Declines Span Regions, Industries
Thursday, January 15, 2009; Page D01
Business conditions across a broad range of regions and industries have continued to deteriorate in recent weeks, according to a Federal Reserve report released yesterday.
The Fed's "beige book," a compilation of anecdotes about business activity around the country, bears out gloomy forecasts of a weak start to 2009. It said that across the country, retail and auto sales were weak, manufacturing activity kept falling and banks remained reluctant to lend.
"If you're looking for something uplifting, you won't find it in the beige book," said Bernard Baumohl, an economist for the Economic Outlook Group, a consultancy in Princeton, N.J.
Last week, the Labor Department said unemployment rose in December to 7.2 percent, its highest point since 1993. Still, as bleak as the employment picture is already, the Fed report suggested significant job losses had yet to be counted.
In New York, for instance, substantial job reductions in the financial industry have yet to show up in government payroll statistics. The report also found that year-end bonuses at financial firms were estimated to be down 20 to 30 percent compared with a year ago at some of the smaller firms and more substantially at larger ones.
Several other districts also said employers were considering pay freezes and smaller bonuses.
The report indicated a long-anticipated decline in construction of office buildings, apartments and shopping centers has begun as commercial projects that had been in the works for several years reach completion and the pipeline for new projects dries up. Developers said they were unable to fund new projects and blamed tightfisted lenders. Potential tenants were as scarce as financing. In Manhattan, for instance, the office vacancy rate climbed to its highest level in two years.
The energy industry, which showed signs of softening in November, weakened more as demand has fallen.
Duke Energy, one of the biggest electric utilities in the country, saw electricity use drop last year compared with 2007 and expects another decline this year. James E. Rogers, chief executive of the Charlotte company, said in an interview with Washington Post reporters and editors that Duke has never seen two consecutive annual declines in electricity use.
Falling demand has also helped drive down prices for oil and natural gas and, in turn, production levels. The Dallas area reported a decrease in drilling activity and a decline in the number of active oil rigs since the previous survey.
"We're seeing projects almost on a daily basis tabled or canceled," said John Kilduff, an energy analyst for the futures and options brokerage MF Global. He added that the oil and natural gas production that shut down as a result of hurricanes Gustav and Ike last year is not likely to be completely restored.
Half of the regions reporting said businesses planned to reduce capital spending this year. Chemical giant DuPont is among them. DuPont Chairman Charles O. Holliday Jr. said in an interview that DuPont has cut its capital spending plans for 2009 by about 20 percent, with the biggest cuts in areas that serve the automobile and housing industries.
There were a few exceptions to the otherwise glum string of anecdotes. Defense and medical-device production in the Minneapolis area were up. Aerospace manufacturing held steady in the San Francisco area, as did food manufacturing and processing in the Philadelphia and Dallas regions.
Lower prices at the gas pump, coupled with end-of-the-year deals, inspired some consumers to get back behind of wheel of larger automobiles. Sales of large vehicles, for example, were up slightly in the San Francisco area. So were sales of light trucks in the Chicago region.
"We have seen some shifting in vehicle mix with gas prices coming down so much so quickly," said Mike Wall, an analyst with CSM Worldwide, a market research firm in Detroit. "We have seen some folks gravitate back toward the pickup truck segment, [but] not the very large SUVs."
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