May 2, 2001 Summary

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Prepared at the Federal Reserve Bank of St. Louis and based on information collected before April 23, 2001. This document summarized comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials. Almost all districts report a slow pace of economic activity in March and early April. Retail sales were weak in March, but strengthened in April. Still, retailers in most districts are expecting only small gains, at best, in upcoming months. Vehicle sales have been mixed, with demand for new SUVs, trucks and luxury cars generally down. Industrial activity has continued to weaken, with orders and production having fallen in many districts. Labor market tightness has eased in almost every district. Upward wage pressures have generally abated, only to be replaced with energy costs that have risen sharply. Home sales and new construction have remained steady or been picking up in almost all districts. Commercial construction has been more uneven across districts. Lower mortgage rates have spurred a resurgence of refinancing, which has helped bolster loan growth recently. Many districts note, however, that credit standards are tighter now than previously. The winter wheat crop is generally in good condition, while some delays in spring plantings and the development of other crops have been noted in the Midwest and Plains. The energy sector continues to strengthen. Consumer Spending Almost all districts report that retail sales in March were flat-to-down from a year earlier, but showed improvement in early April. The Boston, Kansas City and San Francisco districts note that sales have been below expectations, while the Atlanta, Chicago and St. Louis districts report that sales have either met or exceeded expectations. In the Boston, Kansas City, Philadelphia and St. Louis districts, big-ticket items--such as jewelry, appliances and electronics--have been slow movers; in the Chicago district, however, household appliances and electronics have reportedly been strong sellers. The Chicago and New York districts note that sales of seasonal merchandise and apparel have been weak, while the same merchandise has been moving quite well in the Cleveland and Philadelphia districts. The Minneapolis district notes an uptick in demand for used computers lately. Most districts report that retailers' inventories are currently at desired levels; in parts of the Kansas City district and in Idaho, however, some retailers' inventories are a bit high. Retailers in the Cleveland district have been successful at reducing their excess inventories through large markdowns. Almost all districts report that retailers are expecting only mild sales growth, if any, in the upcoming months, with contacts in the Dallas district, for example, noting that they have lowered their sales expectations for the rest of the year. Vehicle sales are mixed around the country. The Cleveland, Kansas City, New York and Philadelphia districts report that sales are up, while the Chicago, Dallas, Richmond and St. Louis districts report that they are down. Almost across the board, however, districts note that higher gas prices appear to have reduced demand for new SUVs, luxury vehicles and trucks. On the other hand, sales of lower-priced and used vehicles have been relatively strong, especially in the Dallas and St. Louis districts and in the Buffalo region. Dealers in the Richmond district have been trimming their inventories as sales have softened; some dealers in the Dallas and St. Louis districts also report high inventories, especially of SUVs and trucks. In other districts, current vehicle inventories are at desired levels. Manufacturing and Other Business Activity Manufacturing activity continues to weaken across districts, with demand having fallen in most industries. Orders and production are down in the Atlanta, Boston, Chicago, Cleveland, Minneapolis, Philadelphia, Richmond and San Francisco districts. Some districts report that excess inventories, which had been growing since the beginning of the year, are starting to fall because of production cuts. In the Boston and San Francisco districts, though, manufacturers still express concerns about excess inventories. The Philadelphia district's manufacturing sector is a mixed bag, with orders down in April, but shipments steady. Furniture sales have continued to decline in the Richmond and St. Louis districts because of slack demand. The high-tech and telecommunications industries are experiencing a pronounced slowdown. Activity has eased in the Atlanta, Chicago, Dallas, Philadelphia, San Francisco and St. Louis districts, where new orders or sales of computer-related equipment have dropped. Sales of such equipment in the Boston district, however, are up moderately. The Atlanta and Dallas districts still have excess inventories of telecommunications equipment. There were some scattered areas of improvement, however. In New York, for example, conditions varied across the state: the New York City and Buffalo areas have been bright spots, with manufacturers experiencing an increase in production; the Rochester area reports further weakening in business conditions. Tourism and hospitality demand have remained moderately strong in the Atlanta and Richmond districts, where the Easter holiday and spring breaks during March and April were a boon for these industries. Business travel, however, is reportedly down, with travel-industry contacts in the Philadelphia district reporting some slowing recently. Manufacturing contacts in the Cleveland and Philadelphia districts are optimistic, expecting orders and demand to pick up by this summer. Boston, Chicago and St. Louis district contacts are uncertain to pessimistic, with expectations of slower sales in the coming months. Businesses in most districts expect a slowing in capital spending this year; in the Philadelphia district, however, the number of firms planning reductions is offset by an equal number planning increases in capital spending budgets. Labor Markets While some districts still mention that labor markets are tight, almost all note that this tightness has been easing, especially in the manufacturing sector. Most contacts in the Atlanta, Boston, Chicago, Kansas City and St. Louis districts have commented that filling vacancies has become easier. The Dallas district, however, reports that quality workers are still elusive, and construction workers are still in short supply in the Chicago and Kansas City districts. Skilled workers in the energy sector are also in short supply in the Kansas City district. The New York district notes a continuing backlog of demand for workers in the financial services industry, though this has become less pronounced in recent weeks. Employment in the St. Louis district's retail trade and service sectors are picking up because of strengthening demand. Wages and Prices Nearly all districts report that energy costs are up sharply, hitting historic highs in some areas. Boston district contacts, however, note that energy concerns have waned somewhat since the last report. The trucking industry has been hit the hardest by high gasoline prices. Several districts, especially Dallas and San Francisco, report that firms are increasingly passing on these high costs to customers as fuel surcharges. Hikes in electricity costs are concerns in both the Philadelphia and, especially, San Francisco districts. Upward wage pressures have generally abated. Wages are rising very moderately or are unchanged in most parts of the country except the Richmond and San Francisco districts, where scattered wage increases are noted. Retail prices are steady in most districts except Richmond, where retail prices have been rising at a quicker pace in recent weeks. By and large, non-energy input costs are stable, with only a few exceptions. Manufacturing materials prices in the Chicago and Kansas City districts, for example, continue to rise, while construction materials prices in the Minneapolis district have decreased somewhat. The Dallas district is experiencing downward price pressures for metals and high-tech products. The Atlanta and Chicago districts note increases in health insurance costs. Real Estate and Construction The consensus across most districts is that residential sales and construction have been picking up or steady, although segments of the market in some districts are experiencing a slowdown. Agents in the Boston, Cleveland and Richmond districts report that stronger sales of low- to mid-priced single-family homes account for most of the increase in residential activity. The Boston and New York districts note active residential real estate markets, although the New York district reports some market easing since the last report, while Boston district markets still face housing shortages. Home sales in the Chicago district have been better than expected, with price appreciation remaining strong and housing shortages persisting. St. Louis district agents are seeing excess inventories of housing begin to shrink. In the San Francisco district, home sales are strong in Hawaii, while they are slowing in Washington. The Atlanta district is experiencing a flat-to-down trend in sales of new, single-family homes, even though strength is apparent in most Florida markets, where home sales and construction are up from a year ago and prices continue to increase. Home construction is strong in the New York district, despite a drop in demand in New Jersey. Commercial construction across districts is a bit more uneven. The Philadelphia district reports that, despite strong activity, contract awards have recently declined. The San Francisco district notes that overall activity remains sound, even though vacancy rates are up and rental rates are down in some regions of the district. The Kansas City district indicates that activity is flat and that sales and leasing have fallen. The Dallas district is experiencing a slowing in commercial construction, with demand for all types of nonresidential space down. Construction in areas of the Cleveland district are stagnant, with many firms reportedly putting expansion plans on hold indefinitely. In the St. Louis district, however, contractors indicate that there has been a consistent flow of new projects, a trend they are optimistic will continue. Banking and Finance Lower mortgage rates have led to a resurgence of refinancing in many districts. In the Richmond district, for example, a banker has indicated that refinancing now accounts for almost 90 percent of his bank's lending activity. Mortgage refinancing is also up in the Atlanta, Chicago, Kansas City and New York districts. The Philadelphia district notes that home equity loans are on the rise, as consumers consolidate other debts into these loans. At the same time, many districts have observed declines in business loan activity. The Dallas district notes that businesses are now frequently using such loans to pay for operating costs instead of expansions. The New York and Philadelphia districts, though, are seeing some upticks in business lending. The Kansas City and St. Louis districts report declines in consumer loans, an ongoing trend in the St. Louis district. The Atlanta, Cleveland and New York districts, on the other hand, have seen increases in consumer loans. The San Francisco district reports that loan growth, in general, has moderated. Half of the districts--Atlanta, Chicago, Dallas, Kansas City, New York and San Francisco--are reporting tighter credit standards, particularly for business loans; the Cleveland district, however, reports that credit standards have remained essentially unchanged. The Richmond district notes that lenders have become more cautious when making loans to marginally profitable businesses. The Kansas City district reports deposit growth in line with loan growth; the St. Louis district reports stronger deposit growth than loan growth. Agriculture and Natural Resources Agricultural reports are mixed. The winter wheat crop is developing well in the Cleveland district, is varied widely across the Kansas City district, and, because of abundant moisture levels, is in good-to-excellent condition in the St. Louis district. The Cleveland, Kansas City, Minneapolis, and St. Louis districts note some delays in plantings and development of other crops. In contrast, the Richmond district reports good planting conditions for corn, but notes that an early April cold snap caused some damage to apple and peach crops and forced vegetable growers to replant several crops. Limited water and high energy prices are encouraging farmers in the Dallas district to plant cotton instead of corn. Producers in parts of the St. Louis district intend to substitute cotton for corn and soybeans on some acreage. Most crop prices remain depressed and continue to adversely affect farmers. The energy sector continues to strengthen in the Dallas, Kansas City and Minneapolis districts. In the Kansas City district, the count of active oil and gas rigs has risen to its highest level in 10 years; in the Minneapolis district, oil and gas exploration has remained above year-ago levels in response to higher prices. Shortages of equipment and personnel are reported in the Dallas and Kansas City districts, and mining production is decreasing in the Minneapolis district because of softening demand and high energy costs. Return to top         Boston