U.S. Federal Reserve Jan. 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

Summary

Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand during the reporting period of mid-November through late December, with most Districts reporting a “modest” or “moderate” pace of growth. In contrast, the Kansas City District reported only slight growth in December. However, most of their contacts, along with those of several other Districts, expect somewhat faster growth over the coming months. The Dallas District indicated that growth slowed slightly during the reporting period and that several contacts expressed concern about the effect of lower oil prices on the District economy. Consumer spending increased in most Districts, with generally modest year-over-year gains in retail sales. Auto sales showed moderate to strong growth. Travel and tourism picked up during the reporting period. The pace of growth of demand for nonfinancial services varied widely across Districts and across sectors, but appeared to be moderate on balance. Manufacturing activity expanded in most Districts. Single-family residential real estate sales and construction were largely flat on balance across the Districts, while commercial real estate activity expanded. Demand for business and consumer credit grew. Credit quality improved a bit further overall. Agricultural conditions were mixed. Overall demand for energy-related products and services weakened somewhat, while the output of energy-related products increased.

Payrolls in a variety of sectors expanded moderately during the reporting period. Significant wage pressures were largely limited to workers with specialized technical skills. Prices increased slightly, on balance, in most Districts.

Consumer Spending and Tourism

Consumer spending increased in most Districts, with generally modest year-over-year gains in retail sales. Contacts reported slight to modest gains in the Boston, Dallas, Philadelphia, and Cleveland Districts. Sales were solid in Atlanta. Moderate holiday sales growth exceeded expectations in Chicago and met expectations in San Francisco. General merchandise retailers in the New York District indicated that sales were largely sluggish and below plan for the holiday season. The Kansas City District reported that retail sales were lower than a year earlier, with a few retailer contacts noting a drop in sales of high-end products. In contrast, Philadelphia and San Francisco reported that high-end merchandise continued to sell well.

Auto sales showed moderate to strong growth on a year-over-year basis, with Philadelphia, Cleveland, and Dallas at the lower end of this range, and Atlanta and Chicago at the higher end. Atlanta auto dealers noted that lower gas prices quickly boosted purchases of larger vehicles. However, some dealers in the St. Louis District reported excess inventories of luxury cars. Kansas City reported that auto sales decreased during the reporting period but remained higher than 12 months earlier. Auto sales were robust in some areas of the San Francisco District, but were somewhat below expectations in other areas.

Travel and tourism picked up during the reporting period. The Boston, New York, Atlanta, and San Francisco Districts reported strong travel and tourism activity. Broadway theaters reported that attendance and revenues were up more than 10 percent from the same period in 2013. Tourism in the Richmond and Kansas City Districts was at or above normal seasonal levels. However, ski resorts in the Philadelphia District struggled to attract visitors in the midst of unseasonably warm weather. Warm December weather in the Minneapolis District also reduced winter tourism there.

Nonfinancial Services

The pace of demand growth for nonfinancial services varied widely across Districts and sectors during the reporting period, but appeared to be moderate on balance. Overall, nonfinancial service-sector firms in the Philadelphia and San Francisco Districts continued to report moderate growth. Most nonfinancial service firms in the Dallas District reported flat or higher demand. Activity at professional business services firms in Minneapolis and Kansas City increased. However, contacts in the Kansas City District expect that pace of growth to slow somewhat in coming months. The Boston District reported that some consulting and advertising firms grew rapidly. Demand for staffing services in the Dallas District was mixed, with some contacts reporting strong increases in demand and others reporting slight decreases. Freight volume in the Cleveland District increased during the reporting period, but contacts stated that freight transportation capacity constraints remained an issue. Freight volume in Atlanta, Kansas City, and Dallas held steady or increased on a year-over-year basis.

Manufacturing

Manufacturing activity expanded in most Districts. Philadelphia reported that manufacturing activity grew at a modest pace during the current reporting period, with a slight slowdown relative to the previous period. Reports regarding new orders and shipments in the Philadelphia District suggested some further slowing moving forward. Manufacturing shipments and new orders grew modestly in the Richmond District. Contacts at factories in the Cleveland District reported that demand increased a bit on balance. Manufacturing activity grew at a moderate pace in Boston, New York, Chicago, and San Francisco. However, a manufacturer in the Boston District indicated that congestion at West Coast ports had impeded its exports. Activity in the auto industry in the Chicago District remained a source of strength for the region. Atlanta reported that manufacturing activity strengthened overall. Minneapolis and Kansas City reported that manufacturing activity increased only slightly during the reporting period.

Real Estate and Construction

Single-family residential real estate sales and construction were largely flat on balance across the Districts. Sales declined somewhat on a year-over-year basis in the Boston, Cleveland, Atlanta, Chicago, Minneapolis, Kansas City, and Dallas Districts. In the Philadelphia District, year-over-year existing home sales finished lower in November, but pending December sales in some areas were up notably over December 2013. However, builders of new homes in the Philadelphia District reported weak traffic for prospective buyers and fewer contract signings. San Francisco reported that overall home sales picked up in December. Richmond reported a modest increase in housing market activity. Home prices increased modestly, on balance, in the Boston, Philadelphia, Cleveland, Atlanta, Chicago, and Dallas Districts. The Cleveland, Atlanta, Chicago, Minneapolis, and Kansas City Districts all reported slightly slower single-family residential construction activity. However, the pace of single-family home construction increased in some areas of the San Francisco District.

Commercial real estate activity expanded in most Districts. The Philadelphia District reported a modest pace of growth for commercial real estate leasing activity, and Boston reported improving conditions in commercial real estate markets overall. Commercial real estate activity in the Chicago and Kansas City Districts expanded at a moderate pace. The Dallas District noted that office leasing activity remained strong, but one contact noted a slight pullback in demand from oil and gas firms. Demand for apartments in the Dallas District also remained strong. New York City’s co-op and condo market showed continued strength in the final quarter of 2014; apartment sales volume was down from the exceptionally high levels of the prior year but still fairly brisk, while selling prices were up moderately. Commercial construction activity increased in most Districts. Activity grew modestly in the Philadelphia District and a bit faster in the Atlanta and Chicago Districts. Atlanta cited the multifamily residential segment as a source of growth, while Chicago credited demand for industrial and office buildings. Commercial builders in the Cleveland District reported a moderate to robust increase for projects in the pipeline. Dallas reported that overall commercial construction was strong. San Francisco reported that multifamily residential construction was strong in many areas of that District and that retail, office, industrial, or infrastructure projects were widespread across that District.

Banking and Finance

Demand for business and consumer credit grew during the reporting period. Overall loan demand increased slightly in the Richmond, Kansas City and Dallas Districts. Philadelphia reported a modest increase in total loan volume. Contacts in the San Francisco District gave mixed reports regarding total loan growth. Demand for business credit in the Cleveland District grew overall during the reporting period. Demand for auto loans in the Chicago District grew moderately, and one contact noted a significant spike in credit card applications.

Credit quality generally remained good, with overall reductions in loan delinquencies. According to the Philadelphia District, most of their financial industry contacts reported continued improvements in their customers’ overall credit quality and in their own loan portfolios. However, high rates of severely distressed mortgages persisted in New Jersey and Pennsylvania. Contacts reported little change in their own lending standards. However, several Districts commented that their contacts indicated that stiff competition for high-quality borrowers was leading to lower underwriting standards among lenders more generally.

Agriculture and Natural Resources

Agricultural conditions were mixed during the reporting period. Contacts in the Richmond District reported that agribusiness conditions were better than in the same period a year earlier. The St. Louis District reported that winter wheat harvests are likely to be lower than average, largely reflecting planting delays in Illinois due to wet weather in October. The level of red meat output in the St. Louis District through November was below year-earlier levels, while hog and milk output in the Chicago District was higher than expected during the reporting period. Agricultural lenders in the Minneapolis District expected farm incomes in the fourth quarter of 2014 to come in below the level of the same quarter in 2013. Prices received by farmers in the Minneapolis District in December decreased from the previous year for corn, soybeans, wheat, hay, and milk; prices increased for cattle, hogs, eggs, and poultry. Agricultural growing conditions in the Kansas City District were generally favorable in December, and crop prices rose modestly. Kansas City reported that wheat prices increased modestly amid global supply concerns about limits on Russian grain exports and lower production estimates in Australia. The Dallas District reported that agricultural conditions improved slightly, but drought conditions continued in portions of Texas. Some areas of the Atlanta District saw a moderate improvement in drought conditions. Dairy farm profits in the San Francisco District increased significantly over the past year, but milk futures prices declined recently. Uncertainty regarding future water availability in California slowed new plantings of permanent crops.

Overall demand for energy-related products and services weakened somewhat during the reporting period. The Kansas City and Dallas Districts reported that demand for oilfield services decreased, while the Atlanta District reported that growth in the supply of crude oil and natural gas continued to outpace demand growth. However, contacts in the San Francisco District reported that energy demand from manufacturers was solid. The overall output of energy-related products increased. Natural gas production in the Richmond District increased moderately during the reporting period, and the number of natural gas rigs in the Kansas City District increased. The pace of coal production in the St. Louis District during the reporting period exceeded that of the same period in 2013, and year-to-date coal production in the Cleveland District slightly exceeded prior year levels. The rate of coal production in the Richmond District remained slow during the reporting period. The Cleveland District reported that natural gas extraction activity remained at a high level. Oil drilling activity in the Kansas City District declined, and contacts expect that District’s energy sector to slow further in response to lower energy prices.

Employment, Wages, and Prices

Payrolls in a variety of sectors expanded moderately during the reporting period. The Chicago District reported that overall hiring increased, and the Minneapolis District indicated that labor markets continued to tighten. Contacts at staffing firms in the Philadelphia District reported continued moderate increases in hiring for both temporary and permanent positions. Labor demand in the Richmond District increased, and the Atlanta District saw job gains across most sectors. Payrolls increased at a modest pace in the Cleveland District, primarily in banking, freight services, and manufacturing. Manufacturing payrolls also expanded in the Richmond and St. Louis Districts. In contrast, the Boston District reported that manufacturers were not hiring. Reports of hiring in the Dallas District were slightly less widespread than in the previous reporting period, and a few energy firms in that District reported hiring freezes and layoffs.

Significant wage pressures continued to be limited largely to workers with particular technical skills. Indeed, the Philadelphia, Cleveland and Chicago Districts noted that upward wage pressures tended to be limited to experienced and technically-skilled personnel. The Richmond District reported that overall wage pressures were mild during the reporting period and that average wage growth in manufacturing slowed somewhat. The Dallas District noted fewer reports of rising wage pressures than in the previous reporting period. In contrast, Kansas City reported that wage growth accelerated slightly, with many contacts citing labor shortages.

Prices increased slightly, on balance, in most Districts during the reporting period. Overall prices in the Cleveland, Chicago, and Dallas Districts were largely stable. Businesses in the Atlanta District continued to report little input cost pressure and limited pricing power. Boston indicated that cost pressures varied, with selective price increases planned by some respondents. Contacts in the Philadelphia District reported little change to the steady, slight pace of price increases. Overall prices increased modestly in the Kansas City and San Francisco Districts. The Richmond District reported that retail prices grew at a slower pace than in the previous reporting period, while price inflation in the nonretail service sector increased slightly. The Cleveland District reported scattered indications of declining prices for petroleum-based products and some metals. However, several Districts reported that the cost of a variety of construction materials increased.

*Prepared at the Federal Reserve Bank of San Francisco and based on information collected on or before January 5, 2015. 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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