The following is the unedited press release available on the Web site of Federal Reserve at
http://www.federalreserve.gov/fomc/BeigeBook/2009/20091021/default.htm
Beige Book
October 21, 2009
Summary
Reports from the 12 Federal Reserve Districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels. Leading the more positive sector reports among Districts were residential real estate and manufacturing, both of which continued a pattern of improvement that emerged over the summer. Reports on consumer spending and nonfinancial services were mixed. Commercial real estate was reported to be one of the weakest sectors, although reports of weakness or moderate decline were frequently noted in other sectors.
Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered. For example, Dallas cited slight improvements residential real estate and staffing firms, while New York noted gains only in a few sectors (predominantly manufacturing and retail). Retail and manufacturing conditions were mixed in Boston, but some signs of improvement were reported. New York, Philadelphia, Cleveland, and San Francisco cited small pickups in manufacturing activity. In the Kansas City District, an uptick was noted in technology firms, while services firms posted revenue gains in Richmond. However, conditions were referred to as stable or flat for business services and tourism firms in Minneapolis and agriculture in St. Louis and Kansas City.
The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all Districts. Banking also faltered in several Districts, with Kansas City and San Francisco noting continued erosion in credit quality (often with more expected in the future). One bright spot in the banking sector was lending to new homebuyers, in response to the first-time homebuyer tax credit. Finally, labor markets were typically characterized as weak or mixed, but with occasional pockets of improvement.
Districts generally reported little or no increase to either price or wage pressures, but references to downward pressures were occasionally noted. While upward price pressures were generally subdued in most Districts, materials prices increased in Cleveland (mainly for steel) and Kansas City. Manufactured goods prices were flat to up slightly in Boston. Boston reported that in some market segments """"product competition and customer clout are leading to downward pressure on prices."""" Minimal wage pressures were noted in Cleveland and Minneapolis.
Consumer Spending and Tourism
Consumer spending remained weak in most Districts since the last report, although some improvements were noted. Chicago reported a continued decrease but at a slower rate than in the previous reporting period, and retailers maintained low inventories. Richmond reported flat or declining sales; Dallas indicated sales were largely unchanged. However, Dallas reported unexpected weakness at value-based retailers. Sales were mixed, according to Boston, St. Louis, and Kansas City, with Kansas City citing strong sales of cold weather apparel and lower-priced goods. San Francisco remarked that sales were little changed, with the exception of an increase in furniture sales. Although New York observed weak sales in upstate New York, general merchandise retailers in the City were ahead of plan and same-store sales were roughly on par with a year earlier. Boston noted that large-scale retailers had cut inventory due to weak sales. Philadelphia saw a pickup in back-to-school shopping. Cleveland observed that consumers were very price-sensitive and inventories were lean; nonetheless, sales were flat or slightly improved.
The """"cash-for-clunkers"""" program ended in August, leaving depleted inventories and slower sales in its wake. New vehicle sales declined in New York, Philadelphia, Cleveland, Richmond, Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco. However, Chicago reported a pick-up in vehicle sales in early October. Low new-car inventories helped to move used cars in several Districts, although San Francisco commented that the demand for used cars also weakened. New York also reported that automobile dealers saw some improvement in credit conditions for consumers looking to purchase cars.
Looking to expectations for holiday sales, Chicago anticipated improved sales, while Philadelphia retailers expected consumers to limit spending. However, Third District merchants also noted that store traffic increased recently. Atlanta reported that two-thirds of contacts expected flat or declining sales over the next three months.
Tourist activity varied across Districts. Boston, New York, and Atlanta described business travel as extremely soft, whereas Richmond observed solid growth in group bookings. Occupancy rates held steady in New York, spurred by increased leisure visitors, while aggressive discounting boosted cruise-line occupancy rates in Atlanta. San Francisco reported a deep slide in hotel and resort visits in Southern California and Las Vegas, but noted a continued firming of occupancy rates in Hawaii. Richmond indicated overall bookings were much improved over last year, while Kansas City reported occupancy rates remained below year-ago-levels. Room rates continued to decline in several Districts, including New York and Atlanta. In contrast, Boston said that hotels were offering dramatic promotional deals and discounts on local attractions, which preserved posted room rates.
Nonfinancial Services
Nonfinancial services firms had mixed reports in recent weeks. Kansas City observed increased demand for high-tech services and Richmond noted generally increased revenues, particularly in telecommunications and healthcare services. Demand for healthcare services also picked up in the Boston District. Minneapolis observed that activity in nonfinancial services firms was mostly flat at low levels, although technology consultants reported an uptick and competition heated up among engineering firms. In contrast, San Francisco contacts indicated that demand for services in general fell, and elective medical procedures were being deferred. St. Louis noted that revenues declined at several large firms in business support services.
Transportation services activity generally declined, although Cleveland and Chicago reported some strengthening. Atlanta observed weak transportation demand overall, and firms in the San Francisco District indicated that trucking had declined. Import demand in the Dallas District fell, leading to a reduction in cargo volumes at intermodal firms. Activity in the transportation sector was flat, according to Kansas City. In contrast, the cash-for-clunkers program helped to clear dealership lots, which prompted dealers to restock their depleted inventories and drove up car shipments. Chicago reported that trucking shipments increased, although the level of activity remained low, and Cleveland''s contacts cited an uptick in freight transport volume in recent weeks. Cleveland also noted that trucking companies planned substantial equipment purchases through the first quarter of 2010. Business travel by air declined since the last report, according to San Francisco, while airlines in the Dallas District reported stabilized demand--albeit at low levels.
Manufacturing
Most Districts reported that manufacturing activity was generally stronger since the last report. New York, Richmond, Minneapolis and Kansas City all noted a further pickup in production, while Philadelphia, Cleveland, Chicago and San Francisco mentioned slight-to-moderate increases. Growth rates varied by industry, however, and some Districts experienced little or no overall increase. Boston reported that manufacturing activity was mixed, but had stabilized or shown modest improvement in certain industries. Similarly, Dallas said overall demand in manufacturing was flat at weak levels albeit with pickups in the high-tech, food, and petrochemical industries. St. Louis indicated that manufacturing continued its net decline, and Atlanta noted moderate declines in orders and production. Some Districts (Boston, Richmond and Chicago) mentioned that year-over-year drops in new orders of housing-related products had abated. Cleveland, Richmond, and Chicago reported substantial increases in auto and parts production, which were attributed primarily to restocking dealers'' and manufacturers'' inventories. Accordingly, lean inventories and stronger demand from the auto sector led to an increase in steel production in the Cleveland and Chicago Districts.
Comments on the near-term outlook varied across Districts. Boston, Philadelphia, Cleveland, and Kansas City reported that their contacts expected only slight gains and modest economic growth during the next six months. Therefore, capital spending plans remained subdued, and centered mostly on new product development or cost reduction. Dallas indicated that planned projects and routine maintenance were being deferred to conserve capital. New York, however, reported that respondents were increasingly optimistic about the near-term outlook and expected to hire more workers and spend more on capital.
