Prepared at the Federal Reserve Bank of Chicago and based on information collected before March 6, 2006. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Economic activity continued to expand in January and February, according to reports from the twelve Federal Reserve District Banks. Most Districts characterized the pace of expansion as moderate or steady. San Francisco said that the "solid expansion remained on track," and Dallas indicated that activity strengthened. In contrast, the pace of growth moderated in the Richmond District, and Philadelphia said activity expanded at a slow pace.
Capital spending increased at a similar pace as in the previous reporting period, and expenditures for business services continued to rise. Employment continued to increase in most locations and in many sectors of the economy. Reports indicated that manufacturing continued to expand during the first two months of the year.
District reports indicated that manufacturing activity continued to expand during January and February. Atlanta and Dallas said that activity picked up, and New York noted continued improvement in conditions, while Kansas City and San Francisco suggested that the pace of expansion had slowed; the remaining Districts indicated that manufacturing conditions were similar to those at the end of 2005. Manufacturers in Boston and Philadelphia generally expected the expansion in activity to continue in the coming months, and factories in Cleveland anticipated a pickup.
In most Districts, the strength in demand for factory goods was widespread across industries. The sectors frequently mentioned as facing strong demand included construction materials, electrical equipment, defense products, tractor trailers, heavy trucks, and heavy machinery. Cleveland reported that steel shipments held steady or increased, and Chicago said that steel production remained strong. Conditions in other metals industries were mixed, as Philadelphia and Chicago reported strong growth in demand, Dallas noted little change, and San Francisco characterized demand as "tepid." Most regions had some weak performing industries, but few were consistently mentioned as underperforming. Several Districts commented on the ongoing struggles of the domestic nameplates in the auto industry. An automaker in the Chicago region reported that slowing sales and high inventories would likely restrain production in the coming months, and automakers in Cleveland noted large declines in output compared to year-ago levels. Atlanta mentioned that many suppliers to the domestic nameplates have seen slower demand, and Kansas City added that a number of partsmakers had ceased production. Dallas noted that a narrowing spread between refined fuel and crude prices led some refineries to briefly reduce production in February. Some refineries in the Gulf Coast region reportedly will have longer maintenance turnaround times this spring because repairs were postponed in the aftermath of the hurricanes last fall.
Commercial and industrial lending expanded at a modest pace. Contacts noted ongoing input cost pressures, but prices at the retail level increased at only a moderate rate. Labor cost pressures were little changed. Natural resource activity was very solid overall.