U.S. Federal Reserve Nov. Beige Book Summary (Text)
The following is the summary text of the Federal Reserve Board’s Summary of Commentary.
Overall economic activity increased at a slow to moderate pace since the previous report across all Federal Reserve Districts except St. Louis, which reported a decline in economic activity. District reports indicated that consumer spending rose modestly during the reporting period. Motor vehicle sales increased in a number of Districts, and tourism showed signs of strength. Business service activity was flat to higher since the previous report. Manufacturing activity expanded at a steady pace across most of the country. Overall bank lending increased slightly since the previous report, and home refinancing grew at a more rapid pace. Changes in credit standards and credit quality varied across Districts. Residential real estate activity generally remained sluggish, and commercial real estate activity remained lackluster across most of the nation. Single family home construction was weak and commercial construction was slow. Districts mostly reported favorable agricultural conditions. Activity in the energy and mining sectors increased since the previous report.
Hiring was generally subdued, although some firms with open positions reported difficulty finding qualified applicants. Wages and salaries remained stable across Districts. Overall price increases remained subdued, and some cost pressures were reported to have eased.
Consumer Spending and Tourism
District reports indicated that consumer spending increased modestly, on balance, during the reporting period. Kansas City reported that consumer spending strengthened, while retail sales rebounded in Richmond. Gains in retail sales were noted in Philadelphia, Cleveland, Minneapolis, and San Francisco. Boston reported that retailers’ estimates of 2011 sales were generally more positive than they were at the beginning of October, while same-store sales in New York were mostly on or ahead of plan. Meanwhile, in Dallas, retail sales growth moderated, and Atlanta and St. Louis reported weaker activity. A few Districts noted that recent colder weather had spurred apparel sales. Inventory levels were generally at desired or comfortable levels in New York and Dallas. Retailers in Atlanta continued with tight inventory management practices, and retailers in Richmond were cautious regarding inventory and expansion. In Kansas City, inventories were above year-earlier levels. Holiday sales were generally expected to be flat or to increase modestly over a year ago in Cleveland, Atlanta, St. Louis, Minneapolis, Dallas, and San Francisco. In Philadelphia, high-end, online, and outlet retailers were the most optimistic for holiday sales, while retailers in Chicago expected to use extended promotional periods and heavy discounting to keep traffic volumes steady.
Motor vehicle sales increased in a number of Districts. Gains in auto sales were noted in Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and Minneapolis. Chicago also reported gains in sales during October, but noted the pace of sales slowed in November and that dealers suspected consumers may be waiting for potential end-of-year deals. Upstate New York dealers reported that sales were steady to stronger and that dealers’ service and parts departments continued to perform well. Auto sales were solid in Kansas City, while demand held steady in Dallas. Inventory levels were generally lean or lower than dealers would like in Philadelphia, Cleveland, and St. Louis. In Dallas, vehicle inventories had mostly normalized, while inventory levels increased in Kansas City. Both Philadelphia and Dallas noted supply disruptions for some foreign nameplates due to the flooding in Thailand.
Tourism showed signs of strength. New York and Atlanta described tourism as robust and strong, while activity increased in Minneapolis and posted moderate improvement in Richmond. Boston noted that the travel and tourism sector continued to see strength in overseas and business travel, while discretionary domestic leisure spending was fueled by the affluent customer. In Richmond, tourism was largely flat, but some contacts were cautiously optimistic about the winter season. Airline contacts in Dallas expected to see stable demand through year-end. Strength in hotel bookings and occupancy were noted in Boston, New York, Richmond, Atlanta, Minneapolis, and San Francisco.
Business service activity was flat to higher since the previous report. Boston, New York, Philadelphia, Minneapolis, and Kansas City reported increased activity. St. Louis was mixed, while Richmond, Chicago, and San Francisco indicated overall flat activity. Dallas reported that demand for staffing services held steady at high levels. St. Louis reported that firms in business support services, medical research services, and transportation services announced plans to expand operations and hire new workers, while contacts in temporary help services, government services, and education services announced plans to decrease operations. San Francisco noted that sales continued to grow for providers of technology services, in particular for software applications used for mobile computing and communication devices.
Manufacturing activity grew at a steady pace across most of the country, with all Districts other than St. Louis reporting increases in orders, shipments, or production. Chicago, St. Louis, and San Francisco reported positive results in metals and fabrication, while Cleveland saw flat steel production and Philadelphia noted decreased demand for primary metals. Cleveland and Chicago reported increased auto production year over year, but Boston noted signs of slower auto component production. Dallas saw steady demand for electronics, computers, and high-technology goods, but San Francisco reported that demand for consumer electronics continued to decrease. Philadelphia, Cleveland, and Chicago saw increased production of energy-related products. For construction-related goods, Chicago and Minneapolis reported declining demand, while Dallas said demand was stable. Overall, St. Louis saw more plant closures than plant openings or expansions. Freight transportation volumes increased in Cleveland, held steady in Atlanta and Kansas City, and were mixed in Dallas.
Banking and Finance
Overall bank lending activity increased slightly since the previous report. New York, Philadelphia, Cleveland, and Kansas City reported increased loan demand. Several Districts reported an increase in home refinancing activity. Richmond reported mixed loan activity. Boston noted plentiful financing and favorable terms for premier properties, while financing remains harder to obtain for riskier properties and for those in secondary and tertiary markets. Chicago, St. Louis, Dallas, and San Francisco noted relatively unchanged loans. Atlanta saw soft loan demand as companies continued to reduce their debt loads and limit expansion and capital improvement plans.
Changes in credit standards and credit quality varied across Districts. Philadelphia noted that credit quality continued to improve but at a slower rate. Kansas City saw stable or improving loan quality. Dallas noted that the quality of loans outstanding continued to improve, with contacts reporting a decline in problem loans. San Francisco saw a slight improvement in overall credit quality. Cleveland, Chicago, and St. Louis noted relatively unchanged credit quality. Boston, Richmond, and Atlanta saw some tightening of standards. In New York, bankers reported declining delinquency rates for commercial and industrial loans, but no change in delinquencies for other loan categories.
Real Estate and Construction
Overall residential real estate activity increased, but conditions were varied across Districts. Philadelphia, Richmond, Minneapolis, Kansas City, and Dallas noted increased activity. New York, Boston, Cleveland, and San Francisco reported flat activity at relatively low levels. Atlanta and St. Louis indicated decreased sales. Residential construction remained sluggish. Single-family home construction remained weak, while multifamily construction picked up in New York, Philadelphia, Cleveland, Chicago, and Minneapolis. San Francisco remained “anemic,” while St. Louis and Kansas City reported decreased activity.
Commercial real estate markets remained sluggish across most of the nation. Boston, New York, Chicago, Minneapolis, and San Francisco indicated roughly unchanged activity. Atlanta and Kansas City noted slight improvement. Philadelphia and Dallas indicated mixed activity. However, Richmond and St. Louis noted that vacancy rates increased. Commercial construction was somewhat mixed. Cleveland saw steady to slowly improving commercial construction; Chicago and Minneapolis experienced modest to moderate increases. New York and Philadelphia noted generally weak conditions; Richmond and St. Louis reported slow activity, although industrial construction picked up.
Agriculture and Natural Resources
Districts mostly reported favorable agricultural conditions. Harvests were ahead of pace or completed in Richmond, Atlanta, Chicago, Minneapolis, and Kansas City. The corn harvest was even with last year in Chicago and Minneapolis, while soybean production decreased. Wheat production was down dramatically in parts of the Minneapolis District. Corn and soybean yields were above average in the northern portions of the Kansas City District, but drought conditions severely cut crop production in the District’s southern regions, and the winter wheat crops were in poor to fair condition. The severe drought in the Dallas District continued but eased slightly. Prices for most agricultural commodities except soybeans remained above year- earlier levels, and farm income increases were reported by Chicago, Minneapolis, and Kansas City. Export demand remains strong for agricultural products, particularly meat, but Dallas reported a recent decrease in demand for grain exports.
Activity in the energy and mining sectors increased since the previous report. Cleveland, Minneapolis, Kansas City, Dallas, and San Francisco saw increases in oil exploration. Cleveland and Dallas also reported growth in shale gas extraction. Coal production was flat in Cleveland and decreased slightly in St. Louis, though it is still up for the year. Minneapolis reported that more wind energy projects were planned. Mining activity increased in San Francisco and remained at elevated levels in Minneapolis.
Employment, Wages, and Prices
Hiring was generally subdued, but some firms with open positions reported difficulty finding qualified applicants. Stable employment levels or subdued hiring were mentioned by New York, Philadelphia, Cleveland, Atlanta, Chicago, and Dallas. Assessments of labor market conditions were mixed in Richmond and St. Louis, while labor markets showed some signs of reduced availability of labor in Minneapolis. In Boston, demand for workers at services firms grew, but hiring among manufacturers was limited. In Kansas City, hiring plans among manufacturers remained solid, while expectations of future hiring among manufacturers in Philadelphia nearly doubled. Meanwhile, Boston, Philadelphia, Cleveland, Richmond, Atlanta, and Minneapolis noted that some firms looking to fill open positions were having difficulty finding qualified workers, particularly for high- skilled manufacturing and technical positions. Atlanta noted there was growing concern that the skills of the unemployed were deteriorating.
Wages and salaries remained stable across Districts, although some exceptions were noted. In Cleveland, wage pressures emerged for truck drivers as the pool of available drivers shrank relative to job openings. Manufacturing wage growth strengthened in Richmond, while hiring stabilized and the average workweek was unchanged. Some wage growth was noted among the highly skilled trades in Atlanta. In Minneapolis, wages increased sharply at some fast food restaurants in western North Dakota. Kansas City reported that some energy and information technology firms raised wages for skilled workers; Dallas reported the same for airlines and a few construction-related manufacturers. San Francisco noted persistent upward pressure on benefit costs, especially for employee health care.
Overall price increases remained subdued, and some cost pressures were reported to have eased. Boston, Atlanta, Chicago, and Kansas City noted a moderation in input cost pressures. In Cleveland, manufacturers’ reports on changes in raw materials prices were mixed; the transportation sector noted higher prices for tires, parts, and equipment; and fuel prices exhibited some volatility. Richmond reported that raw materials, retail, and services prices grew at a somewhat faster pace. Restaurants in Kansas City expected higher menu prices due to rising food costs. In Dallas, prices for new cars rose slightly, and staffing and legal services firms noted modest increases in billing rates, but natural gas prices remained low. San Francisco reported a recent uptick in the prices for energy inputs, particularly oil, and for assorted food items at the retail level. Atlanta noted that most businesses had limited ability to pass on increases in input prices from earlier in the year.
Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before November 18, 2011. This document summarizes comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.