The Federal Reserve's June Beige Book is out.
The release, which offers anecdotal data on business conditions in each of the 12 Fed districts around the United States, says growth has been "modest to moderate" across the U.S. economy.
Hiring was either steady or rose at a "measured pace" in most of the 12 districts.
Meanwhile, manufacturing, consumer spending, and auto sales gained in most districts, but wage pressures "generally remained contained."
Below is the full text of the release.
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Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to increase at a modest to moderate pace since the previous survey. Manufacturing expanded in most Districts since the previous report, with many Districts reporting increases in new orders, shipments, or production. Most Districts noted that overall consumer spending and auto sales increased during the reporting period. Activity in a wide variety of nonfinancial services was stable or increased in most reporting Districts. Transportation was stable or increased in several Districts. Tourism remained strong in some reporting Districts, although several Districts noted softness from bad weather. Residential real estate and construction activity increased at a moderate to strong pace in all reporting Districts. Commercial real estate market conditions and construction continued to improve across the Districts. Banking conditions generally improved across the Districts. Credit quality improved, while credit standards remained largely unchanged. Agricultural conditions were mixed, as weather patterns varied, while extraction was generally stable or increased.
Hiring held steady or increased at a measured pace in most Districts, with some contacts noting reluctance to hire permanent or full-time workers. Wage pressures generally remained contained, although some Districts reported modest or moderate wage growth in some sectors. Price pressures for inputs and final goods remained stable or modest.
Manufacturing and Other Business Activity
Manufacturing increased in most Districts since the previous survey. The exception was Kansas City, which noted a slight contraction, with storms retarding some activity. Most Districts reported stable or increasing new orders, shipments, and production. Reports from contacts in the Cleveland, Chicago, and St. Louis Districts indicated moderate growth in manufacturing. The Minneapolis District further noted that more manufacturing firms increased activity than in the previous report; the Boston, New York, Richmond, Atlanta, and San Francisco Districts noted that the uptick was modest; and the Philadelphia and Dallas Districts noted slight improvements. Firms in the Boston, Philadelphia, and San Francisco Districts were broadly optimistic about prospects for the second half of 2013, while manufacturers in the Richmond District were cautiously optimistic; contacts expressed mixed outlooks in the Dallas District, and contacts in the Cleveland and Atlanta District do not expect future production to be as high as previously projected.
Strong demand in residential construction continued to stimulate the manufacturing sector in several Districts. Home-building suppliers in the Philadelphia and Cleveland Districts reported strong activity. Wood product manufacturers expanded operations and increased production in the St. Louis and San Francisco Districts. A cement producer in the Dallas District saw a very strong market. Demand for construction equipment picked up in the Chicago District.
Automobile manufacturing remained a source of strength in the Chicago, St. Louis and Minneapolis Districts. Steel and metal production increased in several Districts, including Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco. Fabricated metal manufacturers in the Philadelphia and Dallas Districts reported gains. Primary metal production was steady at strong levels in the Dallas District, while reports on primary metal orders in the Philadelphia District were mixed. Specialty metal manufacturers in Chicago saw modest improvement in demand. The metal-forming business in Minneapolis is having a very strong year. Gains were reported by petroleum refining manufacturers in the St. Louis and Dallas Districts. Reports on semiconductor orders in the Dallas District were mixed, and semiconductor firms in the San Francisco District said sales increased substantially. Electronic equipment firms in the Philadelphia District reported lower activity. Food producers in the Philadelphia and Kansas City Districts saw weaker activity, while demand for heavy equipment in the Chicago District remained soft.
Nonfinancial services activity was steady or increased in the New York, Philadelphia, Richmond, St. Louis, Minneapolis, and Dallas Districts. Transportation services were stable in the Richmond and Kansas City Districts, increased in the Cleveland, Atlanta, and Dallas Districts, and contracted in the St. Louis District. Consulting service firms in the Boston, St. Louis, and Minneapolis Districts have experienced increased demand and expanded operations since the previous reporting period. Accounting service contacts in the Richmond and Dallas Districts saw strong demand, while telecommunication service providers in the Richmond and St. Louis District reported increased activity. High-tech service firms in the Kansas City District and a software design firm in the Richmond District saw rising revenues, and software developers were in high demand in the San Francisco District.
Consumer Spending and Tourism
Most Districts noted that overall consumer spending increased during the reporting period. Reports from the Boston, Chicago, Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, and San Francisco Districts indicated modest or moderate growth in retail spending, while reports from the Cleveland, Kansas City, and Dallas Districts indicated steady to slightly higher sales. The New York District noted that retail sales in May and June had softened. Retailers in the New York, Cleveland, Atlanta, and St. Louis Districts reported that sales had not met expectations. Contacts in the New York, Philadelphia, Cleveland, Richmond, and Atlanta Districts also noted that weather conditions constrained retail activity. Demand for tech products was strong or increased in the Boston and San Francisco Districts. The Kansas City District reported that appliance purchases were slow, while the Richmond District reported that big ticket item sales were high. Inventories were at desired levels or slightly high in the New York and Cleveland Districts, and remained tight in the Chicago District. The outlook among retailers was positive in the Cleveland, Dallas, and San Francisco Districts and cautiously optimistic in the St. Louis District.
Most Districts that reported on automobile sales noted increased sales during the reporting period. Strong sales were reported in the Philadelphia, Richmond, Atlanta, Chicago, and San Francisco Districts. Reports from the Cleveland, St. Louis, Minneapolis, and Kansas City Districts indicated steady to moderate sales growth, and contacts in the Dallas District reported that sales were slightly softer than the previous reporting period, although still strong. New car sales increased in the St. Louis and San Francisco Districts, while they held steady at favorable levels relative to the same period last year in the New York District. Used car sales increased in the Cleveland, Richmond, St. Louis, and San Francisco Districts. Auto dealers in the Cleveland, Richmond, Chicago, and Minneapolis Districts reported strong sales for pick-up trucks. The Kansas City and Cleveland Districts expressed an optimistic outlook for future sales.
Travel and tourism increased in the Boston, Philadelphia, Richmond, Atlanta, Kansas City, and Dallas Districts. The New York District noted that tourism had been mixed but fairly robust since the previous report. San Francisco also reported that travel and tourism was mixed across the District. Weather conditions affected tourism in some areas of the Boston, Philadelphia, and Minneapolis Districts.
Real Estate and Construction
Residential real estate activity increased at a moderate to strong pace in most Districts. Most Districts reported increases in home sales. Cleveland noted that June sales of single-family homes were down compared with earlier in the spring but up from last year. Boston, New York, Minneapolis, Kansas City, Dallas, and San Francisco noted strong residential real estate markets. Home prices increased throughout the majority of the reporting Districts. Boston, New York, Richmond, Atlanta, Minneapolis, Kansas City, and Dallas noted low or declining home inventories and upward pressures on home prices in some areas. Residential construction activity also improved moderately across the Districts, and contacts in New York, Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco reported faster growth in multi-family construction, in particular.
Commercial real estate market conditions continued to improve across most Districts. New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco reported modest to moderate improvements in nonresidential real estate activity. Dallas reported strong growth in leasing activity for office and industrial space. Boston and Richmond reported that commercial real estate conditions were holding steady or improving, depending on location. Nonresidential construction activity was stable or increased throughout the nation. Philadelphia, Atlanta, and Richmond reported that commercial construction was flat to slightly up, while Cleveland, Chicago, St. Louis, Minneapolis, and Dallas noted improvements in commercial construction.
Banking and Finance
Reports on banking conditions were generally positive across the Districts. Overall loan demand increased modestly across most reporting Districts. New York District bankers reported mixed but generally steady loan demand. Some bankers in the Cleveland, Chicago, and Dallas Districts noted competitive pressures to reduce loan pricing. Bankers in the Philadelphia, Richmond, Cleveland, Atlanta, and Chicago Districts noted a shift toward new home mortgages and away from refinancing (which was led, in part, by increases in interest rates).
Reports on credit quality indicated slight to moderate improvements across the reporting Districts. Improvements were noted by the New York, Philadelphia, Kansas City, and Dallas Districts. Credit standards remained largely unchanged, although some bankers in the Atlanta and Philadelphia Districts noted increased competition to ease credit standards.
Agriculture and Natural Resource Industries
Agricultural conditions varied across the Districts because of differing weather conditions. Crop conditions improved in the Chicago and St. Louis Districts, while agricultural production increased in the San Francisco District and is expected to improve in the Kansas City District. Extremely wet conditions delayed planting and even resulted in some farmers in the Richmond and Minneapolis Districts planting soybeans instead of corn. Excessive rains in the Richmond District also damaged the wheat crop in some areas. Contacts noted persistent drought conditions in some areas of the Kansas City and San Francisco Districts and in most of the Dallas District. Winter wheat harvest output yields were highly variable because of crop damage from freezing and drought in the Dallas and Kansas City Districts. The condition of pastureland in the Atlanta and St. Louis Districts improved since the previous report.
Coal production was lower compared with the same time last year for the Cleveland, St. Louis, and Richmond Districts. Energy activity remained robust or steady at high levels in the Atlanta and Dallas District. Natural gas production was stable in the Cleveland District and continued to increase in the Richmond District. Drilling declined in the Cleveland District, was flat in the Kansas City District, and increased in the Richmond District. Oil and gas exploration was up slightly in the Minneapolis District. Mining was flat in the Kansas City District, weakened in the Chicago District, and was sluggish in the Minneapolis District.
Employment, Wages, and Prices
Hiring held steady or increased at a measured pace in most Districts. Contacts in the Philadelphia, Richmond, and Chicago Districts were cautious or reluctant to hire permanent or full-time staff. The Richmond and Chicago Districts noted relatively stronger demand for part-time workers. Transportation contacts in the Cleveland, Atlanta, and Kansas City Districts noted some difficulty finding qualified drivers. Contacts in the New York, Richmond, and San Francisco Districts reported high demand for technology workers.
Most Districts reported that wage pressures remained limited or contained. The Chicago and Minneapolis Districts reported moderate wage pressures. The Chicago District noted that rising healthcare and other benefit costs were being passed onto employees. Contacts in the New York and San Francisco Districts noted that competition for technology workers had an effect on salaries. The Richmond District noted that wage growth picked up in the manufacturing sector, remained robust at non-retail establishments, and flattened at retail businesses.
Overall consumer and input price pressures remained stable or modest in most reporting Districts, although some Districts noted price increases. Most notably, the Cleveland, Atlanta, Chicago, Minneapolis, and San Francisco Districts noted upward pressures on the prices of construction materials. The Philadelphia and Richmond Districts reported price increases for raw materials and finished goods among manufacturers. The New York District reported that input price pressures have abated further in manufacturing but remained widespread in services. Retail prices remained steady in the Boston, New York, Cleveland, Kansas City, and Dallas District, while retail price growth slowed in the Richmond District and wholesale retail prices increased in the Chicago District.
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First District--Boston
Economic activity in the First District continues to expand at a moderate pace, according to business contacts. Retailers, tourism contacts, manufacturers and consulting and advertising contacts all report modest increases in sales. Commercial real estate conditions are improving or holding steady, depending on location. Residential real estate contacts report increases in both house prices and sales. Overall prices are rising at a modest pace, generally in line with cost increases. Most businesses are holding employment steady, with substantial staffing changes only at firms experiencing significant increases or decreases in sales. Contacts generally expect the recent trend of moderate growth to continue.
Retail and Tourism
Retailers contacted for this round report year-over-year comp-store sales increases ranging between 1 percent and 5 percent. One contact had a low single digit decrease, but notes that sales trends have been improving. Demand is strong for all apparel categories, furniture, sporting goods, and mobile technology. Consumer sentiment continues to pick up, albeit very slowly, and prices at the wholesale and retail levels remain steady. All of the contacts expect continued slow-growth of the U.S. economy.
Through May, hotel revenues are up 1.5 percent year-over-year. Restaurant revenues are up 2 percent, slightly better than expected. Contacts attribute these increases to strong corporate business travel and entertaining. There is some softness in domestic leisure travel, as attendance at museums and other attractions is below expectations. Some of this decrease might be due to record-setting rainfall in New England during June. Contacts expect that leisure travel will increase during the summer travel season.
Manufacturing and Related Services
Most of the 13 manufacturers contacted in this round report modest increases in sales. The one firm to report a significant decline in sales, a manufacturer of electric motors and brakes, could not pinpoint any specific reason for the weakness. Europe remains a source of weakness and China continues to inject volatility for manufacturing exports. One contact reports that sales in China of its products going into new commercial construction were up 46 percent in the second quarter. Only one contact, a manufacturer of textile and printing equipment, specifically mentions the evolving macroeconomic policy picture as an issue, saying that everything depends on what happens to interest rates. All but one of our contacts say that their outlook is for stable or higher sales going forward, but none report having raised their forecasts in the recent months.
Only one of our contacts cites significant staff reductions, the same firm that notes declining sales. That said, the only firms hiring in any significant way are rapidly growing companies in the technology and life science areas. Most of our contacts, 8 of 13, report no change in employment.
All of our contacts, including the one with declining sales, say that their investment plans have not changed and most report the same or higher levels of investment for 2013 as for 2012. Our contact at the firm with declining sales says that they try not to let the business cycle affect investment decisions as, "A good investment is a good investment."
As far as pricing is concerned, no one reports anything out of the ordinary. Firms that need to raise prices, typically, appear to be able to do so; some raw materials prices, like copper, are less of an issue than they were a year ago.
Selected Business Services
Consulting and advertising contacts in the First District report a generally positive, but not exuberant, second quarter. Economic consulting has experienced very strong demand due to growth of high-stakes litigation. Healthcare and pharmaceuticals consulting contacts gave mixed reports, with several contacts reporting robust demand for services related to process efficiency, effectiveness analytics and marketing support, while another reports a slowdown in IT adoption. Strategy consultants had mixed results, with large firms faring better than smaller firms, largely due to greater exposure to the recently booming private equity industry. Marketing and advertising contacts report a slight uptick in growth from an already strong first quarter. Finally, a government contractor reports flat revenue.
Contacts report either no cost growth or costs rising roughly in line with 2 percent inflation, with the exception of one firm whose health and business insurance premiums rose 8 percent to 10 percent on an annual basis. Firms were roughly split between those facing pressure to keep rates flat and those with robust enough demand to institute rate hikes of 3 percent to 5 percent on an annual basis. About half of contacts report no net hiring, with the others increasing their workforces by 3 percent to 5 percent, mostly through larger incoming classes of entry-level workers beginning this summer. Firms reporting no net hiring were split between those who are waiting for stronger demand to justify hiring and those who hired rapidly in the recent past and are trying to adjust to their new size.
Aside from a government contractor who is too uncertain about the future of fiscal policy to offer any clear forecast, contacts expect growth to either pick up or remain strong for the rest of the year. Aside from the government contractor, contacts were minimally concerned about fiscal issues, the European debt crisis, and the state of the macro economy.
Commercial Real Estate
Commercial real estate markets in the First District are, for the most part, maintaining a solid footing. In Boston, rents on prime retail properties continue to climb and office rents are described as steady or rising, depending on location. Office leasing volume is holding steady in Hartford, although deals consist largely of short-term lease extensions with no expansion of space needs. Also in the Hartford area, investment sales demand remains strong for multifamily structures, while well-leased office buildings garner growing investor interest. In Providence, office leasing negotiations proceeded slowly as some tenants pushed back against landlords' rising rent demands, and some office sales fell through or stalled in response to June's spike in long-term Treasury rates. Also in response to the latter development, a regional banking contact reports that borrowing rates were raised on some commercial mortgages under negotiation and, moving forward, 10-year fixed-rate loans are likely to become more scarce. However, a Boston contact reports that borrowing rates and capitalization rates on commercial properties held largely steady in recent weeks.
The outlook among First District contacts is for slow improvement in fundamentals for the rest of 2013, but some downside risks were noted. For example, a gun manufacturer in Connecticut announced plans to relocate to South Carolina in response to the state's passage of stricter gun-control laws, taking jobs out of the state and vacating a significant amount of commercial space. Other gun manufacturers in the state are reportedly likely to follow suit in the coming months. A seasonal slowdown in leasing volume is expected in Providence for the summer months, and a few contacts across the District mention interest-rate movements as a considerable source of uncertainty for investment sales moving forward.
Residential Real Estate
Single-family home and condominium sales rose throughout the First District in May. Contacts in the region report strong demand for housing, particularly in urban areas of New England. According to contacts, slight increases in interest rates will likely spur more buyer activity in the short term as households try to lock in historically low interest rates. In Massachusetts, particularly in the Greater Boston area, inventory levels remain low, placing upward pressure on prices. Contacts in the Greater Boston area caution that inventory remains the most significant constraint on sales growth. In other parts of the First District, smaller cities report depleting inventory levels in urban centers, though realtors in these areas feel that a sufficient number of homes are available to satisfy prospective buyers. In contrast to much of the region, Rhode Island maintains a high level of inventory, but that market appears to be recovering as sales activity and prices continue to increase.
Contacts expect sales activity and the median sale price to continue their upward trend. Inventory levels will likely remain an issue in urban areas due to a lack of new construction there. Contacts anticipate that homeowners may be more inclined to list their home for sale as house values continue to appreciate. Overall, contacts feel the market remains poised for healthy growth in the coming months.Return to top
Second District--New York
Economic activity in the Second District has continued to expand moderately since the last report. Manufacturers indicate that input price pressures have abated further, whereas service sector contacts report that they remain fairly widespread; prices of finished goods and services are stable to up slightly. Labor market conditions continue to improve gradually, and businesses have become more willing to negotiate on salary. Retailers report that sales were on the soft side in May and especially in June, whereas new automobile sales are reported to be steady. Tourism activity remains steady at a strong level. Commercial and residential real estate markets have continued to firm throughout the region. Finally, bankers report mixed but generally steady loan demand, no change in credit standards, continued narrowing in loan spreads, and further declines in delinquency rates across all loan categories.
Consumer Spending
Retailers report that sales softened in May and especially in June. One major retail chain reports that same-store sales were little changed from a year earlier, running modestly below plan in May and noticeably below plan in June. Another chain indicates that sales were down noticeably from 2012 levels in both months. In general, New York City stores performed a bit better than those elsewhere in the District--likely buoyed by tourism. Major malls in upstate New York indicate that sales were steady to lower than a year earlier. Most of the retail contacts attribute at least part of the recent softness in sales to unseasonably cold and wet weather. Inventories are generally reported to be at desired levels or a little on the high side. Prices are characterized as steady, and no unusual discounting is reported.
Auto dealers in the Buffalo and Rochester areas report that new vehicle sales were steady at favorable levels in May and June, and continued to run moderately ahead of comparable 2012 levels. Sales of used automobiles are characterized as soft--in large part because of attractive deals on new autos. Wholesale and retail credit conditions for auto purchases remain in good shape.
Tourism activity has been mixed but generally fairly robust since the last report. Manhattan hotels report continued strong business, with total revenues up 7 percent from a year ago: occupancy rates exceeded 90 percent and were roughly on par with a year ago, room rates were up 3-4 percent, and there are about 3 percent more hotel rooms than a year ago. On the other hand, attendance at Broadway theaters has continued to be weak, reflecting considerably fewer shows running than in the spring of 2012. Finally, consumer confidence in the region has improved since the last report: The Conference Board’s June survey of residents of the Middle Atlantic states (NY, NJ, Pa) shows confidence rising for the third straight month, approaching its five-year high set last October; Siena College’s survey of New York State residents shows consumer sentiment rising to its highest level this year in June, led by upstate New York.
Construction and Real Estate
Residential real estate markets in the District have strengthened further since the last report. Sales prices for Manhattan apartments (co-ops and condos) were up moderately from a year earlier, while sales volume was up nearly 20 percent, further sharply reducing the inventory of units on the market. Rents on Manhattan apartments continue to rise and are running roughly 5 percent ahead of comparable 2012 levels, however, rents have slipped modestly in Brooklyn. New Jersey’s housing market has shown more modest signs of improvement: prices are rising slowly, reportedly restrained by an ongoing backlog of distressed properties on the market. However, new construction activity--particularly of rental apartment buildings--is running substantially ahead of a year ago. Finally, housing market conditions remain particularly strong in western New York State: very tight inventory levels have pushed prices up, and multiple offers and bidding wars have become commonplace, despite continued tight lending standards.
Commercial real estate markets throughout the New York City metropolitan region also showed further improvement in the second quarter. Long Island’s office vacancy rate slipped below 8 percent for the first time in a number of years, while rates in northern New Jersey, Westchester and Fairfield counties edged down but remain on the high side. Office rents are little changed from mid-2012 in these areas. Manhattan’s office vacancy rate ticked up but remains low as of mid-year, while asking rents are up roughly 5 percent over the past year. Industrial markets have also tightened, particularly in Long Island, where vacancy rates have declined steadily and asking rents are up nearly 8 percent over the past year.
Other Business Activity
The labor market continues to improve at a gradual pace. Two major employment agencies describe market fundamentals as favorable but note that the market is difficult to gauge at this typically slow time of year. One contact notes increasing difficulty in finding candidates with specific skill sets--especially for technology workers--and also finds companies becoming less reluctant to negotiate on salaries. This is described as the best year for college graduates since 2008.
More generally, manufacturing contacts report a modest increase in staffing levels and some pickup in business activity since the last report but do not expect to hire additional workers through the second half of 2013. Contacts in other sectors also report some pickup in both employment and business activity and do plan to ramp up hiring, as well as capital spending, in the months ahead. Input price pressures have abated further in the manufacturing sector but remain fairly widespread among service-sector businesses. Both manufacturers and service-sector contacts report that selling prices are relatively stable.
Financial Developments
Bankers report increased demand for commercial mortgages but decreased demand for residential mortgages. For other loan categories, as well as for refinancing, contacts report no change in demand. Respondents also note that credit standards remain unchanged across all loan categories. Bankers indicate a decrease in spreads of loan rates over costs of funds for all loan categories--particularly in commercial mortgages. Finally, bankers report decreased delinquency rates for all loan categories, but especially for commercial & industrial loans.
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Third District--Philadelphia
Aggregate business activity in the Third District maintained an overall moderate pace of growth during this current Beige Book period. In particular, auto sales accelerated to a strong rate of growth, lending firmed up to a modest rate of growth, and manufacturing activity appears to have grown slightly after declining slightly last period. The growth rate of residential construction, existing home sales, and general services continued at a moderate pace. Commercial real estate leasing continued to expand at modest rates, while commercial real estate construction continued to expand only slightly. General retail sales, staffing services, and tourism appear to have resumed a modest rate of growth this period after a small surge last period. Manufacturing has resumed at a slight rate of growth after declining slightly last period. Loan volumes at Third District banks grew at a modest pace across most categories, a little faster than last period. Credit quality continued to improve. Little change was reported for general price levels as well as for wages and home prices. Contacts reported slight increases overall--similar to the last Beige Book period.
An overall outlook for moderate growth has continued since the last Beige Book. Contacts expressed greater confidence in the consumer and in the sustainability of current trends. Firms remain cautious about hiring and about carrying out their long-term capital expenditure plans. However, firms are more comfortable investing when necessary to replace or upgrade aging equipment and to meet growing demand.
Manufacturing
Since the last Beige Book, Third District manufacturers have reported that orders and shipments are rising again. The makers of paper products, rubber products, fabricated metals, industrial machinery, and instruments have reported gains since the last Beige Book. Firms supplying the home-building sector continued to report strong orders and ongoing hiring to keep pace. The makers of food products and electronic equipment reported lower activity (some was seasonal). Reports were mixed for makers of primary metals. Other contacts attributed growing demand to auto-related business and foreign demand. A negative impact from sequestration was cited by some firms, while others said they avoided the worst effects. Firms continued to report restraint in current hiring but a desire to hire more workers in the near future.
Across nearly all sectors, Third District manufacturers remained optimistic that business conditions will improve over the next six months. Business plans for the remainder of the year have been lowered slightly for some firms. However, firms appear more confident of ongoing, steady growth and more willing to invest in capacity and hire new workers as needed to keep pace with demand. Overall, firms have significantly increased their expectations of future hiring and their plans for capital spending since the last Beige Book.
Retail
Third District retailers have reported modest growth--dampened by rainy weather--since the last Beige Book. Contacts described June and July as seasonally slower months, as local residents head off for summer vacations. However, excessive rain in June kept still more people away from stores, while some showed up just to "hang out" at the mall. Mall operators reported that the general retail climate has improved, citing stronger demand for retail space and rising occupancy rates.
Auto dealers reported that June sales accelerated to a strong rate of growth. Sales, described as "on fire" for the first couple of weeks of June, may have produced "the best [June sales] in six years." Dealers attributed a better sales climate, in part, to no supply problems, no credit problems, and falling unemployment rates. Dealers are bullish for the next couple of years but continue to hire cautiously.
Finance
Overall, Third District financial firms reported modest increases in total loan volume--a slight improvement since the previous Beige Book. Banking contacts cited stronger demand for all major loan categories, including C&I loans, real estate loans, and consumer loans, including credit cards. Consumer lending and home equity loans remained slow, as refinancings remained a preferred option for homeowners. However, contacts reported a decline in refinance applications in the pipeline after rates rose. Meanwhile, increasing sales of new and existing homes are raising demand for home mortgages. Banking contacts continued to report strong competition for loans and concerns about competitors lowering their lending standards. However, most banks reported "improvement in all aspects of business," including "more upgrades of credits" within their own portfolios. Contacts expressed continued optimism for future growth and sensed greater customer confidence.
Real Estate and Construction
Homebuilders throughout most of the Third District continued to report moderate growth. Though traffic and sales were soft in a few markets, most builders are meeting their plan for the year with increases as high as 40 percent. Builders reported no systemic impediments to sales, such as credit availability and mortgage issues. Some builders still face labor shortages for carpentry and framing work, and several contacts have reported a shortage of finished land. Moderate growth of existing home sales continued through June, according to residential brokers. Sales closed and sales pending grew by double digits (year over year) in several larger metropolitan areas in the Third District. The estimated months' supply of the existing inventory of homes has fallen to near six months in many areas. Brokers say the anticipated shadow inventory of homes has not yet emerged.
Nonresidential real estate contacts continued to report little change in the modest pace of overall leasing activity and slight growth of construction. Although the overall climate for new construction "is getting incrementally better," contacts reported a renewed strong push for industrial structures along the I-81 and I-76 corridors throughout eastern Pennsylvania and into central New Jersey. Construction activity also remains greater for multifamily residential units, higher education facilities, and public utility infrastructure. Contacts continued to report heavy competition and thin margins on projects. Overall, contacts remained optimistic for a continuation of slow, steady growth.
Services
Third District service-sector firms continued to report a moderate pace of growth overall. Despite earlier strong bookings, shore destinations in Delaware and New Jersey reported somewhat lower activity (traffic counts, bookings, and boardwalk sales) and cited rainy weather through much of June as one source of the problem. A multimillion dollar advertising campaign has helped boost Jersey Shore activity, but tourism in the areas hardest hit by Hurricane Sandy is still down somewhat more than is necessitated by the actual damage. Casino revenues from Atlantic City and the state of Delaware remain on a downward trend, and reports from Pennsylvania casinos indicate that revenue from slot machines appears to be turning in the same direction.
In other sectors, firms cite steady progress--rising consumer confidence, limited cost pressures, and growing sales. A staffing firm reported a slight sag in billable hours for June following strong growth through May year to date. Other service-sector firms reported "incrementally better" growth, tight margins, and cautious hiring. Contacts offer mixed reports on their ability to attract qualified workers while generally citing no wage pressures. Overall, service-sector firms remain optimistic about future growth.
Prices and Wages
Overall, price levels continued to increase slightly, similar to the previous Beige Book. Manufacturing firms reported modest increases for prices paid and prices received. Auto dealers reported no changes in pricing. Homebuilders continued to face tight margins and higher prices for some skilled labor. Most real estate contacts reported stable, if not rising, prices for lower priced homes, and contacts in some markets noted stable prices for higher-priced homes. Contacts from retail, restaurants, and some services indicated that commodity prices have not been a big issue this year as in the recent past. Wage pressures remain constrained, according to most contacts other than homebuilders.
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Fourth District--Cleveland
The economy in the Fourth District expanded at a moderate pace during the past six weeks. Manufacturing orders and production were steady or higher. The momentum seen in residential construction since the beginning of the year has slowed, but activity remains above year-ago levels. Nonresidential builders experienced a rise in the number of inquiries and backlogs. Retail sales were lackluster during May, while new motor vehicle sales posted moderate gains on a year-over-year basis. Conventional and unconventional natural gas and oil production was stable, and drilling has declined since the start of the year. Output at coal mines trended lower. Freight transport volume exceeded projections. Demand for credit increased slightly.
Hiring picked up in manufacturing and residential construction. Staffing firm representatives reported that the number of job openings and placements was fairly steady, with vacancies found primarily in healthcare and manufacturing. Wage pressures remain contained. Input and finished goods prices saw little change, apart from increases in construction materials.
Manufacturing
Reports from District factories indicated that new orders and production were largely stable or increased during the past six weeks. Companies seeing the strongest activity were suppliers to the residential construction and transportation industries. Compared to a year ago, production levels were mixed. Steel producers and service centers reported that shipping volumes were little changed. Our contacts expressed concern about downward pressure on domestic steel prices, which they attributed to rising imports. Motor vehicle production at District plants held steady during May on a month-over-month basis. Compared to a year ago, auto production rose slightly. Many of our contacts believe that demand will soften during the next couple of months, although part of the expected decline was attributed to seasonal factors. In response, there was some reduction in finished goods inventories.
Manufacturers commented that capacity utilization rates have fallen slightly but remain within their normal ranges. Capital expenditures are either on plan or slightly ahead for the fiscal year. Several companies anticipate increasing capital budgets in the upcoming fiscal year to better position themselves for expected growth opportunities. Raw material and finished goods prices were generally flat or trended lower. Steel producers who attempted to raise their prices met with limited success. Factories expanded payrolls at a modest pace, although finding qualified production and salaried personnel was difficult. Wage pressures are contained.
Real Estate
Sales of new single-family homes were down slightly in June when compared to earlier in the spring, although they remain above year-ago levels. Construction starts also fell slightly. One contractor commented that the recent decline in sales is not abnormal for this time of year. Traffic and inquiries were described as much better relative to last year. New home contracts were found mostly in the mid- to higher-price-point categories. Demand for multifamily housing was strong. Builders were confident that the turnaround in the housing market will persist in the upcoming months. Nonetheless, they cited difficulty in obtaining financing and a lack of buildable lots as barriers to more robust growth. List prices of new homes increased by as much as 5 percent in certain markets this year due primarily to rising costs for land, building materials, and to a lesser extent, labor. Home builders have cut back on discounting. Sale prices of existing single-family homes continued to rise across the District on a year-over-year basis, but the rate of increase is somewhat lower than the national average.
Nonresidential builders have seen a small improvement in business conditions since our last report. Inquiries have picked up and backlogs are slowly rising. The strongest activity was on the commercial side, especially in distribution and warehousing. Bank financing is difficult to obtain, so many smaller projects are being funded with cash. Our contacts are hopeful that the improvement in business conditions they have recently experienced will continue at the same pace or accelerate during the remainder of this year.
We heard many comments about large price increases for building materials, especially lumber, drywall, and concrete, though the rate of increase has slowed during the past month. Home builders reported moderate hiring, especially for office personnel, while nonresidential builders limited their hiring to seasonal help. Wage pressures are contained. General contractors are concerned about the availability of qualified subcontractors if demand in the construction sector begins growing at a robust pace.
Consumer Spending
Retailers described May sales as lackluster and noted that they fell below plan. However, sales were fairly even with the same month a year ago. Some of our contacts cited poor weather conditions for holding down consumer spending. Looking ahead, third-quarter sales are expected to be modestly higher when compared to those in the second quarter. A few contacts reported that their inventories were slightly higher than desired. Vendor and shelf prices held steady. Capital expenditures were on plan for the fiscal year. Monies are allocated primarily for store improvements and expansions. No hiring is anticipated, except for staffing new stores.
Year-to-date sales of new motor vehicles showed a moderate increase during May compared to the same time period a year ago. Buyers preferred smaller, fuel-efficient vehicles; however, purchases of large pickup trucks trended higher, especially in the eastern half of the District. New vehicle inventories are rising, but a majority of dealers said that they are satisfied with their inventory positions. Our contacts are fairly optimistic about sales prospects for the remainder of the year. Dealers pointed to pent-up consumer demand and the option to lease vehicles as reasons for their optimism. Used-vehicle purchases rose during the past six weeks. Inventory is building as lease rollovers start to come in. Prices for quality used cars remain high. Dealer investment in facility upgrades and expansions has increased as they grow more confident about the sustainability of higher sales volume. Dealers are looking to hire a small number of personnel, though some have postponed hiring decisions as they gauge the effectiveness of new technology that is being integrated into their selling model.
Banking
Demand for commercial real estate and multi family construction loans has picked up since our last report, while requests for other business loan categories were little changed. Almost all bankers reported aggressive credit-pricing pressure. Consumer credit demand rose slightly, especially for auto loans and home equity products. Residential mortgage activity remains relatively strong. Several bankers attributed a decline in refinancing to a rise in interest rates. New purchase mortgages are trending higher. No changes were made to loan-application standards. Aggregate core deposits grew at a steady pace, with a movement from CDs to demand deposits still taking place. There were a few reports about workforce reductions and shifting personnel as a means of cutting costs.
Energy
District coal production remains below year-ago levels, although the downward trend seen during the first five months of 2013 was showing signs of leveling off. Producers reported that demand from domestic utility companies is up slightly, while offshore demand is slowing (Asia) or stagnant (Europe). Spot prices for steam-coal rose slightly, whereas metallurgical coal prices were flat. The number of drilling rigs across the District has fallen significantly since the beginning of the year; however, the state of Ohio continued to issue shale gas drilling permits at a robust pace. Output from conventional and unconventional gas wells was stable during the past couple of months, while oil production picked up slightly. Well-head prices were little changed. Capital expenditures remain at targeted levels. On balance, little change was seen in production equipment and material prices. Energy payrolls and labor costs were flat.
Freight Transportation
Our contacts reported that shipping volume remains higher than expected, but the rate of growth has slowed since our last report. Freight executives are positive, but cautious about growth prospects for the near term. Of particular concern is how the new hours of service regulations (HOS) that went into effect on July 1 will play out. Our contacts believe that the primary impact of HOS will be on the availability of drivers and the ability of shipping companies to effectively schedule those drivers. Potential reductions in capacity will tend to drive up shipping costs. Prices for equipment and maintenance items were stable. Capital spending is on plan for the fiscal year. Monies are used mainly for tractor/trailer replacement and capacity expansion. The industry is still experiencing a shortage of drivers and skilled mechanics. The former may worsen under the new HOS regulations.
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Fifth District--Richmond
District economic activity strengthened moderately in recent weeks. Manufacturing shipments and new orders increased. Consumer spending firmed somewhat and auto sales remained solid. Services providers also reported steady to stronger demand. Additionally, tourist bookings were up year over year. In banking, demand rose for new residential mortgage lending. Commercial and industrial lending was flat to slightly higher. Residential real estate sales and construction increased, with speculative building returning to some areas. Commercial construction was little changed and leasing was steady overall, with occasional reports of rising rental rates. The effect of continued heavy rainfall on agriculture was mixed, slowing planting or damaging some crops while bolstering others. Natural gas production increased since our last report, particularly shale gas, and coal production was steady but well below year-ago levels. In labor markets, temp hiring picked up, although many firms were reluctant to hire permanent workers. Average wage growth was flat to faster, and price changes were mixed.
Manufacturing
Manufacturers expressed cautious optimism in the weeks since our last report, as activity in that sector strengthened modestly. Shipments and new orders rose, and the average workweek increased. Despite the improved conditions, producers preferred to use cash to update technology and existing infrastructure, rather than undertake expansion. A plastics manufacturer commented that his company was purchasing new machinery in response to increased work levels, and he saw industrial confidence as being up, but still cautious. A lumber company executive said he will not hire new full-time employees until next year, but that, so far, this has been his best year since 2007. Moreover, according to a representative of several manufacturers, some firms have gone to two shifts and further growth is expected for the second half of this year as backlogs build. Even so, he described confidence as "fragile, and nobody takes it for granted." Federal spending reductions, tax changes, and slower overseas demand affected some manufacturers. A manufacturer of packaging materials commented, "There is a light at the end of the tunnel, but it only flickers at times." Price growth increased for raw materials and finished goods, according to our latest survey of manufacturers.
Ports
Port volumes were little changed overall in recent weeks. Lumber imports picked up, while imports of auto parts and auto assembly inputs softened slightly from very high volumes. Imports and exports of autos remained strong. Exports of containerized agricultural products rose, particularly logs and animal feed inputs, while exports of wheat sprouts declined. Energy-related exports and agricultural equipment were solid, with agricultural equipment peaking in late spring as usual, albeit somewhat below year-ago record levels. Overall, coal exports were unchanged. Port administrators expected seasonal increases in the weeks ahead for back-to-school and holiday imports.
Retail
Retail sales strengthened slightly in recent weeks, helped by big-ticket sales. A wholesaler of heavy construction equipment commented that his firm had seen significant improvement. Additionally, a contact at a large auto and light truck dealership remarked that sales volume was strong and the market was extremely competitive. He noted that new vehicle sales were being driven by full-size pickups that are typically purchased by homebuilders and construction-related services businesses. Used car sales were exceptionally strong and some dealers had shortages of used vehicles. A report from a large department store chain said that cold and damp weather, along with the payroll tax change, had constrained sales. Retail price growth slowed since our last report.
Services
Non-retail services firms reported steady to stronger activity. Telecommunications firms, accountants, and a firm specializing in software design for clinical use reported rising revenues. Hospital consolidation remained "intense," according to a contact in North Carolina. Non-retail prices rose more slowly in this reporting period.
Tourism picked up. Bookings rose in the Tidewater, Virginia region. Additionally, a hotel manager in western North Carolina noted that his bookings have risen compared to a year ago and that expectations were for continued year-over-year growth for the remainder of this year. A contact on the outer banks of North Carolina reported general optimism and added that cutbacks in government funding for tourist sites have led to increased fund-raising events, such as concerts. Rates were little changed.
Finance
Banking activity increased slightly since our last assessment. Demand for residential mortgages was up in most markets and bankers across the Fifth District commented that there had been a noticeable shift toward new purchases and away from refinancing. A Virginia banker proclaimed that "refinancing had died," although a lender in South Carolina said that refinancing still made up the majority of his residential mortgage business. However, some customers no longer qualified for loan refinancing due to higher rates. Similarly, "the phone rang more often" for a Virginia banker while a lender in Maryland reported that people were waiting to see what rates would do. Demand for residential construction loans rose in South Carolina. Commercial and industrial loan demand was flat to slightly higher. There were several loans in the pipeline at a West Virginia bank, most of which were for new structures (i.e., office buildings, car showrooms, and a retirement community). However, higher interest rates caused some deals to be reevaluated and put on hold or pulled. Contacts also stated that clients were surprised at the higher rates and that businesses were trying to figure out how best to budget for them.
Real Estate
Residential real estate sales expanded. Two Washington, D.C. area agents reported that it was now routine to see multiple offers for a home, as well as escalator clauses in those contracts. Another contact in the region said that home repair and specialized construction were benefitting from strength in the housing market. Due in part to its proximity to D.C. and Baltimore, home sales in the eastern panhandle of West Virginia finally saw some improvement. In addition, home sales in western North Carolina were up, causing inventories to erode and speculative building to resume. Inventories were also low in the Charlotte region where home sales and prices had both increased. Lastly, a source on the eastern shore of Maryland stated that appraisals were below the sales price of homes in some areas.
Commercial real estate and construction markets were little changed overall in recent weeks. Demand for commercial real estate in Washington. D.C. continued to be scarce as people were "waiting on the sidelines" to see what would happen with the economy and government spending. In addition, one large business in the D.C. area sold its buildings and turned to renting space while another shifted out of large leased spaces and consolidated into buildings owned by the firm. There were conflicting reports from our North Carolina contacts about multi-family housing: one reported there was now some overbuilding while another said there was still a lot of strength in this type of housing. This latter sentiment was echoed by a report from the Tidewater area of Virginia indicating that multi-family was doing well and stalled projects were coming back on line. Contacts in other parts of the state reported that lot inventory was low or "almost nil." Retail, office, and industrial leasing activity was steady in Virginia and West Virginia while rental rates edged up in Charlotte and Richmond.
Agriculture and Natural Resources
Recent reports on agricultural conditions were mixed. While a South Carolina farm loan banker reported that the wet weather earlier in the year "started the crop season off in a positive light," other reports from South Carolina and Virginia indicated that the rains delayed planting and even resulted in one farmer planting soybeans and cotton instead of corn. In addition, a South Carolina contact noted that heavy rains had damaged the regional wheat crop to the extent that sprouts were unacceptable for export. A North Carolina source also noted a recent shift to cotton over corn, due to declining corn prices. Nevertheless, another source remarked that agricultural lending was "booming" and demand for wood products continued to rise.
Natural gas production--particularly shale gas--continued to increase in West Virginia. Moreover, one shale plant was less than fully staffed because of a worker shortage. Although rig counts were down nationwide, West Virginia was one of five states that recently saw an increase in rig counts. Coal production remained steady in recent weeks though well below a year ago. Coal lay-offs in southern West Virginia were expected to come later this year.
Labor Markets
Conditions in the District labor market were somewhat better since our last report. Employment rose in several industries, including home repair and construction, hotels, and medical software. In addition, a contact from a temp agency in North Carolina reported there was high demand for technology professionals, particularly for healthcare-related IT, as well as accounting, finance, and real estate. He added that contingent labor was in much greater demand than full-time employees due to uncertainty about the economy; another source said that small businesses were going out of their way to avoid the long-term commitment of permanent hiring. In contrast, a web consulting firm in Virginia and a social assistance organization in North Carolina planned to add employees. Also, a staffing agency in South Carolina reported weak demand for labor, and two electrical equipment manufacturers laid off employees. According to our latest surveys, wage growth picked up in the manufacturing sector, remained robust at non-retail establishments, and flattened at retail businesses.
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Sixth District--Atlanta
Reports from Sixth District business contacts indicated that economic activity expanded at a modest pace in June and early July. The outlook for the rest of the year remains optimistic for most firms.
Retailers noted mixed sales results and vehicle sales grew at a robust pace. The hospitality sector continued to experience strong demand. Most brokers and homebuilders reported increases in sales and prices, and declining home inventories. Commercial contractors cited improvement in overall demand and a slight increase in construction. Manufacturing firms indicated that activity grew, albeit at a slower rate than in our previous report. Loan demand remained stable for residential real estate, while loans for autos outside of the dealership remained constrained by competitive offers from auto manufacturers. Employment growth for the District was modest. Firms remarked that stable input prices have helped improve profit margins slightly.
Consumer Spending and Tourism
Reports from District retailers were mixed. While most merchants experienced modest growth, growth was lower than expected in some cases. Some attributed lackluster sales to weather conditions. Auto dealers continued to experience strong growth.
Travel and tourism activity continued to exceed expectations. Contacts throughout the District reported that key indicators of demand (visitation, hotel occupancy, average daily rate, and revenue per available room) and profitability were positive and steadily rising. In spite of increases in accommodation rates, demand remained strong with advanced bookings for the next three to six months increasing to levels above those from a year ago. With strong convention and group meeting activity planned for the remainder of 2013 and positive lead volume for 2014, District hospitality contacts anticipate the positive momentum of 2013 to continue in 2014.
Real Estate and Construction
District brokers continued to report that existing home sales remained ahead of last year's level were mostly ahead of expectations. However, brokers still report that inventories remain at low levels, and thereby restraining sales. Shortages were also said to be putting upward pressure on home prices. Existing home prices continued to rise on a year-over-year basis. The outlook for sales growth remained positive, with the majority of brokers anticipating sales gains over the next several months.
District homebuilders reported that new home sales and construction were ahead of year earlier levels. Recent activity was mostly in line with expectations and buyer traffic remained strong. However, builders noted that access to financing and a shortage of developed lots continued to constrain construction activity. Most contacts reported that new home inventories were below the year earlier level and prices rose modestly. The outlook for construction and new home sales remained positive, but the outlook for growth moderated somewhat compared with our last report.
District commercial real estate contacts indicated that demand continued to improve from earlier in the year. Construction activity was described as flat to slightly up from earlier this year and was dominated by build-to-suit projects and renovations of existing space. While a wider variety of projects seems to be in the works compared with a year ago, activity was still concentrated in medical office space, certain types of retail, and apartments. Commercial brokers indicated that demand for space improved at a modest pace. Brokers reported that most markets still favored tenants; however, rate increases continued to be noted in select submarkets. The outlook among District commercial real estate contacts remained positive with further improvements expected this year.
Manufacturing and Transportation
Regional manufacturers reported expanding activity; however, the rate of growth slowed as a result of a decrease in new orders, production, and finished inventory. Contacts reported a slight decline in commodities prices and some expressed that inventories may build in some sectors as manufacturers take advantage of favorable prices. Less than half of purchasing managers expect production to be higher in the next three to six months, slightly lower than our previous report.
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