U.S. Federal Reserve Oct. Beige Book Summary (Text)

The following is the summary text of the Federal Reserve’s Summary of Commentary on Current Economic Conditions. For the full report text: www.federalreserve.gov/monetarypolicy/beigebook/default.htm

Reports from the twelve Federal Reserve Districts generally described modest to moderate economic growth at a pace similar to that noted in the previous Beige Book. Moderate growth was reported by the Cleveland, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco Districts, while modest growth was reported by the New York, Philadelphia, Richmond, Atlanta, and Kansas City Districts. In the Boston District, reports from business contacts painted a mixed picture of economic conditions. In addition, several Districts noted that contacts were generally optimistic about future activity. Most Districts reported overall growth in consumer spending that ranged from slight to moderate, at a pace that was often similar to that reported in the previous Beige Book. However, general merchandise retailers in New York noted that sales were weaker on balance since the previous report. Several District reports indicated that retailers were relatively optimistic about the remainder of the year. Meanwhile, tourism activity remained upbeat in several areas, with some reports of higher occupancy rates and solid advance bookings for travel and lodging. Several Districts reported that nonfinancial services grew at a moderate pace since the previous Beige Book. Districts reporting on transportation services generally noted growth in this sector, with a few pointing to capacity constraints in railroads, trucking, or both. Manufacturing activity increased in most Districts since the previous Beige Book; contacts in the Boston, Philadelphia, Atlanta, and Kansas City Districts reported positive near-term outlooks. Residential construction and real estate activity were mixed since the previous report. Commercial construction and real estate activity grew in most Districts. Banking conditions continued to improve relative to the previous Beige Book. Commercial loan volumes increased in nearly all reporting Districts. However, consumer loan demand was mixed, and some Districts pointed to low or reduced levels of demand for refinancing. Credit standards generally remained unchanged, and there were no reports of deterioration in credit quality.

Agricultural conditions were mixed since the previous Beige Book. Prices for some crops declined, driven in part by very strong realized or anticipated production. These lower prices for some agricultural commodities were seen as weighing on producers’ incomes, but as benefiting those using the commodities as inputs. In the energy sector, coal production was mixed and oil and natural gas production generally increased from already-high levels.

Employment continued to expand at about the same pace as that reported in the previous Beige Book. Most Districts reported that some employers had difficulty finding qualified workers for certain positions. A number of Districts characterized overall wage growth as modest, but reported upward wage pressures for particular industries and occupations, such as skilled labor in construction and manufacturing.

Consistent with the previous Beige Book, price pressures remained subdued, with Districts reporting little to no change in price levels or modest increases. Firms generally reported that input prices were unchanged or up slightly.

Consumer Spending and Tourism

Most Districts described growth in consumer spending as slight to moderate, and at a pace roughly similar to that reported in the previous Beige Book. In particular, the Boston, Richmond, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas Districts reported moderate growth; Philadelphia reported only slight growth in non-auto retail sales, and retailers in the Atlanta and San Francisco Districts also cited a slight improvement in sales. General merchandise sales in the New York District were weaker on balance since the previous report. Boston, New York, and Chicago reported that inventories were at desired levels. In Philadelphia, many retailers were avoiding the need for deeper discounting; however, New York and Cleveland reported that some contacts were running more promotions than usual. Boston, Philadelphia, Chicago, Kansas City, Dallas, and San Francisco indicated that retail contacts were relatively optimistic about the remainder of the year. In Chicago and Dallas, retailers were expecting that sales during the upcoming holiday shopping season would be up slightly from a year earlier.

Growth in auto sales varied across Districts, but was generally positive. In the New York District auto dealers reported that sales were steady to slightly stronger, while sales increased modestly in the Kansas City District. Auto dealers continued to report strong growth in the Philadelphia District. Lower gas prices spurred sales of larger vehicles in the Chicago District. Cleveland reported that new auto sales were down slightly in August from a year ago, but year-to-date sales were higher than the same period last year. Cleveland and Kansas City also reported solid sales of larger vehicles, such as light trucks and SUVs. In the Kansas City District, auto inventories fell; in Cleveland, inventory reports were mixed. Dallas reported that contacts were satisfied with their inventory levels. Philadelphia, Kansas City, and Dallas noted that dealers were optimistic about sales prospects for the rest of the year. Tourism activity was relatively solid in several areas, with upbeat reports from the Boston, New York, Richmond, Atlanta, and Minneapolis Districts. In the Kansas City District, tourism fell from the previous month but was up strongly from a year ago. Growth was modest in Philadelphia. Boston, New York, Philadelphia, Atlanta, and San Francisco reported higher hotel occupancy rates in at least some parts of their Districts. Boston noted that restaurant revenues increased relative to a year ago. Advance bookings for travel and lodging were strong in the Philadelphia, Richmond, and Minneapolis Districts. In the Atlanta District, hospitality contacts maintained a positive outlook for the remainder of 2014 and the beginning of 2015.

Nonfinancial Services

A number of Districts reported that activity in the nonfinancial services sector advanced since the previous Beige Book. The Boston District reported generally higher demand for consulting and advertising services. Philadelphia noted that over three-fourths of all service-sector contacts reported expectations that growth trends will remain positive over the next six months. Richmond reported that technology firms and engineering companies noted stronger revenue growth; Dallas indicated that demand for accounting services rose further from an already-high level; and Dallas and San Francisco noted that demand for legal services picked up in some areas. Staffing services increased in many Districts, including New York, Philadelphia, Cleveland, Richmond, Chicago, and Dallas. Philadelphia indicated that staffing requests increased for both temporary and permanent positions. A contact from a staffing firm in the Chicago District reported strong orders but noted that improving labor market conditions were leading to increased difficulties in finding qualified workers.

Districts reporting on transportation services generally noted growth since the previous report, with a few pointing to capacity constraints in railroads, trucking, or both.

Atlanta reported increased railroad shipments and strong trucking freight demand. Contacts at trucking firms and railroads in the Cleveland District noted that insufficient capacity is a major issue that is currently confronting the industry. In the Minneapolis District, capacity constraints in freight rail have increased demand for trucking services and led to increased stockpiles at some iron ore production facilities. A trucking firm in the Kansas City District cited supply chain disruptions and new regulations as having slowed freight traffic. Dallas noted that air cargo volumes continued their upward trend, and Richmond indicated that activity remains strong at District ports. St. Louis reported some expansion plans for freight firms.

Manufacturing

Manufacturing activity increased in most Districts since the previous Beige Book. However, New York noted that manufacturing growth had stalled, and Boston indicated that their contacts cited weaker results than in the past few reports. The outlook for manufacturing was positive in a number of Districts. Within manufacturing, growth was reported across a broad range of products. Cleveland, Chicago, and San Francisco noted increased steel demand. The Chicago and St. Louis Districts noted strength in the aerospace sector; however, San Francisco reported that aerospace and defense capacity utilization declined. Demand for construction materials or equipment increased in Philadelphia, Cleveland, Chicago, and St. Louis. Manufacturers reported continued demand from the energy sector in the Philadelphia and Cleveland Districts. Richmond and San Francisco noted strong demand for medical equipment. San Francisco reported that worldwide semiconductor sales were up markedly over the previous year. In contrast, a food producer in the Richmond District said that demand was flat; St. Louis and Minneapolis reported layoffs or plant closures by food producers; and Kansas City noted slower activity at some food processing plants. Chicago reported weaker demand for agricultural and mining equipment.

Real Estate and Construction

Reports on residential construction and real estate activity were mixed. New York noted that single-family construction was sluggish in some areas, but that multifamily construction increased. Philadelphia reported only slight growth in home construction. In August, single-family construction starts in the Cleveland District reached their highest level so far this year, though the number of starts year-to-date remained slightly lower than last year. Richmond noted that residential construction across the District increased slightly for custom homes. Atlanta reported that multifamily construction continued to increase across much of the District, while Chicago indicated that both single- and multi-family construction continued to expand. Residential real estate contacts in the Atlanta District indicated that existing home sales and prices remained ahead of last year’s levels and inventory levels were down from a year ago. Chicago noted that home sales were somewhat lower, and growth in home prices and residential rents slowed. San Francisco reported that sales of single-family homes were stable since the previous report.

Commercial construction and real estate activity grew in most Districts. Richmond, St. Louis, and San Francisco reported increased commercial construction, industrial construction, or both. Cleveland noted that a majority of commercial contractors saw increased construction activity relative to a year ago. Commercial contractors in the Atlanta District saw an increase in construction activity across many property types. In Minneapolis, however, commercial construction activity declined. Richmond reported that commercial real estate activity improved modestly over the past several weeks. The New York District noted that the New York City office market continued to strengthen. Atlanta noted that many commercial brokers saw growth in activity. Chicago noted that commercial real estate activity continued to expand. Kansas City indicated that commercial vacancy rates declined and absorption and sales increased. Boston noted that commercial real estate fundamentals are either holding steady or improving.

Banking and Finance

In most Districts, banking conditions continued to improve relative to the previous Beige Book, with net increases in loan volumes reported in a number of Districts. Since the previous Beige Book, New York reported that consumer loan demand had leveled off, Cleveland reported that consumer lending was stable, and Atlanta, St. Louis, and Kansas City noted that consumer loan demand increased. Chicago reported strong growth in auto lending. New York reported decreased demand for loan refinancing, Philadelphia noted negligible demand for refinancing, and Richmond reported that refinancing demand was mostly unchanged, but down in some areas. Demand for business credit expanded since the previous Beige Book. New York reported increased demand for commercial mortgages. Philadelphia noted increased loan volume for commercial and industrial loans. Cleveland, Atlanta, St. Louis, and San Francisco noted increased commercial loan demand. Chicago noted that business demand for equipment and commercial real estate financing rose. Financing for mergers and acquisitions as well as for capital expenditures rose in the Dallas District. Kansas City noted slight increases in commercial and agricultural lending.

There were no reports of deterioration in credit quality. New York reported that delinquency rates continued to decline, particularly for commercial loans and mortgages. Philadelphia banking contacts described steady improvement in credit quality, and San Francisco noted that asset quality has improved since the previous report. Most bankers in the Kansas City District reported that loan quality was unchanged compared with a year ago.

Credit standards generally remained unchanged since the previous Beige Book. Cleveland noted that no changes were made to loan-application standards during the past six weeks, but lenders slightly relaxed terms and conditions. Some contacts in the Philadelphia District said that heated competition for loans was resulting in a slight rise in credit risks.

Agriculture and Natural Resources

Prices for many crops continued to decline since the previous Beige Book, driven in part by very strong realized or anticipated crop yields. This higher production is expected to offset some of the effect of lower prices on farm incomes. Chicago, St. Louis, and Kansas City reported very good crop conditions at the beginning of the harvest; additionally, Chicago and Minneapolis expect large corn and soybean harvests. Drought conditions persisted in parts of the Atlanta, Dallas, and San Francisco Districts. Atlanta, Chicago, Minneapolis, and Dallas noted that livestock, poultry, and dairy producers had benefited from increased output prices and lower feed costs. Since the previous Beige Book, oil exploration activity increased in the Minneapolis, Kansas City, and Dallas Districts. Richmond and Minneapolis noted increases in natural gas production, and San Francisco reported increased natural gas and electricity sales to manufacturers. Compared with a year earlier, coal production was flat in Cleveland, mixed in Richmond, and increased in St. Louis. Recent decreases in oil prices were reported by Atlanta and Kansas City; natural gas price decreases were reported by Cleveland, Richmond, and Kansas City. Iron ore production in the Minneapolis District held steady since the previous report.

Employment, Wages, and Prices

The pace of employment growth was about the same as that reported in the previous Beige Book. Most Districts reported that some employers had difficulty finding qualified workers for certain positions. In particular, manufacturers in the Boston District said that they continue to look for machinists; Chicago noted that difficulties in finding skilled labor have often delayed construction projects; and in the Dallas District a shortage of workers in heavy construction and engineering was causing some delays in projects for the petrochemical industry. Contacts in Richmond, Minneapolis, and Kansas City noted difficulty in filling openings for truck drivers.

A number of Districts characterized wage growth as modest, though several also reported upward wage pressures for particular industries and occupations, such as skilled labor in construction and manufacturing. Cleveland, Richmond, and Kansas City noted upward wage pressures for transportation workers; Richmond also reported upward wage pressures for skilled engineers, managers, information technology professionals, and bankers. San Francisco noted that software developers were receiving above-average wage increases. New York reported that workers were more frequently leaving jobs for higher pay, while a contact in the St. Louis District noted increased turnover of skilled employees who were switching to higher-paying jobs.

Consistent with the previous Beige Book, overall price pressures remained subdued, with Districts reporting little to no change in price levels or modest increases. Firms generally reported that input prices were unchanged or up slightly. Districts noted that several commodity prices fell since the previous report, although cattle, hog, and dairy prices remained at elevated levels. New York reported that cost pressures have largely subsided among manufacturers, but remained fairly widespread among service firms. Firms in the Atlanta District indicated that their pricing power remained relatively weak. However, in Chicago, a number of manufacturers expected to be able to raise prices, especially in the auto industry. St. Louis reported that some retail dealers of construction materials increased prices. Minneapolis noted that metals prices decreased somewhat since the previous report. Restaurant menu prices in Kansas City rose more slowly than in previous surveys; San Francisco reported that restaurant prices increased slightly in July and August.

* Prepared at the Federal Reserve Bank of Minneapolis and based on information collected before October 6, 2014. 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.

SOURCE: Federal Reserve Board

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