| Skip to content
|
The Seventh District's economic expansion continued to slow in recent weeks. Consumer spending was generally soft in August, but picked up in early September. Nonresidential construction activity remained robust while sales of new and existing homes were slightly softer than a year ago. Manufacturing activity remained strong, but reports increasingly suggested that growth slowed further. Bankers noted that overall loan demand remained strong, and some reported a slight pickup in mortgage refinancing activity. Contacts noted no respite from worker shortages in recent weeks, despite slightly higher unemployment rates. District farmland values rose in the second quarter but at half the rate of increase in the previous two quarters. Crop conditions remained good in most areas but had deteriorated modestly in recent weeks as hot, dry weather returned to the corn belt. There were no new reports of broad-based price increases at the retail level and wage pressures remained generally subdued. Contacts, however, more frequently expressed concern over substantial increases in health benefit costs.
Consumer Spending
Retail sales softened somewhat as consumers appeared to "take their foot off the pedal" in recent weeks, according to contacts. Merchant reports generally suggested that sales results met their conservative plans, with same store sales increases in the low to mid-single digits. Apparel sales were again soft in August, but were reportedly picking up in early September along with back-to-school sales. Sales of home-related items such as appliances and electronics remained strong. Many contacts suggested that overall retail sales in the Midwest, which had been relatively weaker, were now outperforming the national average. Store inventories were generally in good shape and there were no reports of extraordinary promotional activity. A large auto dealer group reported that vehicle sales improved in August and service orders, which had been very soft, also picked up. A national retail chain noted a significant pickup in tire sales and service at its automotive centers, which this contact attributed to more consumer concern in the wake of a major tire recall. There were no new reports of intensifying price pressures at the retail level.
Construction and Real Estate
Overall construction activity remained strong, with contacts generally indicating that the nonresidential segment was firmer than the residential. Office construction in the Chicago area remained very active, and development of light industrial space was reported to be picking up in central Indiana. One contact suggested that official statistics were not reflecting the true strength of nonresidential activity. Infrastructure spending remained strong throughout much of the District, buoyed by highway projects. Reports on new housing activity were mixed. Housing starts remained at high levels in recent months, practically unchanged from the same period last year. However, Midwest builders suggested that new home sales were slower than in the same period last year. One contact pointed to some inventory buildup in new single-family homes in central Indiana. Realtors also noted that existing home sales were off modestly from last year, but the market remained generally strong. There were reports that the inventory shortage of existing homes had eased somewhat in recent months.
Manufacturing
Manufacturing activity remained generally strong, but contacts suggested that growth continued to slow in August and early September. Some District purchasing managers' indexes even suggested a slight contraction in August. Nationwide, light vehicle sales picked up in August but were somewhat softer than earlier in the year. Through August, however, the auto industry remained on pace to shatter last year's sales record. Inventories were down somewhat as dealers cleared out 2000 models, but industry contacts suggested that new orders were somewhat soft. Steel production slowed as orders from the auto industry softened and imports increased. The increase in imports was also cited for halting, and even reversing somewhat, recent increases in steel prices. Contacts reported a substantial slowdown in heavy equipment manufacturing, especially for heavy trucks. Appliance makers noted that shipments fell off significantly in July and August after a large retailer decided to stop selling appliances.
Banking and Finance
Overall lending activity remained strong in August and early September. Consumer lending remained relatively robust, with little change in momentum recently. A few lenders, citing a decrease in fixed-rate mortgage interest rates since May, reported modest increases in home refinance lending. Some homeowners who took out adjustable rate mortgages last year were switching into fixed-rate products, according to one contact. There was no change reported in consumer loan quality, which remained high. Business lending continued to be brisk in most areas, with little change in the rate of increase reported. Most contacts suggested that standards were being tightened, but competition was placing constraints on how far they could go. Lenders asked commercial real estate borrowers for more equity stake in some areas, continuing a trend toward tighter lending standards in this segment. One large bank noted that these tighter standards, as well as higher margins, had not slowed the expansion in commercial real estate lending.
Labor Markets
Shortages of workers persisted in the District in recent weeks and contacts noted little change in tight labor market conditions. Official statistics showed that the unemployment rate in District states had increased modestly since the beginning of the year, but most contacts did not seem to notice any change. Reports indicated that unfilled positions and higher turnover rates had become the norm. Students left the workforce and headed back to school, ending the temporary respite from the tight labor markets for some employers. Competition for qualified workers remained intense in most areas. One contact noted that an argument broke out at a local Chamber of Commerce meeting as members accused each other of "raiding" their employees. Wage pressures continued but did not appear to intensify recently. Small businesses were particularly concerned about rising health care costs. While strong productivity gains largely offset the cost pressures of higher wages, one business leader expressed concern that they would not be enough to offset increases in health benefit costs.
Agriculture
District farmland value gains slowed to 1 percent, on average, in the April 1 to July 1 period, half the gain of the previous two quarters, according to a survey of agricultural bankers. Bankers reported some weakening in agricultural loan demand and an improvement in loan repayment rates, relative to a year ago. Interest rates on farm operating loans were reported to be at their highest level, on average, since the early 1980s. Crop conditions deteriorated from the earlier "very favorable" rating as dry weather returned during August and early September. The warmest temperatures of the season for much of the corn belt compounded the negative impact of topsoil moisture depletion. These conditions hastened the maturation process; the corn harvest in the southern reaches of the District began in early September with yields, by some accounts, lower than expected. Press reports of insect infestations and weather-related damage to soybeans and, to a lesser degree, corn were confirmed by farmer contacts and the state reporting agencies, with the probable impact on yields not yet clear.
|
Atlanta