WASHINGTON, D.C. -

Based on the latest data reported from its 12 districts, the Federal Reserve Board unveiled its latest Beige Book, reporting that vehicle sales rose across most areas of the nation in February and March.

However, dealer concerns over automaker supply disruptions and production delays due to the Japan disasters are starting to come to the forefront.

More specifically, Dallas reported higher foot traffic at dealerships, while Cleveland, Atlanta and San Francisco all said that improved credit availability help drive up vehicle sales.

“In the Richmond District, however, vehicle sales were generally unchanged or sluggish, while dealers in the Chicago District reported a slight decline,” the Fed indicated. “Contacts in several districts expressed concern about potential supply chain disruptions due to production problems in Japan.”

Moreover, the Fed said that Richmond and Chicago saw substantial increases in auto and auto parts manufacturing. Cleveland reported that auto production dipped slightly, but that domestic automakers were showing a substantial rise in production.

As for St. Louis, its officials said that auto parts and electrical equipment manufacturers were looking to open new plants in the district.

On an overall basis, the Fed found that economic activity is generally improving.

“While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors, and Kansas City described its economic gains as solid. Manufacturing continued to lead, with virtually every district citing examples of steady improvement, often with reports of increased hiring,” the Fed said.

Additionally, looking at the near-term, most reports from districts were “upbeat.”

“Some districts, however, also noted that uncertainties remained high. Boston, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis and Dallas all noted actual or expected disruptions to sales and production as a result of the tragedy in Japan,” the Federal Reserve explained.

Next, the Fed broke each district’s results down.

Boston

While the auto industry wasn’t specifically addressed, executives did note that Japan supply disruptions are impacting manufacturing.

“In addition, firms that use electronic components in their production are somewhat concerned about supply chain disruptions in Japan. Inputs from Japan are expected to be in short supply soon (if they are not already) and the extent to which Japanese disruptions will impact firms’ costs and/or production is uncertain. Respondent firms’ sales exposure in Japan, however, is relatively limited and the revenue impact of the disaster is expected to be fairly small,” according to the Fed.

Discussing other general trends in the district, officials said, “Business activity in most sectors continued to expand during February and March in the First District, although retail reports are somewhat mixed and real estate markets report little improvement. Manufacturers cite ongoing revenue gains, some quite strong, although they also voice increased uncertainty about the outlook. Most consulting and advertising firms report strong year-over-year growth in the first quarter. Retailers and manufacturers continue to fill vacant positions but say they are doing only modest net hiring; consulting and advertising contacts intend to add to headcounts but are uncertain about skilled labor supply.”

New York

For the Second District, the Fed revealed that vehicle sales were strong in February and March.

“Retail sales were robust in February and March, with particular strength in auto sales,” the Fed indicated.

The government went on to report, “Auto dealers in upstate New York — metropolitan Rochester and Buffalo — characterize sales of new vehicles as exceptionally strong since the last report. Sales of used cars were also relatively robust, and dealers report that business at service departments remains brisk. Retail credit conditions continued to improve.”

In another positive development, the Federal Reserve said reports from business contacts suggest some broad-based improvement in the labor market.

“A major New York City employment agency reports a marked pickup in hiring activity in March and describes it as the best month in a number of years,” the Fed noted.

Philadelphia

Dealers in this district saw year-over-year sales increases in March.

According to the Fed, “Third District auto dealers generally reported that sales were above the year-ago level in March and were continuing to move up. Some dealers of various brands noted the beginning of supply interruptions due to halts of vehicle and parts production in Japan resulting from the earthquake and subsequent problems there.

“These dealers said the supply problem had not yet become serious, but they did not know how extensive it might become or how long it might last. Dealers reported that demand for large vehicles has not declined yet despite the recent increase in the price of gasoline,” the Fed added.

As long as gas prices do not continue climb, dealers in this district are predicting strong sales as economic conditions improve. Apparently dealers are seeing quite a bit of pent up demand. However, a big cause for concern is gas prices. Dealers said if these prices continue to climb it could have a negative impact on sales.

Cleveland

Talking about production in this district, the Federal Reserve said this slipped slightly on a month-over-month basis in February,

However, officials went on to say, “Compared to a year ago, domestic automakers showed a substantial rise in production, while foreign nameplates posted a modest decline.”

Continuing on, the Fed said dealers saw new-vehicle sales improve between mid February and mid March, when compared to the prior 30-day period.

Meanwhile, on a year-over-year basis, vehicle purchases rose substantially for most of the Fed’s contacts.

“Several (dealers) noted that they are beginning to see a pickup in sales of more fuel-efficient cars. Dealers expressed concern about a potential slowdown in the pace of the recovery. As a result, they are more cautious in their outlook for vehicle purchases during the spring and summer months. A majority of our contacts said that new- and used-vehicle inventories are too lean,” the Fed reported.

The board also said, “Used-vehicle prices are trending up. Reports about lenders loosening credit requirements were fairly widespread, with credit prices remaining very competitive. Dealers are waiting for more details from automakers before committing to major capital investments in their facilities. However, several of our contacts said that they are currently undertaking some minor upgrades. Most auto dealers are beginning to hire on a selective basis.”

Richmond

The news was not quite as positive in this district, as reports came in that vehicle sales were generally sluggish or unchanged. Apparently, a Tidewater, Va., dealers told the Fed, “Sales have been stagnant.”

“Another dealer reported that he was facing restrictions on ordering certain car colors, because those paints come from Japan; he also noted availability problems with car components originating in Japan,” the board shared.

However, on a bit brighter note, apparently banking activity is growing in this area.

“Banking activity picked up across the district. Most bank officials whom we contacted noted a marked increase in interest from business clients, often to restart projects that had been delayed over the past two years. Several bankers also reported that their lending had grown from weak levels at the end of last year. A Virginia banker stated that consumer demand, while still quite soft, had improved, while a Richmond banker in a relatively affluent neighborhood cited a spike in equity line usage (often to be used for pre-sale home renovations),” the Fed indicated.

Atlanta

Moving on over to Atlanta, officials heard that dealers saw strong sales growth.

“Automobile dealers described robust sales growth and a strong demand outlook. A few noted that an improvement in consumers’ access to credit contributed to the increase in sales,” the board reported.

As for manufacturing, the Fed discovered, “Most firms also cited that they have not yet experienced major disruptions in the supply chain from the Japan disaster, but several are anticipating some temporary interruptions, most notably in the auto and IT sectors.”

Chicago

Meanwhile, in Chicago, some dealers are already seeing consumers shift from larger models into more fuel-efficient vehicles in response to gas prices.

“The expiration of manufacturers’ incentives contributed to a slight decline in auto sales in March. Auto dealers reported inventories were relatively low given the recent strength of sales. Contacts noted that potential production disruptions stemming from the events in Japan and the effects of rising gas prices on demand add a good deal of uncertainty to the outlook for the auto sector. Some dealers have already seen a shift in sales from new trucks to more fuel-efficient vehicles,” the Fed reported.

In some good news for the area, apparently hiring is picking up.

The Fed said, “Hiring increased with contacts adding both temporary and permanent employees. Job postings also increased, and manufacturers reiterated the difficulty in finding appropriately skilled workers. A large staffing firm reported solid growth in billable hours and a substantial increase in permanent placement and recruiting activity. Furthermore, a recruiting firm noted that small business’ hiring plans are beginning to show signs of improving.”

St. Louis

According to Federal Reserve contacts in the district, auto sales have picked up in recent weeks. However, in perhaps a bit of not so positive news, in a sample size of small- to midsized banks, lending has declined from mid December to mid-March.

Dealers also pointed out a tight supply of used vehicles.

“Auto dealers report that sales of both new and used vehicles have increased, but the supply of quality used vehicles continues to be tight,” the Fed reported.

Minneapolis

In the Minneapolis area apparently consumers have yet to shift vehicle taste preferences in conjunction with the growing gas prices.

“A representative of a Montana auto dealers association reported improving sales; gas prices were not yet a factor in buying decisions. Recent North Dakota vehicle sales were healthy, and dealers were optimistic about 2011, according to an auto dealers association,” according to the Fed.

Officials went on to note, “A domestic auto dealer in Minnesota said that March sales were ‘excellent.’”

Hiring is also on the uptick in this area.

“Labor markets continued to show signs of strengthening. In Minnesota, a data storage company recently noted that it might hire as many as 300 workers this year, and a power generation company expects to hire 90 employees. A manager at a South Dakota mall noticed more job openings than usual,” officials said.

In fact, the Fed said, “According to a survey by an employment services firm, 13 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels during the second quarter, while 6 percent expect to decrease staff. Minnesota initial claims for unemployment insurance were down 22 percent compared with a year ago.

However, on a more negative note, the Fed also discovered, “In contrast, a Minnesota-based medical device company reported plans to cut as many as 2,000 workers companywide, and a Minnesota-based computer manufacturer will lay off 600 to 900 workers companywide.”
Kansas City

After losing some steam in the last Beige Book report, this district’s dealers are seeing the market heat up in terms of sales.

The Federal Reserve found that, “After slowing in the last survey, auto dealers reported robust sales, particularly for used cars, fuel efficient vehicles and SUVs. Dealers were optimistic that sales would rebound further.”

Discussing this market as a whole, the Fed went on to say, “The district economy expanded solidly in late February and March. Consumer spending rebounded in March after severe weather limited February sales. Factory production rose sharply, allowing manufacturers to rebuild inventories and fulfill a surge in new orders. Residential construction remained weak, and commercial construction rose modestly.”

Dallas

In this market, dealers are starting to voice concerns over supply disruptions as Japan’s disasters impacts U.S. auto production.

“Automobile sales continued to improve; however, respondents note concern over potential supply chain disruptions due to the ongoing natural disaster and nuclear calamities in Japan. Aside from these concerns, automobile dealers reported a favorable outlook for the balance of 2011 due to strong foot traffic consisting of high-quality customers,” officials noted.

Reviewing other trends, the Fed added, “There were increased reports of hiring activity compared with the previous reporting period. Staffing firms continued to note strong demand and were hiring for their own needs at a stronger pace than in the last report. Some transportation, food and primary metals manufacturers reported employment increases. A few contacts in the auto sales, railroad and airline sectors also noted a rise in hiring activity.”
Additionally, financial firms in the area reported a slight improvement in overall loan demand.

“National banks reported some pickup in commercial and industrial (C&I) loan demand with increased corporate activity, while they continue to see weakness in commercial real estate (CRE). Regional banks noted that loan demand remains pretty flat, although there was a small increase in optimism regarding homebuilding and some CRE lending at the community-bank level. Most contacts said loan pricing remains aggressive amidst a highly competitive lending landscape. Outlooks are gradually improving in light of better outstanding loan quality and continued slow progress in lending conditions,” the Fed indicated.

San Francisco

Demand for new vehicles showed further strength in this market, according to the Fed. This strength was supported partly by manufacturers’ rebates and improved availability of credit, officials noted.

Looking forward, some retail contacts expressed concern that elevated gasoline prices will reduce sales of other items.

Commenting on lending trends in this district, the Fed said, “District banking contacts reported that loan demand was up compared with the prior reporting period. Demand for commercial and industrial loans rose perceptibly, as businesses in a variety of sectors reportedly showed increased interest in expansionary capital spending. Demand for consumer credit also grew slightly. The reports indicated that competition among lenders to extend credit to well-qualified small and medium-sized businesses has intensified, placing downward pressure on rates and fees.

“Overall, however, lending standards remained somewhat restrictive for most types of consumer and business loans. Venture capital financing activity and investor interest continued to grow, particularly for companies focused on Internet and wireless applications and digital media,” the Fed added.