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Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before October 15, 2002. This document
summarized comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the
views of Federal Reserve officials.
Most Districts reported that economic activity remained sluggish in September and early October. Retail sales
were weak across the nation, including some declines in motor vehicle sales from very high levels. Most
Districts noted that manufacturing activity had declined or grown more slowly. Home building and residential
markets were generally upbeat. Commercial real estate markets softened. The agricultural sector was mixed;
many areas were hurt by drought, but other regions reported ideal growing conditions and bountiful harvests.
The energy sector had slowed, and mining activity was uneven. Labor markets were lackluster in all Districts.
Overall wage and price increases were moderate, but significant price increases were noted in health care,
insurance, and shipping. Most Districts reported strong consumer loan demand and weak commercial lending
activity. Credit quality deterioration was reported in some Districts.
Consumer Spending
All Districts noted weak retail sales in September and early October, while tourism activity was mixed. In the
Cleveland, Minneapolis, and Philadelphia Districts, retail sales declined during September. Chicago, Dallas,
Kansas City, and San Francisco reported that sales growth had slowed. In the New York District, retail sales
were below plan. Clothing retailers noted slow sales in St. Louis. Retail establishments gave varied reports in
the Richmond District, while sales were near low year-ago levels in the Atlanta District. Boston reported a
modest pickup in sales in September after experiencing flat to declining sales during the previous two months.
Motor vehicle sales generally slowed from very high levels. September and early October auto sales decreased
in the Atlanta, Dallas, Chicago, Minneapolis, and Philadelphia Districts. Cleveland, St. Louis, and San
Francisco reported that sales grew more slowly. However, vehicle sales were mixed in the Richmond District
and were slightly higher than a year ago in the Kansas City District, although auto dealers there expressed
uncertainty about future sales.
Tourism activity was mixed. Fall tourism was solid in several parts of the Minneapolis and Kansas City
Districts but was uneven in the Chicago and Richmond Districts. Meanwhile, most reports from the Atlanta
District's hospitality and tourism sector were more downbeat than previously indicated, and travel demand was
sluggish in most areas of the San Francisco District.
Manufacturing
Manufacturing activity decreased or grew more slowly in September and early October for most of the
Districts. "Tough," "stagnant," or "sluggish" describe manufacturing conditions in many Districts. Richmond
reported that shipments, new orders, capacity utilization, and employment all declined. Dallas indicated
weakened activity in all manufacturing industries. Chicago noted weak demand for heavy equipment. However,
the St. Louis and Minneapolis Districts reported slight increases in manufacturing activity. Many Districts
reported reluctance of manufacturers to undertake capital spending.
Real Estate and Construction
Home building and residential real estate activity was positive, although softening was noted in some regions
and in the higher end of the market. Chicago and Minneapolis reported overall strong home building activity.
Residential real estate markets in the Boston, Kansas City, and San Francisco Districts were strong overall, but
contacts noted slowdowns in some areas. While growth in home sales slowed somewhat in the Richmond
District, residential real estate remained upbeat. Little changed for home builders in the Cleveland District.
Residential real estate markets in New York showed signs of softening, particularly at the upper end of the
market. The demand for higher-priced homes was weak in the Atlanta District, and activity in the single-family
market tapered off in the Dallas District.
Commercial real estate and construction activity softened in several Districts. Atlanta, Chicago, Cleveland,
Kansas City, Minneapolis, and San Francisco reported weak conditions in commercial real estate markets.
Commercial realtors reported generally flat leasing activity in the Richmond District. While office vacancy rates
rose in Dallas, public projects remained a source of strength. In New York, commercial real estate markets were
mixed. The demand for commercial real estate was very high in St. Louis; however, construction was slow.
Agriculture
The agriculture sector showed mixed results during September and early October. Dallas and San Francisco
reported favorable conditions. San Francisco noted that yields and sales of fruits, vegetables, and nuts were
high. Meanwhile, Atlanta, St. Louis, and Minneapolis reported varied conditions. Atlanta reported that Florida
citrus and sugar production benefited from adequate rainfall and warm temperatures, but excess moisture hurt
soybean production in Louisiana and Mississippi. Cleveland, Richmond, Chicago, and Kansas City reported
deteriorated conditions primarily due to drought.
Natural Resource Industries
Energy exploration activity declined, while mining activity varied. Minneapolis, Kansas City, and Dallas
reported weak drilling activity for oil and natural gas, but contacts in Kansas City and Dallas anticipate some
pickup in the near term. Meanwhile, Minneapolis indicated mixed results in mining.
Labor Markets
Labor markets were lackluster, with only a few reports of increased hiring. Employment demand softened
somewhat in Chicago and Minneapolis. In New York the overall market was sluggish, while Atlanta and
Boston noted mostly flat employment levels. Labor markets were slack in Kansas City; however, Richmond and
Philadelphia reported increases in demand for temporary employment. St. Louis reported fewer layoffs by
manufacturers, but some noted that they planned to hold off on new hiring.
Wages and Prices
Increases in wages were generally subdued. Wage pressures remained virtually nonexistent in the Kansas City
District. Chicago, Minneapolis, and San Francisco reported little upward pressure. In Dallas, contacts in the
temporary services industry noted downward pressure on wages. Wages increased 3 percent to 4 percent in
the Boston District.
Overall prices were reported as stable, with significant increases noted in health care, insurance and shipping.
Vendor and selling prices remained steady in Boston. San Francisco and Minneapolis reported little upward
pressure on prices. Boston and Atlanta indicated decreases in lumber prices. Retailers in the Chicago and New
York Districts noted little pressure on prices. Some Districts, however, reported price increases. Health care
costs continued to escalate in the Atlanta District. Significant insurance cost increases were noted by Dallas
and Minneapolis. San Francisco and Minneapolis reported increased shipping prices, due in part to the work
stoppage at West Coast ports.
Financial Services
Most Districts noted that consumer lending demand, especially residential, was strong, while commercial
lending demand was weak. Some Districts indicated slight credit quality deterioration. Most Districts reported
very strong demand for home refinancing. Meanwhile, Boston reported that life insurance companies
continued to see strong demand. However, most Districts indicated low commercial loan demand. For example,
Richmond reported that businesses reduced borrowing due to an uncertain economic environment.
Philadelphia, Cleveland, Chicago, and San Francisco reported a slight deterioration in credit quality in some
sectors. Philadelphia noted recent deterioration in credit quality of consumer loans, and San Francisco
indicated increasing delinquencies and loan defaults in some markets.
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