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In late October and November, Eleventh District economic activity expanded at a slightly faster pace than reported in the last Beige Book. Manufacturing activity accelerated slightly. Oil services and machinery firms continued to see slight increases in demand. Demand for business services was strong and steady. Lending activity and deposit growth remained stable. Retail sales were lower than expected prior to Thanksgiving--which contacts attributed to unseasonably warm weather--but rose strongly over the Thanksgiving weekend. Construction activity was slightly slower. Agricultural conditions declined. There were a small number of reports of delayed investment activity caused by uncertainty about the Y2K date change, but contacts were also optimistic about the coming year.
Prices
Most contacts reported increased or unchanged prices. There continued to be many reports of difficulty hiring workers, but not as many reports of wage increases. An apparel manufacturer stated, "Finding workers is tough, but keeping them is more difficult." Wage increases of 6 to 8 percent were reported for skilled workers at one firm, and starting salaries were up 10 percent for all skill levels at a metals manufacturer. High-tech firms reported an increase in retention bonuses. One retail contact said seasonal hiring was not as difficult as they had feared, while another said that the rate of wage growth had declined. Prices rose for air travel, some packaging materials, bricks and petrochemicals. Although gasoline and heating oil prices followed crude oil prices upward, refiners' margins fell. Prices of business services, drilling rig rentals, primary metals and processor chips were slightly up. Business service contacts reported less resistance to fee increases. Prices held steady for grains, soybeans, apparel, autos, retail goods, memory chips, cargo shipping, paper products, lumber products, concrete and glass products. Processed food prices fell with an oversupply of beef, pork and poultry. Warm weather pushed natural gas prices lower. Fabricated metals prices declined slightly, and cement prices fell with additions to capacity.
Manufacturing
Manufacturing activity grew faster at most firms. Electrical and electronic firms reported accelerated sales growth which "exceeded expectations," boosted by strong sales of wireless products and personal computers. Most chip fabrication plants were running at close to full capacity. Petrochemical sales were boosted by strong demand in the U.S. and Asia. Sales of cement, concrete, brick, paper products, fabricated metals and most apparel products were up slightly in the past six weeks. A fabricated metals producer worried that sales were inflated by Y2K-related buildups in customer inventories, while a lumber producer said that Y2K concerns may have caused customers to delay purchases until the new year. Sales of lumber and food products were steady. Warm weather dampened sales of fleece-lined apparel. Primary metals producers reported weaker sales--possibly due to large customer inventories. Glass product sales declined, and refinery activity slowed.
Services
Demand for business services was strong and steady. Transactional, energy and high-tech sector work was strong and real estate work was steady. One contact reported that fears about Y2K problems have delayed some IPOs. Temporary services firms saw strong demand for workers from manufacturing and energy firms, and continued to see shortages of highly-skilled workers, such as those with technical and computer skills. Demand for transportation services remained steady and strong in the last six weeks. Airlines reported that October demand exceeded expectations, and Latin American travel has boosted demand. Rail cargo volumes grew at about the same pace over the past two months.
Retail Sales
Retailers reported a strong holiday weekend following generally flat November sales. Several contacts suggested that November sales growth was weaker than expected because of unseasonably warm weather, but "A good cold snap can correct all this in a big hurry." One contact noted that the pattern of sales growth was similar to last year, which ended the year with strong sales, and was cautiously optimistic that sales growth will remain strong through the holidays. Contacts reported particularly good sales growth at stores along the Texas-Mexico border. Retailers reported generally good inventory levels. Auto and truck sales slowed seasonally, but were still at high levels.
Financial Services
Lending activity and deposit growth remained stable. Auto and new home lending was strongest. Credit card lending picked up a bit while home refinancing slowed. Contacts speculated that commercial lending may have slowed somewhat because of Y2K-related holds on purchases. However, there were also some reports of slightly increased delinquencies in commercial lending.
Construction and Real Estate
There has been no pick up in speculative office construction, and office rents remained flat. In Dallas, office vacancy rates increased further as new supply outpaced demand, but commercial real estate activity picked up over the past three months. Contacts said that they expect lower apartment occupancy and rental rates in coming months, as new supply exceeds demand in some areas. Although new home sales "perked up a little" in the early part of November, they remained softer than earlier months, and were expected to decline about 10 percent next year. Contacts reported that price increases in upper-end home building were met with little resistance in some areas. Existing home sales were above last year's levels in Houston, but softer in Dallas.
Energy
Oil services and machinery firms continued to see only slight increases in demand. As in previous months, drilling activity increased but most projects required relatively little oil services and machinery to operate. U.S. drilling remained primarily directed to natural gas, with 49 of the 56 rigs added in the past six weeks drilling for natural gas. There was some increase in the number of working rigs offshore in the Gulf of Mexico, which tend to use more oil field services, but not enough to have a sizable effect on rates for rig rentals. The number of workover (maintenance) rigs in the U.S. increased at a faster rate in October.
Agriculture
Agricultural conditions worsened because of unseasonably warm and dry weather. In many areas, unfavorable forage conditions led livestock producers to increase supplemental feeding and reduce herds; some producers were reported to be close to herd liquidation. Harvest was nearing completion and crop yields were good, particularly for corn and sorghum, although prices remained relatively low. There were concerns that continued dry weather will damage the wheat crop.
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