8 August 2001, 22:59 The FED Beige Book Summary (part 1)
WASHINGTON (MktNews) - The following is the first part of the text
of the Summary of Commentary on Current Economic Conditions, also known
as the Beige Book, released Wednesday by the Federal Reserve:
Prepared at the Federal Reserve Bank of San Francisco based on
information collected before July 30, 2001. This document summarizes
comments received from businesses and other contacts outside of the
Federal Reserve System and is not a commentary on the views of Federal
Reserve officials.
Reports from most Federal Reserve Districts point to slow growth or
lateral movement in economic activity in June and July. Retail sales
generally were sluggish and frequently below expectations, despite
substantial discounting on a wide range of consumer goods. Manufacturing
activity in nearly all sectors and regions declined further in recent
months as producers adjusted to weak domestic and foreign demand and
worked through accumulated inventories. Sustained weakness in the
manufacturing sector spilled over to other businesses, with many
Districts indicating declines in demand for office space and trucking
and shipping services. In contrast, residential real estate markets
remained stable and even expanded in some areas, with the relative
strength of the sector attributed in part to lower mortgage interest
rates. Agricultural producers continued to struggle against low prices,
weak exports, higher energy costs, and the weather, although some
regions reported improvement in growing conditions since the last survey
period. Financial institutions across the country reported reduced
demand for a wide variety of loans, tighter credit standards, and
stable-to-deteriorating quality of existing loans and leases;
residential mortgages were the notable exception to these trends.
Continued slow economic growth loosened labor markets and eased
wage pressures in most Districts in June and July, but rising benefit
costs continued to add to compensation costs. Prices for energy, fuel,
and many material inputs fell in most regions. Falling input costs and
stiff domestic and foreign competition kept prices of most consumer
goods in check.
Consumer Spending
Retail sales generally remained weak in June and July, although
there were scattered reports of a pickup in sales. Boston, Chicago,
Cleveland, New York, Richmond, and San Francisco reported sales below
expectations and well beneath comparable store sales for the same period
last year. Atlanta, Dallas, Minneapolis, and St. Louis noted a slight
pickup in sales since the last survey period, though sales were flat to
down compared to last year. Kansas City and Philadelphia reported flat
sales during the last survey period. The weakness in retail sales was
broad-based across product lines and types of outlets. Within the
sector, sales were strongest at large discount retailers, though many
other retailers were offering discounts to promote sales. Auto sales
apparently fared better than other areas of consumer spending in some
Districts. Districts attributed the better-than-expected sales in part
to manufacturer incentives and lower financing charges.
Districts reporting on inventories at retail outlets indicated that
most businesses were able to keep stocks in balance. Still, there were
scattered reports of retailers canceling orders or asking manufacturers
to warehouse deliveries until existing inventories are cleared. Contacts
noted that orders for back-to-school and Christmas merchandise were
running lower than last year in anticipation of slower sales.
Services and Tourism
Districts reporting on the services sector indicated continued weak
demand in June and July. In Dallas, Cleveland, and San Francisco, demand
for business services, including advertising, computing and data
processing services, and temporary employment agencies, was stagnant or
declining in recent months, resulting in employment reductions in some
areas. In Cleveland and Dallas, transportation and shipping activity
declined further in June and July, as businesses continued to reduce
orders in an effort to control inventories. Accounting, insurance, and
legal firms also saw demand soften in some Districts, prompting more
rigorous monitoring of payroll costs and other expenses. Dallas noted a
pickup in demand for legal services related in part to energy market
developments and increased bankruptcy filings.
Layoffs and slower economic growth reportedly damped tourism in
many parts of the country. Many Districts noted that airline bookings,
hotel occupancies, and hotel room rates fell in recent months. However,
hotels principally struggled with a decline in business travel as
companies worked to cut costs in light of slower earnings growth.
Manufacturing
Manufacturing activity declined further in recent weeks, as
producers responded to ongoing weakness in demand and worked to balance
inventories. Reports of reduced work hours, lost overtime, forced
furloughs, planned shutdowns, and layoffs were pervasive. Nearly every
District reported that new orders and shipments for durable and
non-durable manufactured products remained sluggish during the recent
survey period, with declines recorded for producers in some sectors.
Weakness was especially evident among producers of apparel and textiles,
computers, semiconductors, steel, and telecommunications gear. In
addition to conditions in the domestic economy, Districts attributed the
current malaise in manufacturing to softening international demand for
U.S. goods -- particularly in Europe and Asia. On the up side, Districts
reported that producers were making progress in running down their
excess inventories.
Real Estate and Construction
Conditions in commercial real estate markets softened in several
Districts in June and July, in keeping with slow economic growth. Nine
Districts reported increased office vacancies in metropolitan areas in
the second quarter, with signs of additional weakening in July. A number
of Districts noted that the swing in market conditions was due in part
to an increase in sublease space. The rise in vacancies reportedly made
it a buyer's market in some metropolitan areas. However, most Districts
noted little movement in posted lease rates, with landlords opting for
one-time inducements such as a free month's rent or property upgrades to
attract tenants. In San Francisco, where commercial lease rates have
declined, contacts noted that prospective tenants appear to be waiting
for rates to fall further. Rising vacancies damped new construction
activity in a number of areas.
Districts indicated that residential real estate markets generally
remained stable in recent months, though signs of weakness were apparent
in some regions. Atlanta, Cleveland, Minneapolis, New York, Richmond,
and St. Louis reported continued brisk demand for low and moderately
priced homes; one District reported that homes "priced right" continued
to sell quickly, often attracting multiple bidders. In Boston, Chicago,
and San Francisco, demand remained stable but weakness in the high-end
market was noted. Dallas and Kansas City reported flat to slower growth
in home sales, with some concerns about rising inventories. In general,
Districts attributed the continued strength of residential real estate
in part to lower mortgage interest rates.
Agriculture and Natural Resources
Reports on agricultural conditions were mixed across the Districts.
Atlanta, Kansas City and St. Louis highlighted generally good conditions
in their regions, with some crop yields coming in better than expected.
Dry weather was having an adverse effect on farmers and ranchers in the
Cleveland, Chicago, Dallas, and Richmond Districts. San Francisco
reported favorable growing conditions, but ongoing struggles against low
prices, weak export demand, and high energy costs.
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