Manufacturing activity weakened across a broad range of industries in most Districts, with only a few exceptions. Nonfinancial service activity continued to contract across Districts. Retail spending remained sluggish, although some Districts noted a slight improvement in sales compared with the previous reporting period. Residential real estate markets continued to be weak. Home prices and construction were still falling in most areas, but better-than-expected buyer traffic led to a scattered pickup in sales in a number of Districts. Nonresidential real estate conditions continued to deteriorate. Difficulty obtaining commercial real estate financing was constraining construction and investment activity. Spending on business travel declined as corporations cut back. Reports on tourism were mixed. Bankers reported tight credit conditions, rising delinquencies, and some deterioration of loan quality.
Agricultural conditions were generally favorable across Districts, although drought conditions persisted in the Dallas and San Francisco Districts. The Districts reporting on energy said reduced demand, high inventories, and lower prices led to steep cutbacks in oil and natural gas drilling and production activity. The Minneapolis, Kansas City, and Dallas Districts noted declines in employment in the oil and gas extraction industry.
Downward pressure on prices was reported across Districts. Wage and salary pressures eased as labor markets weakened in all Districts, and many contacts continued to report job cuts and wage and hiring freezes. Employment continued to decline across a range of industries, with only scattered reports of hiring.
Manufacturing activity continued to decline in most Districts and across a wide range of industries. Several reports, however, noted that the pace of decline had slowed or that factory activity had stabilized. The Boston, Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, and San Francisco Districts cited decreases in production. The Chicago and Kansas City Districts said declines in production had slowed. The Cleveland District noted some leveling off in declines in new orders, and the New York and Dallas Districts noted that demand was beginning to bottom out following steep declines. Orders and shipments of capital goods, autos, paper, and construction-related equipment and products such as metals, wood products, lumber and electrical machinery remained mostly sluggish and below year-ago levels, with the Chicago District noting an increase in order cancellations and deferral requests. Aircraft makers in the Chicago District noted declines in demand, while aerospace manufacturers in the San Francisco District reported that a drop in airline passenger traffic and cargo capacity had spurred order cancellations and delivery deferrals.
In contrast, orders and sales of high-tech equipment firmed somewhat at very weak levels in the Dallas and San Francisco Districts. Defense firms in the Boston and Cleveland Districts reported solid activity. Food manufacturers saw sales gains in the Philadelphia and San Francisco Districts, and a food manufacturer in the St. Louis District noted plans to open a new plant. Pharmaceutical firms in the Boston and Chicago Districts continued to see solid demand; petrochemical producers in the Dallas District noted a slight turnaround in operating rates.
Manufacturers' assessments of future factory activity improved marginally over the survey period as well, with contacts in the Boston, New York, Philadelphia, Atlanta, and Kansas City Districts noting a slight upturn in the outlook for production and sales. Capital expenditure plans remained on hold across most regions, and the Boston, Philadelphia, and Cleveland Districts noted cuts in capital budgets.
Districts that report on nonfinancial business services said demand continued to fall across most industries. Providers of health-care services noted further declines in activity, and contacts in several Districts noted demand for professional services, such as architecture, business consulting and legal services, remained weak. Demand for IT services was mixed. Among service firms, there were reports of customers delaying payments or asking for price reductions, and receivables were harder to collect.
While there were scattered reports of optimism, temporary staffing firms generally continued to report weak conditions. Firms in the Dallas District were not renewing contracts on current personnel, and the New York District characterized the supply of available workers as "inexhaustible."
Shipping activity continued to fall over the past six weeks as both domestic and international demand remained dampened. Contacts in several Districts said shipments of construction-related manufacturing products continued to drop at a substantial pace.
Consumer Spending and Tourism
Consumer spending remained generally weak. However, several Districts said sales rose slightly or declines moderated compared with the previous survey period. In particular, the Boston, Cleveland, and Chicago Districts reported an improvement in sales. Purchases of big ticket and luxury items continued to decline while spending on food and necessities fared better. The Philadelphia, Dallas, and San Francisco Districts reported that consumers were looking for value, and were opting for lower-priced, private label products over higher-priced alternatives. Retailers kept inventories lean, in line with the slow pace of sales, and most expect demand to stay at current low levels over the next few months.
Auto dealers continued to struggle, and overall vehicle sales were sluggish in all reporting Districts as weak demand and tight credit continued to limit sales. Used vehicle sales improved slightly in the Boston, Cleveland, Kansas City, and San Francisco Districts, but new car sales remained feeble. Dealers in the Philadelphia District reported difficulty in obtaining financing for inventory purchases, and a few dealerships in the St. Louis District went out of business, but dealers in the Cleveland District reported minimal problems with floor-plan financing. While auto dealers in the Boston, Cleveland, and Kansas City Districts noted some improvements in the outlook, those in the Philadelphia and Dallas Districts expect continued weakness.
Travel and tourism activity contracted further in several reporting Districts, as households and businesses continued to scale back on discretionary and travel spending. Tourist spending in the New York, Minneapolis, and San Francisco Districts saw double-digit declines compared with the prior year. Airlines in the Dallas District and hotel contacts in the Kansas City District reported weakening demand for business travel, while the Atlanta District noted convention cancellations. Restaurants continued to see sluggish activity in the Kansas City and San Francisco Districts, which prompted further layoffs and closures in the latter region. In contrast, mountain resorts in the Richmond District said ski season demand was on par with last year, and cruise liners in the Atlanta District reported that deep discounting spurred bookings.
Real Estate and Construction
Housing markets remained depressed overall, but there were some signs that conditions may be stabilizing. Many Districts said factors such as homebuyer tax credits, low mortgage rates, and more affordable prices led to a rising number of potential buyers. The Richmond, Atlanta, Minneapolis, Kansas City, and San Francisco Districts noted a modest improvement in sales in some areas.
New home construction activity fell further, however, as inventories remained elevated. Nonetheless, several Districts, including Atlanta and Kansas City, said that inventories of unsold homes had turned down slightly.
Home prices continued to decline in most Districts, although a few reports noted that prices were unchanged or that the pace of decline had eased. Low mortgage rates were fueling refinancing activity. Outlooks for the housing sector were generally more optimistic than in earlier surveys, with respondents hopeful that increased buyer interest would lead to better sales.
Nonresidential real estate conditions continued to deteriorate over the past six weeks. Demand for office, industrial and retail space continued to fall, and there were reports of increases in sublease space. Rental concessions were rising. Property values moved lower as reality "set in." Construction activity continues to slow, and several Districts noted increased postponement of both private and public projects. Nonresidential construction is expected to decline through year-end, although there were some hopeful reports that the stimulus package may lead to some improvement.
Commercial real estate investment activity weakened further. Contacts said a decline in credit availability and markdowns on commercial property were keeping buyers and sellers on the sidelines.