U.S. Federal Reserve Jan. Beige Book Summary (Text)
The following is the summary text of the Federal Reserve Board’s Summary of Commentary.
Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report, with all twelve Districts characterizing the pace of growth as either modest or moderate. Since the previous Beige Book, activity in the New York and Philadelphia Districts rebounded from the immediate impacts of Hurricane Sandy. Growth in the Boston, Richmond, and Atlanta Districts appears to have increased slightly, while the St. Louis District reports some slowing.
All twelve districts reported some growth in consumer spending. Overall, holiday sales were reported as being modestly higher than in 2011, though sales were below expectations for contacts in many of the Districts. Auto sales were reported as steady or stronger in ten Districts. Citing concerns that consumers will spend cautiously due to ongoing fiscal uncertainty, retail contacts and auto dealers reported a slightly dimmer, though positive, outlook for future sales. Tourism activity was reported to have increased across much of the nation due to strong business and international travel, early snowfall in some ski areas, and a rebound in areas disrupted by Hurricane Sandy.
Activity among nonfinancial service sectors improved overall. Firms within the six Districts reporting on transportation services generally noted increased volumes. Manufacturing was mixed overall since the previous Beige Book; six Districts reported an expansion of activity and three reported a decrease. Among Districts reporting on their firms’ near-term expectations, the manufacturing outlook remained generally optimistic; however, capital spending plans were less uniformly positive.
Since the previous Beige Book, real estate activity has expanded or held steady in eleven Districts for existing home sales and leasing; eight Districts for residential construction; eleven Districts for nonresidential sales and leasing; and nine Districts for nonresidential construction. Overall loan demand was steady in five Districts, rose in four, and fell in one. Credit standards were largely unchanged, except in two Districts where there were some signs of loosening. Six Districts reported improving credit quality and/or falling delinquency rates.
Although rain partially eased drought conditions for some agricultural regions in three Districts, reports of agricultural activity remained mixed. Districts reported that energy and mining sector activity was steady at high levels for most energy-related products but significantly weaker in coal production and coal-related investments.
Trends in wages, prices, and employment conditions were relatively unchanged in the Federal Reserve Districts. Input price pressures were reported to be steady overall with mixed reports for specific commodity prices in various Districts. Employment conditions were also little changed since the last report. However, hiring plans were more cautious for firms doing business in Europe or in the defense sector. Wage pressures were stable in all twelve Districts, though several Districts cited greater pressures for firms that reported difficulties finding qualified workers with specific skills.
Consumer Spending and Tourism
Since the previous Beige Book, consumer spending increased to some degree in all twelve Districts. Across the nation, holiday sales grew modestly compared with last year but came in below expectations in the New York, Cleveland, Atlanta, Chicago, and San Francisco Districts. Boston reported continued strong demand for clothing, shoes, and furniture, and San Francisco reported robust online sales. A major retail chain in New York indicated that sales picked up in early January. Retail sales were flat in Richmond except for gains in food and auto sales. Expectations for future sales were positive but mild, particularly in Philadelphia, Kansas City, and Dallas where contacts cited the impact of fiscal cliff uncertainty on consumer spending.
Reports of auto sales were steady to stronger in ten Districts. Richmond, Atlanta, and San Francisco noted strong sales. New York and Dallas cited mixed sales that were generally positive, while auto sales in Kansas City slowed but remained higher than a year ago. Some dealers in the Chicago and Kansas City Districts reported high levels of inventory. Contacts in Philadelphia, Cleveland, Kansas City, and Dallas expect consumers to react to ongoing fiscal uncertainty, thus dimming a positive outlook for future sales. Chicago auto dealers were more upbeat, expecting stronger new car sales due to pent-up consumer demand, easing credit conditions, and rising used vehicle prices.
Tourism held steady or grew in all but one of eight reporting Districts. Coastal activity had fallen in the immediate aftermath of Hurricane Sandy throughout most of the New York and Philadelphia Districts but has rebounded in all but the hardest hit areas. Boston, Atlanta, and San Francisco reported strong tourism in their Districts, with Boston and Atlanta citing business and international travel as strong contributors. Winter tourism activity in the Minneapolis District was strong in areas with snow, while Richmond reported normal winter activity in its District.
Overall, nonfinancial services have grown modestly since the previous Beige Book. Businesses in the New York and Philadelphia Districts recovered from the disruption of Hurricane Sandy. The Boston, Minneapolis, and San Francisco Districts reported positive growth among various service sectors, while the Richmond District reported stable to stronger demand for service firms. Boston reported strong demand for some health-care IT services and drug impact research, while San Francisco noted relatively weak demand for health-care services. Staffing firms in the Dallas District reported steady to slightly softened demand. Respondents remained optimistic about growth over the near-term in the Boston, New York, Philadelphia, Minneapolis, and Dallas Districts.
Transportation services were generally positive among the six Districts that reported. Freight transport shipping volume improved in the Cleveland District due to rising demand from the retail sector and areas affected by Hurricane Sandy. Atlanta reported increases in trucking tonnage and total railroad carloads, but low river levels caused delays in Mississippi River traffic. Reports from transportation services in the Dallas District were mixed, and most firms expect weak growth in the near-term. Trucking firms in the Richmond District reported a flattening in revenues; however, the District’s port activity was boosted by ships diverted by Hurricane Sandy.
Reports of manufacturing activity were mixed overall, with six Districts growing since the last Beige Book, three Distracts contracting, and two Districts reporting little or no change. Firms in the Boston and Chicago Districts reported continued expansion of activity at modest and moderate rates of growth, respectively. Overall activity once again appeared to expand in the San Francisco District, although it was mixed across sectors. Gains in the aerospace and chemical sectors contributed to growth in the Boston and San Francisco Districts, as well as in the Dallas District. Manufacturing in the Chicago District grew with contributions from the auto and housing-related sectors. Manufacturing continued to expand, but at a more modest pace, in the Richmond District. Several firms cited falling export demand, especially from Europe.
In contrast to slight declines in the past Beige Book, firms in the Philadelphia and Minneapolis Districts reported slightly increased manufacturing activity. As in other Districts, product flowing into supply channels for auto production and housing construction contributed to Philadelphia’s gains. Prior trends continued as firms in the New York District experienced little or no growth, except for the revenues of firms in the New York City area that recovered after Hurricane Sandy disruptions. Reports continued to be mixed among sectors in the Dallas District.
Manufacturing activity within the Cleveland and Atlanta Districts, and reported plans in the St. Louis District, declined somewhat - a trend reversal from the prior Beige Book. Contributing to the declines were steel and auto producers in Cleveland and makers of HVAC equipment, electric components, food, and automobile parts in St. Louis. Despite production gains in electrical equipment, appliances, and components, more pronounced contractions within the broad nondurable goods sector led to a continuation of declining activity in the Kansas City District.
Manufacturing firms’ expectations of future activity were generally optimistic in the New York, Philadelphia, Atlanta, Minneapolis, and Kansas City Districts; the level of optimism has significantly increased in the Philadelphia and Atlanta Districts since the previous Beige Book. Contacts in the Chicago District expect vehicle production to expand in 2013, while reports of activity from manufacturers in the St. Louis District have been negative on net. Boston District firms reported that capital spending was slow, except for select growth sectors. Capital spending was on track in the Cleveland District and was slowly increasing in the Chicago District. Looking ahead, Philadelphia District firms have significantly increased their capital spending plans, while the outlook in the Minneapolis District was reported as flat. In the Cleveland District, more contacts plan to reduce outlays than expand capacity.
Real Estate and Construction
Existing residential real estate activity expanded in all Districts that reported; growth rates were described as moderate or strong in nine Districts. Contacts in the Boston District attributed their strong sales growth to low interest rates, affordable prices, and rising rents. All Districts reporting on price levels saw increases; New York and Chicago reported only very minor increases. The five Districts that reported on housing inventories all reported falling levels. New residential construction (including repairs) expanded in all but one District of those Districts that reported. Contacts in the Kansas City District reported that increased lumber and drywall costs limited construction, causing a slight decline this period. Hurricane Sandy disrupted construction activity initially in New York, but this has since led to increased work for subcontractors on repairs and reconstruction.
Though a little weaker than residential real estate, reports on sales and leasing of nonresidential real estate are still mostly positive - described as modest on average. The Boston District reported a drop in leasing beyond normal seasonal trends; contacts cited fiscal cliff uncertainty as a factor. Minneapolis and Kansas City reported increased demand and tightening commercial real estate markets. Philadelphia, St. Louis, and Dallas all reported more modest increases in nonresidential real estate activity. Nonresidential construction is weaker than residential, with only slight to modest growth. The Boston District reported that demand for commercial real estate loans appears to be softening and that the pipeline for new construction projects has diminished significantly since the last report. Dallas reported that construction was expected to pick up in the commercial real estate sector in 2013.
Banking and Finance
Overall, loan demand was largely unchanged in the Philadelphia, Cleveland, Richmond, Kansas City, and San Francisco Districts, with most of these Districts reporting a continuation of slight to moderate growth in total volume. The New York, Atlanta, Chicago, and Dallas Districts reported stronger demand than previously, while the St. Louis District reported a slight decline. Some increased lending in Philadelphia, Chicago, and Dallas was driven by businesses taking out loans for special year-end purposes such as tax planning and dividend payments. Cleveland, Atlanta, Chicago, Dallas, and San Francisco all reported strong auto lending. Demand for residential mortgages improved in Cleveland, Atlanta, Chicago, Kansas City, Dallas, and San Francisco. Commercial real estate lending was cited as a particular bright spot by New York, Cleveland, Kansas City, and Dallas. However, lenders in San Francisco remained reluctant to lend to real estate investors outside of the multifamily residential sector. San Francisco also reported a slight slowdown in IPO, venture capital, and private equity activity in that District’s technology sector.
Banks in the New York, Philadelphia, Cleveland, Chicago, Kansas City, and San Francisco Districts reported improvements in asset quality. Lenders were described as competing aggressively for highly qualified borrowers in Philadelphia, Richmond, Atlanta, and San Francisco. In Atlanta, this stiff competition may be leading to loosening credit standards, as there was some indication that banks were more willing to increase their tolerance for risk. Chicago banks also reported some loosening of standards. On the other hand, lending standards remained largely unchanged in New York, Cleveland, and Kansas City.
Agriculture and Natural Resources
Reports of agricultural activity were mixed, although rain and mild temperatures delivered some relief from drought conditions to parts of the Richmond, Atlanta, and Chicago Districts. Low water levels along the Mississippi River also hampered transport for some contacts in the Chicago and Kansas City Districts. Despite the drought, some contacts in these Districts reported that farm income remained high with adequate crop insurance and historically high prices. Producers in the Kansas City and Dallas Districts expect ongoing dry conditions to hurt the winter wheat crop.
Activity in the energy sector had mixed reports. Production of oil and natural gas held steady at high - sometimes record - levels in the Cleveland, Richmond, Minneapolis, and Dallas Districts. San Francisco reported that activity expanded to historic levels. Contacts in the Cleveland District reported that shale gas activity grew at a robust pace. In contrast, coal production has declined in the Cleveland, Richmond, Chicago, St. Louis, and Kansas City Districts since the previous Beige Book. Firms in the Atlanta District continue to plan investments, ranging from reserve development to increased refining and petrochemical operations to new pipeline infrastructure.
Employment, Wages, and Prices
Labor market conditions remained mostly unchanged in all Districts. The Boston, Richmond, Atlanta, Chicago, Kansas City, and San Francisco Districts all reported delayed hiring, often in defense manufacturing, due to fiscal cliff uncertainties. Companies in the Chicago District with trade or investment exposures to Europe reduced their hiring plans as well. Chicago reported that manufacturers are choosing to cut hours instead of reducing head count in expectation of production rebounds in 2013. Atlanta and Kansas City cited health-care policy changes and costs as another cause for minimal hiring. On the other hand, the New York, Atlanta, Minneapolis, and Dallas Districts saw the labor market firming modestly. Finally, contacts in several Districts reported difficulties finding qualified workers in some specialized fields, such as skilled manufacturing, energy, and IT.
For those Districts that reported, wage pressures have been stable since the previous Beige Book and were most frequently described as contained or subdued. The San Francisco District reported modest wage pressures that were held down by an abundance of workers. The Richmond, Chicago, and Minneapolis Districts characterized wage growth as moderate. Specifically, business contacts in the Minneapolis District expected to increase wages 2 to 3 percent in 2013, while oil drilling companies in North Dakota and Montana expected higher increases. Several Districts reported wage pressures in sectors experiencing labor shortages, such as energy and IT. The New York and Chicago Districts reported higher year-end bonuses ahead of anticipated tax increases in 2013.
Overall, input price pressures appear to be stable. The Boston, Philadelphia, Cleveland, Richmond, Minneapolis, Dallas, and San Francisco Districts reported steady input prices, while Chicago reported decreasing raw materials prices. The New York, Atlanta, and Kansas City Districts characterized input prices as slightly increasing; price pressures in these Districts were passed through to consumers somewhat in the form of higher finished goods prices. However, Chicago noted that businesses were unable to fully pass on meat and milk price increases to consumers. The Philadelphia, Cleveland, Chicago, Kansas City, and San Francisco Districts all cited rising prices for construction-related materials. Specifically, a Philadelphia builder noted that over the past 90 days these rising prices added about 3 percent to the cost of a new home.
Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before January 4, 2013. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
SOURCE: Federal Reserve Board
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