Beige Book Report: Philadelphia
September 11, 1996
Economic activity in the Third District was gaining slightly in August. Manufacturers continued to report increases in orders and shipments, although the portion of firms noting increased demand for their products was smaller than it had been earlier in the summer. Retailers said sales were starting to move up for the back-to-school period, and they were expecting the year-over-year increase to be a few percent in current dollars. Auto dealers reported steady sales in recent weeks. Bankers generally reported that consumer lending was moving up slightly, but business loan volumes have been flat. In commercial real estate markets, office vacancy rates have edged down since the beginning of the year, but rents have been steady. Demand for industrial space remained healthy, and there has been stepped-up construction of warehouses. Most of this construction has been build-to-suit, and vacancy rates for industrial space have remained steady. Reports from residential builders varied across the District; overall, however, the pace of residential construction has been steady since summer began.
The consensus outlook is positive but modest. Manufacturers expect some further gains in output, but they are not planning to increase employment, on balance. Retailers expect a small year-over-year improvement in sales this fall, but auto dealers anticipate just steady sales. Bankers foresee little change in loan demand. Real estate contacts expect relatively steady conditions to persist, with commercial space demand and supply remaining in balance.
Manufacturing
Third District manufacturers generally noted continuing increases in
orders and shipments in August, although the number of firms posting
gains was fewer than in the prior two months. About four in ten
reported increased demand for their products during August, while
two in ten reported declines. Business was relatively weak for
manufacturers of building products, as it has been since June. In
addition, some makers of consumer products indicated that the
seasonal increase in orders they usually see at this time was below
their expectations.
According to plant managers contacted in August, both employment levels and working hours have been increased slightly. However, capital spending plans have been trimmed; only one in four of the firms surveyed indicated they would be boosting outlays for new plant or equipment in the next six months.
Retail
Third District merchants contacted in late August reported the usual
back-to-school pickup in sales. Most said the gains for the period
this year compared to last will be only a few percent in current
dollars. Retailers' expectations for the fall selling season as a
whole are varied. While some are optimistic that there will be a
healthy year-over-year increase, most anticipate just modest gains.
Some retailers expressed apprehension that women's apparel sales
will not meet forecasts made earlier this year, and this will limit
the dollar value of total sales for the fall. Another possible
limiting factor on sales growth is the more restrictive credit
standards that several major retailers have begun to implement. In
general, retailers said their inventories were in line with the
current sales rate.
Auto dealers indicated that the pace of sales has been steady. While popular models were selling briskly, dealers have been reducing prices to clear out some current model-year cars and sport-utility vehicles before they receive new models.
Finance
Third District bankers generally reported slight increases in
consumer loan volumes in August, which they considered mostly
seasonal. Bankers said commercial and industrial lending markets
remain competitive, with credit available from large and small
banks, nonbank finance companies, and institutional investors. On
balance, banks contacted for this report have not been able to
increase their business loan volumes.
Looking ahead, bankers expect loan levels to be fairly steady except for some seasonal increases. Some bankers reported that their commercial and industrial borrowers have indicated that they expect their own business to be steady through the end of this year and their credit needs to remain at current levels. Bankers do not expect much change in consumer lending.
Real Estate and Construction Commercial real estate brokers generally reported that office vacancy rates in the Third District have edged down from the beginning of the year. In recently released mid-year surveys, real estate firms estimated the vacancy rate for the Philadelphia central business district at 13 percent. Estimated vacancy rates for suburban office markets were 10 percent in southeastern Pennsylvania and 19 percent in southern New Jersey. Office vacancy rates in northeastern and central Pennsylvania markets were estimated to be lower than in the Philadelphia area. Real estate agents caution that some of the drop in vacancy rates is the result of older buildings being removed from the market; including space available for sublease would raise effective vacancy rates. Real estate agents also noted that office rents have been steady so far this year.
Demand for industrial space remains healthy in the region. Industrial rental rates have edged up this year, and vacancy rates have remained steady at around 13 percent despite recent construction of warehouse and distribution buildings.
Nonresidential construction activity remains below the 1995 pace in Third District states. Nonetheless, build-to-suit construction of office and industrial buildings has picked up during the first half of the year in central and northeastern Pennsylvania and southern New Jersey. Most real estate contacts expect the current rate of commercial construction to persist through the end of the year.
Residential construction activity varies around the District; some markets have seen healthy gains this year compared to last, especially in townhouse construction, while others have seen declines. Overall, home building has been steady recently. Realtors also generally reported steady rates of sales for existing homes.