[PEN-L:32606] beige book

["Ian Murray" <seamus2001@xxxxxxxxx>]

November 27, 2002
Summary


Economic activity grew slowly, on balance, in late October and early
November, according to information received by Federal Reserve District
Banks. Business conditions were described as soft or sluggish in Boston,
Atlanta, Chicago, Minneapolis, and Dallas. Cleveland and St. Louis reported
mixed conditions. There was marginal improvement in Philadelphia, Kansas
City, and New York. Richmond and San Francisco reported continued growth,
but at a slower pace than in the previous survey period.

Consumer spending varied among Federal Reserve Districts. There was some
improvement in general merchandise sales in New York, Philadelphia,
Cleveland, Richmond, Kansas City, and Dallas. Sales were weak in Chicago,
Minneapolis, St. Louis, and San Francisco. Auto sales have fallen in all
Districts. Service industry activity was generally sluggish. Manufacturing
remained soft in most Districts, but Philadelphia and Minneapolis noted some
improvement. Business capital spending in all sectors continued to be
limited. Commercial real estate markets continued to be slack in all the
Districts reporting on this sector. Residential real estate remained strong,
although New York, Chicago, and Dallas saw some signs of easing demand for
housing. Agricultural conditions have been adversely affected by heavy rain
and cold weather in southern parts of the nation but are good elsewhere.
There has been little change in energy production but mining has declined.
Bank lending remains strong for residential real estate, but other
categories of lending have been lackluster.

Labor markets continued to be soft in nearly all Federal Reserve Districts,
although demand for health-care workers remained strong. Wage and salary
pressures were subdued, but employee health-care costs continued to rise
sharply. Most Reserve Banks reported nearly steady prices at both the
consumer and producer levels, with the exception of shipping charges, which
have risen in the wake of the West Coast port disruptions.

Consumer Spending
Retail sales of general merchandise varied among Federal Reserve Districts
in October and early November. Gains were reported in New York,
Philadelphia, Cleveland, Richmond, Kansas City, and Dallas. However, the
increases were generally slight compared with late summer and early fall.
Atlanta described retail sales as mixed and about even with a year ago.
Chicago and Minneapolis reported weak retail sales, and St. Louis and San
Francisco indicated that retail sales had declined from September to early
November. The onset of colder weather in most parts of the country boosted
sales of outerwear. Sales also increased for food and grocery items and
small home furnishings, but several Districts noted flat or declining sales
of big-ticket and luxury items. Discount stores posted better sales growth
than other types of stores in most Districts, and in New York and
Philadelphia retailers reported that consumers were shifting purchases to
discount brands.

All the Districts reporting on auto sales noted declines in October compared
with the same month last year and compared with the sales rate set during
most of the year until October. The slower sales rate continued in November,
and some further declines were noted in the Kansas City and San Francisco
Districts. Dealer inventories have increased. In the Philadelphia and St.
Louis Districts, dealers said inventories were too high, but dealers in the
Chicago and San Francisco Districts said inventories were not excessive
despite the increase.

Tourism activity has been mixed. Boston, Richmond, Minneapolis, and Kansas
City reported that recent tourist travel, lodging, and spending had
increased from last year in most parts of their Districts. Chicago indicated
flat tourism. In the Atlanta, Dallas, and San Francisco Districts, travel
and tourism have been weaker this year than last, although Atlanta noted
that advance bookings for winter cruises were strong.

Services
Service industry activity remained weak. In Boston, demand for information
technology services has declined. Service companies in the Richmond District
have had sluggish revenue growth. Service-sector activity was slow in the
Dallas District, and demand for most business services was said to be soft
in the San Francisco District.

Trucking firms in the St. Louis District still have large backlogs resulting
from the West Coast port disruptions. Delays in receiving shipments were
reported from Boston and Philadelphia, although deliveries in those
Districts appeared to be getting back to normal. Atlanta-area retailers
remain concerned about getting all their holiday merchandise delivered
before Christmas. Also in the Atlanta District, Asian motor vehicles and
parts have been in short supply because of the West Coast shipping
interruption and slowdown. Dallas reported that transportation activity in
the District was at low levels. In Cleveland and Kansas City, there were few
reports of difficulties obtaining shipments.

Manufacturing
Most Districts reported continuing weak conditions in the manufacturing
sector in October and early November. Demand for manufactured goods remained
soft in the Boston, Richmond, Atlanta, Chicago, and Dallas Districts.
Conditions were mixed in the Cleveland, St. Louis, and San Francisco
Districts, although San Francisco noted an increase in cancellations of
orders at manufacturers in the District. Kansas City reported an apparent
stabilization in the District's manufacturing sector in late October and
early November after a decline earlier in the fall. Manufacturers in the New
York, Philadelphia, and Minneapolis Districts reported some improvement, on
balance.

Conditions varied among specific goods-producing sectors. Boston and Chicago
indicated that capital goods industries had flat or falling sales. Producers
of industrial equipment were seeing improved demand in the Philadelphia and
Richmond Districts. Philadelphia and Dallas noted declining orders for
construction materials. Orders at defense plants have increased according to
Boston and Atlanta. New York noted a fairly broad rebound in the
manufacturing sector. In general, manufacturers have been producing below
capacity, and they have been implementing cost-reduction measures to
maintain profitability.

Among the Districts reporting on manufacturing inventories, there was no
clear pattern. Manufacturers in the Philadelphia and Cleveland Districts
have reduced inventories recently. Inventories remained low among
manufacturers in the San Francisco District. Chicago District manufacturers
had recent increases in inventories but generally described inventory levels
as "fair."

Capital Spending
Business capital spending continues to be limited, according to most of the
Reserve Banks reporting on this activity. In the Boston District, retailers
generally plan little if any increases for 2003, manufacturers' plans are
mixed, and information technology and software companies will keep their
capital budgets flat. In the Richmond District, retailers' plans are mixed,
although most are planning upgrades to information systems next year.
Manufacturers in the Philadelphia District plan to increase capital spending
in the next six months, on balance, and there are some reports of higher
capital spending among manufacturers in the St. Louis District. But
manufacturers intend little change in capital spending in the Kansas City
District in the next six months, and they are delaying or canceling spending
in the Atlanta District.

Real Estate and Construction
Commercial real estate markets remained weak in all twelve Federal Reserve
Districts. Rising vacancies, increased subleasing, and declining rents have
been evident in nearly all office markets. Commercial construction has also
slackened. San Francisco reported that commercial development has all but
stopped. Commercial construction has picked up in a few parts of the
Richmond and St. Louis Districts, even though those Districts also reported
general softness in nonresidential construction.

Residential real estate markets continued to be strong in the majority of
Districts. There has been little change in the pace of home sales in
Philadelphia, Richmond, Atlanta, St. Louis, and Kansas City. In the
Cleveland District home builders have been exceeding planned construction
rates, and home building in the Minneapolis District is ahead of last year's
pace. Residential real estate markets remained "solid" in San Francisco, but
growth of new home construction has slowed. Both San Francisco and Atlanta
reported some weakening in demand for homes in the higher price ranges.
Three Districts indicated that residential markets were softening: New York,
Chicago, and Dallas. In the Chicago and Dallas Districts cancellations of
house-construction contracts have increased.

Agriculture
Recent rains in many parts of the nation have ameliorated drought
conditions, but heavy rains in the South have damaged some crops and delayed
field operations. This year's grain crops, especially corn and soybeans, in
the Cleveland, Chicago, and St. Louis Districts are expected to be below
those of recent years. The cotton crop in the St. Louis District and the
sugar cane crop in the Atlanta District were also significantly damaged by
rainstorms. In contrast, farmers in the Minneapolis District expect large
increases in corn, soybean, and wheat production, and Dallas expects good
cotton and winter wheat crops.


Natural Resource Industries
Federal Reserve Districts reporting on the energy sector noted little change
in activity in October and November. In the Minneapolis District, oil and
gas production rose slightly, but exploration efforts have been flat. The
oil and gas rig count edged up in the Kansas City District but was steady in
the Dallas District. According to contacts in the Kansas City District
natural gas inventories were high, but unusually strong winter demand could
outstrip production capacity. Minneapolis reported that non-energy mining
activity in the District had moved down somewhat.

Financial Services and Credit
Residential loan demand continued to be strong in most Districts for both
refinancings and purchase mortgages. New York, Philadelphia, Cleveland,
Richmond, Chicago, Kansas City, and Dallas noted continuing strength or
further growth in mortgage activity. However, Atlanta and San Francisco
reported recent slowing in mortgage activity. Commercial and industrial loan
demand remained soft in New York, Philadelphia, Richmond, Chicago, and St.
Louis. Such loan demand was said to be flat in Cleveland and edging up in
Kansas City. Bankers in the Philadelphia, Chicago, and St. Louis Districts
said business loan demand was low because businesses have less interest in
or need for funds, since their inventories, accounts receivable, and
investment spending have declined. Reports of weakening consumer loan
demand, other than real estate related, came from New York, Philadelphia,
and Dallas. Consumer loan demand has strengthened somewhat in Cleveland,
Chicago, and Kansas City, although growth rates were not robust.

Cleveland, Dallas, and San Francisco reported that deposits have been
growing at banks and other depository institutions in their Districts, but
Kansas City indicated that deposits in that District have been flat.
Philadelphia noted that sales of annuities have been growing in that
District as investors look to increase their returns but are reluctant to
make further commitments in the stock market.

Employment and Wages
Nearly all Reserve Banks reported continued softness in labor markets,
although New York indicated there were scattered signs of a pickup in
demand. Kansas City reported a continuing high rate of lay-off
announcements. Hiring at temporary employment agencies was picking up,
although slowly, in Boston, but growth in temporary help employment had
stalled in Chicago and was described as "lukewarm" in Richmond. An exception
to the generally flat demand for workers in most Districts is the
health-care sector, where the supply of available workers remains below
employers' needs. Retailers will hire close to the normal number of seasonal
employees, according to Philadelphia and Richmond, but stores in Atlanta are
being cautious in adding workers for the holidays.

Wage and salary pressures remain subdued. Kansas City indicated that wage
pressures were virtually nonexistent. Dallas noted that temporary help wages
have been flat or declining. San Francisco reported that many firms in that
District were canceling usual year-end bonuses. Although wage and salary
trends have been weak, increases in employee health-care costs have been
large and widespread.

Prices
Most Reserve Banks reported generally steady retail prices in November.
Boston indicated that retail prices for goods have been flat and that
hotels, restaurants, and tour companies have introduced low-priced package
deals. New York noted a decline in selling prices for most consumer goods.
Chicago and San Francisco said retail prices have shown little change.

In the industrial sector prices have changed little. Manufacturers' selling
prices have been flat to down, and prices for software and information
technology services have been practically unchanged in Boston.
Manufacturers' selling prices have declined in New York, although input
costs have risen. Manufacturers' input costs and output prices have been
mainly unchanged in Philadelphia. Manufacturers in the Chicago District said
they have little pricing power.

Minneapolis reported modest price increases generally, and Dallas noted more
price reductions than increases. San Francisco noted that truckers, marine
shipping companies, and air freight companies have imposed extra charges
related to shipping delays occasioned by the West Coast port problems.