars and trucks and most GM replacement parts. One respondent noted that delivery times on parts have doubled in recent weeks and backorders have reached ten times their normal level. Retailers throughout the District noted that stiff competition and falling import prices have kept retail prices down, despite healthy consumer demand and rising labor and occupancy costs.
Service industry respondents in most District states continued to report robust growth. In California and the Pacific Northwest, demand for telecommunications and cable television services remained high, outstripping supply in some cases and putting pressure on prices. Tourism-related restaurant sales, car rentals, and hotel occupancy rates were healthy throughout the District, boosted by the beginning of the summer travel season. Unbalanced trade flows to and from East Asia continue to affect District ports and eastbound shipping prices. Empty shipping containers are piling up at ports and warehouses throughout the District, while in Asia new containers are being built to meet the demands of their exporters.
Manufacturing
Reports on District manufacturing activity were mixed. Contacts noted that the East Asian slowdown continues to affect both current production and future orders of a diverse set of products including industrial machinery and equipment, electronic components, wood products, processed foods, and aircraft. Manufacturers of high-tech equipment reported that, although the industry has slowed markedly in recent months, growth remains positive and most companies continue to prosper. In general, District manufacturers reported no difficulties obtaining materials or supplies, few capacity constraints, and declining prices on key inputs such as energy. Finding skilled employees remained a major concern among respondents from the manufacturing sector, particularly those in Portland, Seattle, and the San Francisco Bay Area.
Agriculture and Resource-Related Industries
District agricultural producers have grown concerned in recent weeks. Although weather conditions improved in most District states, farmers and ranchers reported difficulty selling inventory and maintaining profitability. Despite lower than average yields on many fruits and vegetables, inventories remain high, driving product prices down and storage prices up. Respondents noted that price declines for some commodities have been so large that producers cannot cover production costs. Reports from ranchers indicate further price declines on feeder cattle and excess supplies of poultry and pork. Respondents throughout the District reported significant difficulties obtaining seasonal agricultural workers.
Real Estate and Construction
Residential real estate and construction activity reportedly was strong in most District states. Demand for single-family homes continued to grow in Arizona, California, and Nevada and picked up significantly in Alaska. In Washington, the Puget Sound area posted strong sales of both new and existing homes. Housing demand and residential construction cooled further in Oregon and Utah, although activity remains at a high level. In many areas of the District, the residential construction sector is operating at capacity. Labor and materials shortages reportedly have become binding constraints against more rapid construction growth in Alaska, Arizona, Nevada, and California's Central Valley.
Commercial construction activity also was strong in most parts of the District. Throughout California, respondents reported that commercial office and warehouse space is hard to find and commercial and industrial construction is rising. In Utah, light-rail and freeway construction continue to boost non-residential construction, which already was active with commercial building. A respondent from Alaska noted that commercial construction activity is at its highest level since the mid-1980s. High commercial and residential construction activity in many District states has prompted a "bidding war" for labor and materials, reportedly driving up some project costs by as much as 40 percent.
Financial Institutions
Twelfth District banking conditions remained favorable in recent weeks. Respondents reported that bank capital and liquidity were ample, and competition for loans remained intense, with quality borrowers receiving excellent terms and rates. Respondents also noted that low interest rates have led to increased loan volume and encouraged refinancing on all types of real estate. Throughout the industry, shortages of qualified workers continued to be a primary concern.
|
Dallas