The markets for office and retail space showed signs of a slowdown in several Districts. Office vacancies were reported up, and leasing volumes down, in Manhattan, Baltimore, Washington, D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas. Districts indicated that office vacancies held steady in Boston and the Carolinas, and were down in Philadelphia and in the Minneapolis and St. Louis Districts; however, contacts in the Boston and Philadelphia Districts and see some emerging slack. Office rents were mixed, however, coming in about flat in greater Boston and Manhattan, either flat or down in the Richmond District, and up in Philadelphia. Retail vacancy was reported up in the Minneapolis District and retail space demand was described as slow in the Chicago District. Demand for industrial space was described as either """"firm"""" or """"flat"""" in the Districts commenting on that sector.

Sales activity in nonresidential markets was down in the Boston, Dallas, Kansas City, and Chicago Districts, with contacts citing tight credit conditions as a major factor. Office sales activity remained strong, however, in the major cities of the New York District and in the San Francisco District. Eight of the twelve Districts reported that nonresidential construction activity was slow; countering these reports, the Cleveland, Dallas, and San Francisco Districts indicated that construction remained strong.

Banking and Finance

Reports on loan demand for commercial, industrial, and residential mortgage loans varied across Districts. Overall loan demand was flat in San Francisco and weakened in the Kansas City, St. Louis, Dallas, New York, and Richmond Districts. Consumer lending was flat or declining in the St. Louis, Chicago, and Cleveland Districts. Commercial and industrial loan demand was mixed in San Francisco and remained stable or declined in the Kansas City, St. Louis, Dallas, New York, and Richmond Districts. By contrast, the Chicago and Cleveland Districts reported increased business lending. Even as loan demand for new residential mortgages remained sluggish or declined, lower interest rates prompted increases in refinancing of existing mortgages in a number of Districts, including San Francisco, St. Louis, New York, Richmond, Atlanta, Cleveland, and Chicago. Cleveland cited a small rise in delinquencies, especially for real estate loans, and Atlanta reported an increase in mortgage delinquencies and foreclosures. New York, on the other hand, saw a rise in delinquencies for all loan categories except residential mortgages, which were unchanged. Tight credit standards were reported in the Atlanta, San Francisco, Kansas City, St. Louis, Chicago, Dallas, Richmond, and New York Districts. Kansas City indicated a worsening of overall loan quality, Chicago reported a deterioration of consumer loan quality, and Cleveland also saw a decline in credit quality for business customers and consumers. By contrast, Dallas reported sound credit quality.

Agriculture and Natural Resources

The Chicago, San Francisco, Minneapolis, St. Louis, and Dallas Districts reported strong conditions in the agriculture sector, including high prices for winter wheat, corn, soybeans, sorghum, and hogs, and increased production of some crops. By contrast, Atlanta and Richmond indicated that although recent rain had improved conditions in Maryland and Virginia, drought conditions persisted in other areas, and range pasture conditions remained poor. Farm incomes and/or value of production rose in several Districts during 2007, although Kentucky farmers saw no change and Tennessee farmers saw declines compared to 2006. Increases in input costs, including prices of fuel, fertilizer, and feed were mentioned by Chicago, Minneapolis, and San Francisco as potentially affecting future production and incomes; Chicago and Dallas also cited recent weather-related problems that threaten production this spring. Increases in the value of farmland were reported by Chicago and Minneapolis.

All Districts reporting on energy cited robust levels of activity and steady or higher prices; in addition, Kansas City and Cleveland mentioned increases in hiring. However, Dallas noted that drilling had flattened domestically and declined in the Gulf of Mexico, leaving activity outside of North America to drive future growth, while Kansas City, Cleveland, and Minneapolis expected exploration and capital spending to increase going forward. Rates for durable equipment, and drilling and evaluation services were reported to be flat to declining. However, price pressures, regulatory costs, and tightening credit were mentioned as providing possible future impediments to increased production.

Prices and Wages

Business contacts in many Districts cited price pressures from vendors and mixed success in raising their own prices to recoup the increased costs. Manufacturing contacts in the Richmond, Atlanta, Chicago, Cleveland, Minneapolis, Kansas City, and Dallas Districts pointed to rising costs for raw materials or other inputs, while manufacturing firms in the New York District reported more widespread increases in prices paid """"than in well over a year."""" By contrast, Philadelphia noted somewhat less prevalent increases in input costs and output prices in February than in January, except for increased mention of rising prices for imported goods. Upward pressures on input costs from high or rising energy prices were frequently cited, which also translated into increased transportation and shipping costs. Price increases for metals, petrochemicals, and food were also mentioned often. The San Francisco District, however, indicated that price pressures were limited except for food and energy. Firms'' ability to pass along cost increases by raising selling prices varied. The Boston District noted that retail contacts were passing some price increases on to customers, and some manufacturers were raising selling prices to partially offset rising costs; half the manufacturers contacted in the Cleveland District had raised prices or added surcharges since the previous report. The Dallas and Atlanta Districts reported that some firms raised prices but others were constrained by competitive pressures; Chicago indicated that contacts outside of construction and retail were passing cost increases along to customers. In the Kansas City District, factory goods'' prices had escalated, but retail prices were mostly stable.

Most Districts indicated that contacted businesses reported limited wage pressures, moderate wage increases, and some loosening of labor markets. While Atlanta, Boston, Chicago, and San Francisco noted short supplies of selected types of skilled labor relative to demand, they and the New York, Richmond, Kansas City, and Dallas Districts cited pullbacks in the pace of hiring by some firms. Furthermore, several Districts, including New York, Philadelphia, St. Louis, and Atlanta, reported increased prevalence of layoffs, reductions in work hours, or hiring freezes.


Available at:

http://www.federalreserve.gov/fomc/beigebook/2008/20080305/default.htm