U.S. Federal Reserve Beige Book: Philadelphia District (Text)undefined
The following is the text of the Federal Reserve Board’s Third District-- Philadelphia.
Aggregate business activity in the Third District has maintained the modest pace of growth that was evident during the previous Beige Book period. In particular, general services, staffing, tourism, and commercial real estate leasing continued to expand at modest rates. General retail activity and residential construction appear to have decelerated somewhat, to a modest rate of growth. Sales of new and used autos maintained a moderate rate of growth as did residential real estate sales. Transportation services accelerated to a moderate pace of growth this period. The manufacturing sector reported slight increases in overall demand - a pickup since last period. Loan growth at Third District banks softened - growing little, while credit quality continued to improve. Resorts in the Pocono Mountains maintained good activity, as they shifted from their winter to spring season. Casino revenues continued to decline. General price levels, as well as wages and home prices, were reported to have increased slightly overall - similar to the last Beige Book period.
The overall outlook for modest growth remains the same as those views expressed in the last Beige Book. While some uncertainty remains as sequestration unfolds, contacts express greater confidence in the underlying strength of the economy. However, many contacts continue to hold off on their plans to expand capacity and hire more staff.
Manufacturing. Since the last Beige Book, Third District manufacturers have reported that orders and shipments have risen slightly. The makers of food products, lumber and wood products, fabricated metals, industrial machinery, electronic equipment, and instruments have reported gains since the last Beige Book. The makers of primary metals reported lower activity. Contacts have attributed the greatest gains to ongoing auto-related demand and growing demand from housing-related sectors; the greatest uncertainty was attached to military-related sectors. Third District manufacturers remained optimistic that business conditions will improve over the next six months; their optimism is expressed broadly across nearly all sectors. A contact from a lumber and wood products firm reported the best growth prospects in five years due to a firming housing market; another wood products firm was hiring to expand capacity to meet growing demand. However, firms overall have somewhat lowered their expectations of future hiring and their plans for capital spending since the last Beige Book.
Retail. Third District retailers reported modest growth overall in February and March. After a falloff in sales (year over year) at many malls in February, contacts report that March sales were stronger and that an early Easter should boost the month’s final results. During March, stores had increased their promotions to move spring apparel to make way for the arrival III - 2 of the summer lineup; meanwhile, lingering cold weather had shoppers still searching for appropriate winter wear. In contrast, shoppers enjoyed warmer overall temperatures last year, including one 80-degree day during March to splurge on spring clothes.
Although February ended with softer sales, auto dealers have continued to report a moderate pace of overall sales growth since the last Beige Book. Growth in sales has been as strong as last year despite worse weather, which has created up-and-down weekly sales patterns. A late March snowstorm and an early calendar-year appearance for Passover and Easter may have dampened sales in the final week of March. Dealers sustained a positive outlook but maintained lean inventories. Contacts reported that nearly half of the dealers plan to add staff, especially for sales and service. Most of the remaining dealers expect no change in staff levels.
Finance. Overall, loan growth among Third District financial firms has softened somewhat since the previous Beige Book - growing little if at all. Contacts suggested the lull might be partially explained by the relative dearth of big deals in the wake of the fourth quarter frenzy, plus more immediate concerns for the pending sequestration impacts. Mortgage refinancings as a percent of total mortgages fell at many firms (often from as much as 90 percent to 75 percent). Total loans secured by any real estate fell slightly during the period. Most bank contacts report little change in credit standards and slow, steady gains in quality; many continue to report aggressive behavior from some of their bank and nonbank competitors. Financial institutions remain optimistic about future growth; however, the horizon for this growth appears farther away.
Real Estate and Construction. Homebuilders reported that contract activity was near plan for February and March. Modest year-over-year growth rates were slower than last period; however, more new homes were rising from the ground in the first quarter of 2013 than in any year since 2008. Compared with historical patterns, current new construction tends to be smaller, more affordable, more rental, and more urban. Builders are prepared to hire if current trends continue but are reporting that good labor is increasingly scarce. Residential brokers reported little change in the moderate pace of sales; however, year-over-year growth in February was modest compared with last year when weather was unseasonably warm. The existing inventory of homes continues to fall, and bank contacts reported that investor loans used to convert residential properties to rentals are increasing.
Nonresidential real estate contacts reported little change overall - maintaining modest growth in overall leasing activity and slight growth in construction. A drop-off in the recently high level of contract values being bid for construction of public utilities projects was partially offset by bids for residential construction (including a $200 million high-rise apartment and a university dorm project). Many contracts for repair work from Hurricane Sandy have yet to go to bid. Investors appear to have increased development activity in Delaware’s shore communities in expectation of attracting more tourists from New York and New Jersey. Overall, contacts are more optimistic, citing increased inquiries, more commitments to decisions, rather than deferrals, and more deals to approve.
Services. Third District service-sector firms have maintained a modest pace of growth overall since the last Beige Book. Resorts in the Poconos were still enjoying an extended ski season, as their golf season was getting underway. Moderate growth through their winter season was boosted by early spring holiday weekends. Expectations that the positive trend will continue were buoyed by strong bookings for Memorial Day. Strong, early bookings for summer were also reported by the operators of Delaware shore hotels, who report getting more inquiries from New Jersey and New York residents this year. However, casino revenues for February fell by double digits in Atlantic City and by nearly eight percent throughout Pennsylvania from the prior-year levels.
In other sectors, staffing firms reported small increases in billable hours over the past month and project the trend to continue for three to six weeks based on their flow of work orders. Activity at logistics and transport firms grew moderately. However, firms with defense-related work and other entities dependent on federal money (e.g., higher education) are now anticipating somewhat lower levels of employment and activity for the remainder of this year. Overall, service-sector firms remain generally optimistic about future growth.
Prices and Wages. Overall, price levels continued to increase slightly, similar to the previous Beige Book. Manufacturing firms reported only modest cost pressures and a slight decline in prices received - essentially unchanged from last period. Auto dealers reported no changes in pricing. Homebuilders continued to note higher prices, especially for lumber and labor costs. Higher-end homebuilders reported some ability to make price increases stick. Real estate contacts continued to report that low-end house prices are firm or rising slightly, while high-end home prices are still falling in most markets. Outside of homebuilders, contacts continued to report that wages rose only slightly, if at all. Contacts continued to relay a wide range of costs and strategies to provide medical insurance benefits for their employees; their decision processes remain fraught with confusion and uncertainty.
SOURCE: Federal Reserve Board