As a result of sluggish sales growth, retailers have reduced their purchases and lowered their expectations for the remainder of the year. Despite sluggish sales, most retailers say inventories are in very good shape, which is helping keep downward pressure off of selling prices. Demand is particularly weak for domestic and luxury cars but sales of used cars picked up. Inventories remain at high levels. Financial Services Credit standards have tightened.
Lenders say they are looking at prospects more closely and increasing reserves on existing loans.
Loan demand is unchanged to slightly down. Respondents say that business loan usage is changing. In past years, commercial loans were used primarily to finance expansion, but now an increasing number of new loans are being requested to cover operating costs as a result of slower product demand. Construction and Real Estate Construction and real estate activity softened over the past six weeks, except in Houston where activity has rebounded in recent months. Demand for nonresidential space is down, particularly from high-technology firms.