Credit quality was reported to have deteriorated, on balance, since the last report. Increased delinquency rates were noted by New York, Philadelphia, and Cleveland, while Kansas City reported that loan quality remained lower than a year ago. Widespread tightening in credit standards was reported, especially on residential and commercial real estate loans. In general, banks were reported to be tightening credit standards in the New York, Cleveland, Atlanta, Chicago, Kansas City, Dallas and San Francisco Districts. In addition, Boston noted that standards remain tight on commercial mortgages, while Philadelphia indicated that banks are limiting lending in this category. Richmond indicated tighter standards on residential mortgages.

Agriculture and Natural Resources

Agricultural reports were generally upbeat, with most respondents citing improved growing conditions and favorable pricing. Although drought conditions continued to persist in some areas of the Atlanta and Richmond Districts, soil moisture was adequate for spring planting, in part, due to increases in precipitation in March and early April. Reports from the Chicago, Kansas City, and St. Louis Districts indicated that cool temperatures, dry conditions, or flooding toward the end of March damaged some winter crops and delayed field preparations for spring plantings. Farmers in the Chicago, Kansas City, Minneapolis, and St. Louis Districts all reported plans to shift production away from corn toward soybeans in 2008, in part, because of favorable soybean prices and elevated corn production costs. Some farms in the San Francisco District expressed concern over prolonged drought conditions and pending cuts in water deliveries. Dairy and livestock producers in the Chicago, Dallas, Kansas City, and San Francisco Districts expressed concern that increased feed costs had reduced margins.

Districts reporting on energy continued to see robust levels of activity and steady to increasing prices. In the Dallas District, drilling remained strong and natural gas production has continued to increase. In the Minneapolis District, expansion of the mining industry was underway, while oil and gas exploration remained robust. In general, contacts contended that increased demand for energy was expected to continue to boost activity and prices.

Labor Markets

Despite some variation across Districts, employment levels appeared to be little changed, on balance, from recent months. Some weakening in the job market was reported in the New York, Atlanta, Chicago, St. Louis, and Minneapolis Districts. Cleveland reported flat employment levels, while Richmond indicated mixed trends. Boston and Kansas City indicated modest increases in employment, with some deceleration indicated in the latter. Firms in the Philadelphia, Atlanta, and Minneapolis Districts reported layoffs, reductions in work hours, or hiring freezes in response to current or expected slowing in economic activity.

Despite the general softening in their markets overall, Atlanta and Chicago noted scattered shortages of skilled workers in various service industries. Dallas reported relatively tight labor market conditions overall and cited shortages of managers and engineers, as well as farm workers. Staffing and temp agencies reported mixed trends in labor demand: New York, Richmond, and Chicago reported some softening, whereas Cleveland and Dallas note some pickup. In the financial services industry, some weakening in employment trends was reported in the New York, Chicago and St. Louis Districts, and San Francisco noted job losses in firms servicing the real estate industry.

Prices

Business contacts across all Districts continued to report increases in input costs and output prices. In particular, price increases were consistently reported for food products, fuel and energy products, and many raw materials. More specifically, increases in the price of chemicals, metals, plastics and other petroleum-based products were commonly cited. Most manufacturers have or are planning to increase prices in response to rising input costs, while the response of service firms has been more mixed, in part due to differences in competitive pressures. On balance, input costs have risen more rapidly than output prices, putting pressure on margins for many firms. Most Districts reported little change in retail price inflation, though Richmond and San Francisco noted some moderation. Most business contacts reported that wages were unchanged or were increasing moderately in all Districts. Business contacts in the Atlanta, Chicago, Cleveland, Dallas, Philadelphia, and San Francisco Districts indicated that there has been some upward wage pressure for skilled labor in some sectors that continue to experience shortages.


Available at:

http://www.federalreserve.gov/fomc/beigebook/2008/20080416/default.htm