U.S. Federal Reserve Sept. 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 suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of early July through late August. Eight Districts characterized growth as moderate; of the remaining four, Boston, Atlanta, and San Francisco reported modest growth, and Chicago indicated activity had improved. Consumer spending rose in most Districts, reflecting, in part, strong demand for automobiles and housing-related goods. Activity in the travel and tourism sector expanded in most areas. Demand for nonfinancial services, including professional and transportation services, increased slightly on net. Manufacturing activity expanded modestly. Residential real estate activity increased moderately in most Districts, and demand for nonresidential real estate gained overall. Lending activity was mixed. Lending standards were largely unchanged, while credit quality improved. Demand for agricultural products was strong during the reporting period, but growing conditions and production in some areas were somewhat weak as a consequence of extreme weather. Demand for natural resource products was stable or up slightly, and extraction increased in anticipation of further demand growth.

For most occupations and industries, hiring held steady or increased modestly relative to the prior reporting period. Upward price pressures remained subdued, and prices increased slightly during the reporting period. Wage pressures continued to be modest overall.

Consumer Spending and Tourism

Reports indicated that consumer spending rose in most Districts. A few Districts mentioned that back-to-school sales contributed to overall consumer spending growth. Districts reported retail sales generally grew moderately in Boston, Kansas City, and Dallas; sales were mixed in New York; and sales grew more modestly in Philadelphia, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. Cleveland noted that sales came in below many retailers’ expectations, and Richmond indicated that sales revenues weakened. Boston noted that consumer confidence improved, while New York reported that it retreated a bit. According to reports from Boston, some retailers experienced robust demand gains, with “year-over-year comparable store sales increases between 4 and 5 percent.” Many Districts noted strong demand for home furnishing and home improvement items. However, reports from several Districts indicated that consumers remained cautious in their purchases and highly price-sensitive.

For example, Philadelphia observed that consumers engaged in “price-shopping,” as “sales of children’s apparel were stronger at outlets than at traditional malls.”

* Prepared at the Federal Reserve Bank of San Francisco and based on information collected on or before August 26, 2013. 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.

Attractive financing conditions and pent-up demand supported a robust pace of automobile sales in most Districts. New York noted that sales of high-end brands were especially robust. Richmond reported that one dealership had its best sales month ever, and sales at another dealership doubled relative to twelve months earlier. Used vehicle sales were strong in Chicago, Kansas City, and San Francisco but a bit soft in New York. New car inventories rose or remained high in Cleveland and San Francisco, but dealers were generally satisfied with their inventory positions; by contrast, Minneapolis reported sales were constrained at some dealerships due to a lack of inventory. Reports from dealerships across the nation were optimistic about demand growth for new and used automobiles for the remainder of the year.

Many Districts pointed to solid gains or high levels of travel and tourist activity, with pickups evident in both the business and leisure segments. Travel and tourism activity expanded overall in the Boston, Philadelphia, Richmond, Atlanta, Minneapolis, and San Francisco Districts. Relative to the same period a year earlier, Richmond and Minneapolis reported that the number of camping permits and visitors at state and national parks in their Districts increased substantially. New York reported that business at Broadway theaters picked up since the previous reporting period, but Boston highlighted low attendance at some museums. New York and Kansas City both reported that some hotels experienced slightly lower occupancy rates, which may be a result of cutbacks in government travel. A few Districts indicated that business travel activity had also expanded.

Nonfinancial Services

Demand for nonfinancial services improved modestly overall since the previous Beige Book. Adjusting for seasonal fluctuations, providers of various professional and business services such as accounting, consulting, information, transportation, and legal services generally expanded their activities according to reports from Philadelphia, Richmond, St. Louis, Minneapolis, and Dallas. Providers of staffing services in the Boston and New York Districts reported improved business conditions. Several Districts noted increased demand at restaurants, although San Francisco was an exception, with reports from parts of the District indicating that demand had eased. Health-care organizations in the Richmond, St. Louis, and San Francisco Districts reported soft demand for various health-care services. Boston noted that sales of technology services to businesses and consumers were a bit weaker than expected, and reports from St. Louis indicated that some information technology firms may downsize their workforces. Cleveland indicated that ground cargo volumes were strong; Dallas reported an increase in railroad volumes but a decline in small parcel volumes; and Atlanta observed a decrease in overall trucking volumes. Both Cleveland and Atlanta noted a short supply of truck drivers as a consequence of new hours-of-service regulations. Air freight tonnage ran slightly above year-ago levels for the Atlanta District but was unchanged over the past six weeks for Dallas.


Manufacturing activity expanded modestly during the reporting period. Kansas City noted a slight contraction in the previous reporting period but indicated that manufacturing activity had expanded moderately in recent weeks. Cleveland and Minneapolis also reported a moderate expansion, although Minneapolis specified that the pace of growth was uneven across District states. Atlanta noted a decrease in the pace of growth as indicated by modest decreases in new orders and production. Several Districts, including Philadelphia, Richmond, Atlanta, Chicago, Kansas City, and San Francisco, expressed that demand for inputs related to autos, housing, and infrastructure were strong. Chicago highlighted the auto industry as a main source of strength for that District’s overall manufacturing sector, and contacts there expect demand for heavy and medium trucks to ratchet up further and to support growth in overall manufacturing for the remainder of the year. By contrast, Cleveland was the only District to report that auto production activity declined, although reports specified that it was a normal seasonal pattern and sales were up relative to twelve months earlier. In the Richmond District, a lumber company purchased new equipment to expand its production; and in Chicago, demand for construction equipment and materials continued to strengthen. Philadelphia reported some increased demand related to ongoing repairs of infrastructure damaged during Superstorm Sandy last year. Reports from San Francisco indicated that shipments of steel products used in nonresidential construction continued to increase, and reports from Chicago indicated that steel output grew at a moderate pace. Boston and San Francisco noted increased demand for semiconductors. High-tech manufacturing firms in the Dallas District noted that demand was stable, and, while Kansas City District firms reported that sales dipped, contacts there expect sales to bounce back in the next three months. In general, contacts in most Districts expressed optimism about a near-term pickup in overall manufacturing activity. Production in the defense industry was mixed across Districts. Contacts in the Boston District reported minimal direct effects of the federal sequestration, although they were concerned about the prospect of larger effects in the fourth quarter. On the other hand, defense firms in the Kansas City and San Francisco Districts reported that the effects of the sequestration have already been passed through to actual reductions in production.

Real Estate and Construction

Activity in residential real estate markets increased moderately. The pace of sales of existing single-family homes continued to increase moderately in most Districts. Sales activity in New York City’s co-op and condominium market was described as unusually strong in July and August, and the Cleveland District reported that year-to-date sales of existing single-family homes were up substantially relative to the same period last year. Reports from several Districts suggested that rising home prices and mortgage interest rates may have spurred a pickup in recent market activity, as many “fence sitters” were prompted to commit to purchases. Sales of new single-family homes stabilized during the past few months in the Cleveland District after accelerating earlier in the year. New home sales declined slightly in parts of the Philadelphia and Richmond Districts in July. Philadelphia conveyed that some borrowers apparently preferred to lock in a mortgage rate for an existing home rather than wait for a new home to be completed and chance higher mortgage rates. Home prices climbed in most Districts. Richmond and Boston reported that houses in some areas were staying on the market fewer days and increasingly receiving multiple offers. New York noted that bidding wars were common in the Buffalo area. Many Districts reported that limited inventories of desirable properties contributed to upward price pressures. Single-family home construction was strong in the Minneapolis and Dallas Districts, and Chicago reported that a number of builders are planning new developments to begin later this year. However, several Districts noted constraints on the construction of single-family homes. San Francisco pointed to shortages of construction workers. In the Kansas City District, some building materials, such as drywall and roofing shingles, were in short supply.

Demand for nonresidential real estate increased. Office vacancy rates and other indicators in markets for office space improved modestly in the major metropolitan markets in the New York, Richmond, and St. Louis and Districts. Rents for Class B office space in Manhattan have risen more than 10 percent over the past twelve months. Demand for commercial real estate showed strong growth in the Dallas District and moderate growth in the Minneapolis District. Both Districts reported new plans for construction of industrial space. Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and San Francisco reported modest growth in demand for commercial real estate. Philadelphia highlighted a shift in recent leasing activity toward larger commercial spaces. The Boston, Philadelphia, Cleveland, Atlanta, Dallas, and San Francisco Districts all reported increases in construction of multifamily residential properties.

Banking and Finance

Lending activity weakened a bit, and several Districts reported less-favorable conditions than in the preceding reporting period. Most Districts indicated no better than modest growth. Loan growth in the Atlanta, Chicago, St. Louis, and San Francisco Districts was slower than in the previous reporting period. Kansas City reported a decline in lending, reversing slight growth earlier in the summer. Several Districts characterized business lending as largely flat. Chicago reported that recent interest rate increases likely were depressing commercial investment. However, Kansas City noted that expectations for better economic conditions and stronger profit growth had offset any effects of rate increases on business loan demand. Demand for mortgage refinance loans declined in the New York, Philadelphia, Cleveland, and Richmond Districts. By contrast, purchase mortgage lending continued to grow moderately in most Districts, although San Francisco noted that applications have dropped a bit in some areas of that District. In the Atlanta District, increases in home values generated a surge in second mortgages, and Philadelphia and Cleveland reported modest increases in demand for home equity lines of credit.

Lending standards were largely unchanged, while credit quality improved. Reports indicated little change in standards across all lending categories. However, a few Districts commented that stiff competition for high-quality commercial borrowers was eroding loan volumes at banks that maintained prudent interest rates and terms. New York reported widespread declines in delinquency rates, especially for consumer loans and home mortgages, while Philadelphia, Cleveland, Richmond, and Kansas City all reported general improvement in loan quality.

Agriculture and Natural Resources

Demand for agricultural products expanded during the reporting period, although production activity was limited by extreme weather in some areas. Droughts or dry weather in the Chicago, Kansas City, and Dallas Districts constrained farming activity, but some growing areas within the Chicago and Dallas Districts were relieved by much-needed rainfall. By contrast, extremely wet conditions led to delayed planting and reduced yields for some crops in the Richmond and Atlanta Districts. Kansas City noted that wheat production was below average and corn crops were threatened by disease, and Atlanta and Dallas indicated that the cotton crop was smaller than anticipated. Chicago noted that, despite the dry weather, corn and soybean crops were in better condition than they were during the drought last year. Meanwhile, the St. Louis District anticipates robust production activity, with corn crop yields expected to increase substantially over last year. San Francisco noted that demand was generally strong for most crop and livestock products, and Atlanta found that poultry farming and fruit production were robust.

For producers of natural resource products, demand was mostly steady, while production and extraction activity rose. San Francisco reported a modest decline in demand for some oil products, and Dallas reported stable drilling activity at a high level. Contacts in San Francisco and Dallas expect near-to medium-term oil-related sales and production activity to pick up; contacts in Dallas and Atlanta expect drilling activity in the Gulf of Mexico to increase as demand continued to grow. Richmond and Kansas City reported that the number of natural gas rigs increased, but coal production in the Cleveland, Richmond, St. Louis, and Kansas City Districts was below year-ago levels. Minneapolis reported upgrades to a nuclear power plant and development of oil sands production facilities, and Cleveland noted that unconventional drilling activity increased. Mining activity was flat in the Minneapolis and Richmond Districts.

Employment, Wages, and Prices

For most industries and occupations, hiring held steady or increased somewhat in most Districts. Hiring in manufacturing rose modestly. St. Louis reported increases in employment at a variety of manufacturing firms connected to the auto industry or the home construction industry. Boston, Richmond, and Minneapolis reported shortages of some types of skilled manufacturing workers. Hiring increased for selected services occupations. Increases in demand for information technology workers were widespread. Hiring increased for workers in accounting and health services occupations in several Districts. Retail employment gains were limited. Atlanta reported slight employment increases in Georgia and Florida, and Dallas reported gains in oil and gas producing areas. Cleveland noted that retail employment increases were limited to new stores. Boston and Richmond reported that temporary workers are increasingly being offered permanent employment. A health-care staffing firm in the Boston District reported a 30 percent increase in permanent placements this year. Similarly, a staffing firm in the Dallas District reported “near-record” levels of direct hiring by health-care and engineering clients.

Wage pressures remained modest overall. The Boston, Philadelphia, Cleveland, Atlanta, Dallas, and San Francisco Districts reported that wage pressures were largely subdued. Cleveland and Dallas highlighted that, overall, wage pressures at homebuilding and other construction-related firms were contained. New York reported that some firms have become increasingly willing to negotiate salaries, although pay rates have not escalated significantly. Reports from a few Districts highlighted significant labor supply constraints and, in some cases, large compensation increases for workers with specialized skills in selected sectors, including the construction and high-technology sectors in Atlanta and Kansas City and the engineering sector in Dallas. Kansas City also reported that some firms in the retail, leisure, and hospitality industries were beginning to raise wages to attract salespeople, housekeepers, maintenance staff, and clerical staff. Increases in the costs of employee health benefits continued to put upward pressure on overall compensation costs, although Minneapolis indicated that growth in the price of healthcare has slowed.

Upward price pressures were subdued, and price increases were limited during the reporting period. Reports from many Districts indicated modest growth, no change, or slight decreases in overall commodity and input prices. In a few Districts, prices of some construction inputs in short supply increased, including lumber, drywall, concrete, and roofing shingles. However, Cleveland noted that the rate of increase for construction input prices slowed, and lumber prices in the Chicago District declined. Dallas reported that law firms had reduced their billing rates slightly. Atlanta and Chicago reported that firms have limited pricing power in general. Similarly, food costs continued to increase in the Kansas City District, but most restaurant owners did not increase menu prices. However, Richmond reported that several construction-related businesses said that they were able to pass along rising input prices.

SOURCE: Federal Reserve Board

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