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Prepared at the Federal Reserve Bank of Chicago and
based on information collected before April 24, 2000. This document
summarizes comments received from businesses and other contacts outside
the Federal Reserve System and is not a commentary on the views of Federal
Reserve officials.
Reports from the twelve Federal Reserve Districts indicated that the
economy continued to expand during March and the first three weeks of
April. The majority of Districts reported moderate to strong economic
growth, with only Richmond and Chicago noting some signs that overall
growth had slowed slightly. Consumer spending was strong and retail sales
were in line with most merchants' expectations. Commercial construction
activity generally remained robust, while several Districts noted
softening demand on the residential side. Factories were running near
capacity in some areas, as overall manufacturing activity was strong. Dry
soil conditions were reported in many areas, but spring planting proceeded
at a rapid pace. Oil drilling activity was up from a year ago.
There were more frequent reports of intensifying wage pressures as
shortages of workers persisted in all Districts. Increasing input prices
were noted in nearly every region. Many Districts cited wider use of fuel
surcharges by shipping firms and other transportation companies.
Manufacturers in several areas also reported higher prices for
petroleum-related inputs, such as rubber and plastics, as well as for some
nonpetroleum-related inputs. However, there were only a few reports that
increases in input costs were resulting in higher prices at the retail
level.
District reports generally indicated that recent volatility in equity
markets had not had an impact on activity as of the time of this report,
although it had altered some contacts' expectations.
Consumer Spending Retail sales generally were strong and in
line with merchants' expectations. Contacts pointed out that
year-over-year sales comparisons were affected by the fact Easter was
later this year. Nearly all Districts reported strong sales of
home-related items such as appliances, furniture, and lawn and garden
equipment. The same was true for light vehicles (especially sport utility
and luxury models), although pockets of softness were noted by Chicago and
St. Louis. Nearly half the Districts reported that apparel sales were
slow, especially men's, with unseasonable weather cited by many as a
contributing factor. Inventories were in line with sales expectations for
the most part. The tourism and travel industry was strong in the Richmond,
Atlanta, and San Francisco Districts, while Minneapolis suggested that
mild weather hurt their industry.
Prices at the retail level remained relatively stable in most areas, as
competition and increased productivity reportedly helped keep prices in
check. Philadelphia, Minneapolis, and Kansas City, however, noted more
frequent reports of price increases in recent months.
Real Estate and Construction Overall construction activity
remained strong, although softening residential demand was reported in
many Districts. Much of this easing took place in the interior of the
country, with Cleveland, Chicago, St. Louis, and Kansas City noting that
residential building had slowed. In contrast, the Richmond, Minneapolis,
and Dallas Districts experienced strong growth in recent months, and New
York reported that activity was "frenzied" in some areas. Philadelphia
noted that the lack of land approved for development appeared to be
limiting the pace of homebuilding. Existing home sales also appeared to
have slowed somewhat, with a third of the regions noting that the stock of
houses available for sale was quite low. Home prices continued to rise,
especially in the coastal regions, but also in the Minneapolis and Kansas
City Districts.
Reports suggested that commercial construction activity remained robust
in most areas, as only Dallas reported an overall slowing in its District.
Minneapolis and San Francisco noted strong growth while activity was mixed
in the Cleveland and Atlanta Districts. Office rents were reported to be
rising in the New York and San Francisco Districts.
Manufacturing Manufacturing activity generally was strong,
but reports were mixed by both geography and industry. Richmond was the
only District to report a moderation in overall activity, while Boston,
Cleveland, Kansas City, and Minneapolis noted solid gains. Activity was
mixed in New York, Atlanta, Chicago, and Dallas, but generally remained
strong. District reports indicated that light vehicles and related
equipment, machine-cutting tools, steel, and high-tech hardware industries
exhibited significant strength, while the agricultural equipment, heavy
truck, and aerospace equipment industries were relatively soft. District
reports on primary metals, fabricated metals, and textiles were mixed.
Increasing foreign demand for manufactured goods was cited by Boston,
Kansas City, Dallas, and San Francisco. District reports suggested that
input prices were generally stable, with the oft-noted exception of
increases in petroleum-related input prices. Philadelphia, however,
indicated that input prices had increased for materials used in lumber,
paper, chemical, and industrial equipment production. Output prices for
steel continued to rise, as did prices for some construction-related
materials. Wallboard prices, however, declined in the first quarter as new
capacity came on stream, but prices remained solidly above year-ago
levels. Cleveland and Chicago noted that factories were running near
capacity while St. Louis suggested that the shortage of workers was a
constraining force on their manufacturing activity.
Banking and Finance District reports indicated that business
loan demand remained strong in March and April while, on the consumer
side, residential mortgage lending was relatively soft. Demand for
commercial and industrial loans was reported to be high in 11 Districts,
while Dallas noted a slight softening. Interest rate increases were said
to be delaying some commercial construction projects in Atlanta and
Chicago. Contacts in virtually all Districts reported that business loan
quality remained good, and some noted that banks were still tightening
lending standards. Residential mortgage lending activity was generally
flat to down in most areas as mortgage interest rates trended higher. New
mortgage originations were down and refinancing activity remained very
soft. Some Districts reported that high consumer confidence kept the
demand for other types of loans (credit card, home equity, etc.) strong.
Credit quality of consumer loans was also reported to be good, and
improving slightly. Banks in most areas continued to report difficulty
attracting sufficient deposits to fund loans.
Labor Markets Difficulty in finding and retaining qualified
employees remained a common refrain in District reports as worker
shortages persisted in every District, and practically every industry and
occupation. Many Districts noted that the lack of available workers
continued to hamper overall economic growth; and reports of employers
providing retention and referral bonuses, assistance in finding child
care, and health benefits were more widespread. Many Districts reported
particularly severe shortages of workers in retail trade. In the San
Francisco District, a retailer was reported to have received only 2
applications for over 20 job openings at a new store, and Atlanta reported
that some retail chains had given store managers the leeway to set local
wages competitively. Employment costs remained under pressure and appeared
to intensify in the last two months. New York, Cleveland, and Chicago
cited significant increases in health care costs as a contributing factor.
Agriculture and Natural Resources Farmers and ranchers in
many areas were concerned about low soil moisture levels. Reports from
nearly half the Districts indicated there were areas of dryness that had
adversely affected pasture conditions and may hinder the development of
recently planted field crops and vegetables. Spring planting in most
Districts was generally proceeding rapidly and running either on or ahead
of the average pace. Chicago and St. Louis reported that spring planting
intentions were quite similar to a year ago. Kansas City and Minneapolis
reported that the winter wheat crop was in good condition, but Kansas City
noted that additional rainfall was needed to ensure crop development.
The commodity price situation was mixed. Several Districts reported
that farmers benefited from recent gains in hog and beef cattle prices.
But low prices remained a concern for corn, soybean, and wheat producers
despite some recent increases. In addition, San Francisco indicated that
rising fuel prices had pushed costs higher and squeezed operating margins.
Reports from Dallas, Kansas City, and Minneapolis indicated that
oil-drilling activity was stronger than a year ago. Dallas indicated that
the domestic rig count might be nearing an upper limit due to availability
constraints on personnel and equipment. Minneapolis reported that the iron
ore and palladium mining industries were at full production, but that low
prices and environmental issues plagued gold mining.
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