Beige Book: National Summary
April 16, 2014
Prepared at the Federal Reserve Bank of Richmond and based on information collected before April 7, 2014. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. The expansion was characterized as modest or moderate by the Boston, Philadelphia, Richmond, Atlanta, Minneapolis, Kansas City, Dallas, and San Francisco Districts. Chicago reported that economic growth had picked up, and New York and Philadelphia indicated that business activity had rebounded from weather-related slowdowns earlier in the year. The Cleveland and St. Louis Districts both reported a decline in economic activity.
Consumer spending increased in most Districts, as weather conditions improved and foot traffic returned. Auto sales were up in the New York, Philadelphia, Richmond, Atlanta, Chicago, Minneapolis, and San Francisco Districts, but they were little changed from a year earlier in Kansas City and Cleveland. In addition, assessments of tourism were generally positive, particularly for the Districts of Philadelphia, Richmond, and Minneapolis, where ski resorts had record seasons. Summer bookings were also solid in several Districts. Activity was mixed at non-financial services firms, with the Boston, Philadelphia, Minneapolis, and Kansas City Districts reporting increased demand. In the Boston District, for example, advertising and consulting were strong. The Richmond District indicated that revenues at non-retail services firms were flat, and St. Louis said firms' planned activity declined on net.
The transportation sector generally strengthened in recent weeks, with higher port volumes and increased trucking. Even in districts where transportation was soft, the outlook was optimistic.
Manufacturing improved in most Districts. Several Districts reported that the impact of winter weather was less severe than earlier this year. Chicago and Minneapolis saw moderate growth, while manufacturing grew at a steady pace in New York, Atlanta, St. Louis, and Dallas. San Francisco noted that manufacturing appeared to gain some momentum. Other Districts noted mild growth, except Richmond, where manufacturing activity was mixed. Demand for food production declined in the Boston, Richmond, and Dallas Districts; however the drop was primarily weather related. Steel production picked up in several districts.
Reports on residential housing markets varied. However, across most Districts, home prices rose modestly and inventory levels remained low. Residential construction increased in several Districts; only Cleveland, St. Louis, and Minneapolis reported a decrease. Commercial construction also strengthened, with the exception of Cleveland, which reported a mild decline. Commercial leasing activity generally advanced at a modest pace. Industrial markets showed signs of tightening in downstate New York and northern New Jersey.
Loan demand strengthened since the previous Beige Book. Credit quality improved in the Philadelphia, Cleveland, Richmond, and Kansas City Districts. New York and Dallas reported especially strong increases. New York, Philadelphia, Cleveland, and Richmond cited the inclement weather as a factor reducing home sales and therefore mortgage borrowing. Commercial loan volumes grew in each of the Districts reporting on banking except St. Louis, where lending declined marginally.
Agricultural reports were mixed, as weather disruptions delayed crop plantings and shipments of commodities. A pig virus adversely affected hog farming in the Richmond, Chicago, Kansas City, and San Francisco Districts. Prices of beef and pork rose. In the energy industry, oil and natural gas production increased, while coal output continued to decline.
Labor market conditions were mixed but generally positive. The New York, Cleveland, Richmond, Chicago, Kansas City, and Dallas Districts reported difficulty finding skilled workers.
In most Districts, wage pressures were contained or minimal. The New York District reported scattered wage pressures and Cleveland reported that wage pressures were contained. However, there were several reports of upward wage pressures in the Dallas District.
Prices were generally stable or slightly higher. The New York District described price pressures as subdued in manufacturing and steady in the service sector. In Philadelphia, manufacturing prices paid and received edged up; in Richmond, prices of raw materials and finished goods rose more slowly since the previous Beige Book. Some districts reported higher prices for construction inputs and livestock. In Cleveland, concrete, drywall, and hardwood prices rose, while in the Kansas City District, drywall and roofing prices increased and were expected to rise further.
Consumer Spending and Tourism
Consumer spending increased since the previous report in a majority of Districts. Retailers reported improvement from generally weak sales at the beginning of the year that were most likely the result of winter storms. Retail sales in New York rebounded strongly from weather-depressed levels, while cold weather continued to hold down consumer spending in Cleveland. St. Louis contacts reported a number of store openings and plans for future openings. Some categories of spending benefited from the long winter, such as cold weather apparel, appliances, and snow removal equipment. Finally, Boston noted increasing online sales, and some San Francisco firms have adjusted product offerings accordingly. Retail inventories were mixed in Boston and at or near desired levels in New York. Cleveland inventories were described as being in good shape. Inventories expanded in the Chicago District, and increased moderately in Kansas City.
Sales of cars and light trucks picked up in recent weeks as the weather improved and consumer traffic returned to dealerships. Auto sales were strong in the New York, Philadelphia, Richmond, and San Francisco Districts; sales growth was moderate in Chicago. Automobile sales strengthened slightly in the Dallas District and grew modestly in Atlanta, but were flat in Kansas City. In the Cleveland District, dealers reported that winter weather continued to push down transactions.
Tourism was generally positive in the Philadelphia, Richmond, Atlanta, Minneapolis, and Kansas City Districts. Tourism in the San Francisco District was higher than in the previous report but below year-ago levels. In New York, reports were mixed. Attendance at Broadway theaters picked up, in part because more shows were running. However, some contacts suggested that cold weather had decreased travel. In the Philadelphia, Richmond, and Minneapolis Districts, ski resorts reported an outstanding season. Atlanta reported positive tourist activity and Kansas City noted that activity picked up. Some districts were already experiencing heavy summer bookings.
Nonfinancial Services
Reports on non-financial services were mixed. In the Boston District, advertising and consulting were strong, especially for healthcare consulting; firms had a positive outlook for the remainder of the year. Philadelphia's businesses were also optimistic; growth there was moderate. Activity increased in the Minneapolis District and Kansas City reported improved sales in professional, technical, and healthcare services. The Richmond District reported generally flat revenues at non-retail services firms. Chicago's nonfinancial services firms increased business spending. St. Louis reported that firms' planned activity declined on net. Reports in the Dallas and San Francisco Districts were mixed, with San Francisco noting healthy demand in the technology industry.
Transportation generally strengthened in recent weeks. In the Richmond District, container volume through ports continued to grow briskly despite winter weather disruptions. Trucking increased as firms worked to catch up with weather-delayed shipments. Atlanta ports cited increased shipments of bulk agricultural commodities and record container volumes. In addition, intermodal traffic rose modestly. Transportation firms in the Kansas City District saw slower growth in March but expected moderate growth over the next six months. Dallas transportation services firms reported mixed demand, as container and intermodal cargo decreased. Airline demand there was soft, but above year-ago levels. In the Minneapolis District, freight rail backlogs delayed agricultural shipments. Costs of freight rose while volumes declined in the Cleveland District, and operators were unable to pass through increases in diesel prices.
Manufacturing
Conditions in the manufacturing sector improved since the previous Beige Book. The Chicago and Minneapolis Districts reported moderate growth, with a pickup in new orders and production. The San Francisco District stated that manufacturing activity appeared to gain some momentum. Manufacturing in the Boston, New York, Atlanta, St. Louis, and Dallas Districts grew at a steady pace, while Philadelphia, Cleveland, and Kansas City reported mild growth. Richmond reported mixed conditions in manufacturing. The Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas Districts noted that lingering winter weather hampered business activity, but the impact was less severe than earlier this year.
The auto, aerospace, and energy-related industries remained a source of strength for the Chicago District. Energy-related manufacturing was also particularly strong in Dallas. The sustained backlog of orders for commercial aircraft supported growth in the commercial aerospace industry in the San Francisco District. The Chicago District indicated that steel production recovered from a weather-related slowdown and capacity utilization returned to its expected levels. Additionally, specialty metals manufacturers reported an increase in new orders and order backlogs. In contrast, food manufacturers in Boston, Richmond, and Dallas reported a decline in demand that was largely weather related, but indicated that production was unchanged overall. Steel shipments grew slightly in Cleveland, with contacts anticipating slow growth in the months ahead. The demand for steel production inputs improved from both domestic and foreign sources in the San Francisco District. Firms expected continued moderate growth in manufacturing, with some increased optimism.
Real Estate and Construction
Reports on residential housing markets varied. Home sales in Kansas City strengthened since the last survey period due in part to seasonal factors and improved weather conditions. Moreover, in the Dallas District single-family home sales remained healthy, with some contacts reporting a seasonal pickup in demand over the past six weeks. Residential real estate improved in Richmond, with further strengthening in Northern Virginia. New York housing markets continued to be mixed, while severe winter weather hampered sales activity. Chicago reported that home sales and new listings declined, though brokers attributed this primarily to cold weather and were optimistic that activity would improve in coming months. Atlanta brokers reported homes sales were mixed and contacts attributed areas of softness to higher home prices, limited inventory, and higher mortgage rates. The pace of home sales varied across the San Francisco District. Some contacts in California noted an uptick, while contacts from Washington observed a more sluggish pace. Home sales declined across most of the largest metro areas of the St. Louis District, and Minneapolis residential real estate market activity decreased since the previous report. In most Districts, inventory levels remained limited and residential home prices rose modestly.
Residential construction grew at a moderate pace in the Boston and San Francisco Districts, while New York, Philadelphia, and Atlanta reported modest growth. In the Chicago District, a decline in single-family construction was accompanied by growing demand for new apartment projects as residential rents continued to increase. Richmond single-family home construction grew slowly. In the Kansas City District, builders reported moderate growth in the number of housing starts and expected an increase in buyer traffic and prices in the coming months. In contrast, residential construction declined in Cleveland, St. Louis, and Minneapolis. Multifamily construction remained strong in the New York, Richmond, Atlanta, Chicago, Dallas, and San Francisco Districts. The Minneapolis District reported that overall residential construction activity decreased and that the value of residential permits fell in March.
Commercial construction activity strengthened since the previous survey period for the Kansas City and Dallas Districts. The Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco Districts reported modest to moderate expansion in commercial construction. Philadelphia noted mild growth, while Cleveland reported a slight decline in commercial construction. Commercial leasing activity generally grew at a mild to moderate pace. Office and industrial activity remained robust in the Dallas District, with one contact noting particularly strong demand for office space in the Dallas metropolitan area. Leasing activity improved for retail and industrial space in the Richmond District. Commercial real estate contacts continued to report a decline in vacancy rates, a slight increase in absorption, and higher sales in Kansas City. The Boston, New York, and Chicago Districts reported modest commercial leasing in recent weeks. Industrial markets were generally steady across upstate New York but showed signs of tightening in downstate New York and northern New Jersey.
Banking and Financial Services
On the whole, loan demand strengthened since the previous Beige Book. Of the Districts that reported on banking, Philadelphia, Richmond, Atlanta, and Kansas City noted slight increases in loan volume, while Cleveland and Chicago indicated modest growth. The New York and San Francisco Districts had moderate gains. The Dallas District noted that consumer loans continued to grow moderately. St. Louis was the only district to report a decrease in loan volumes. With respect to credit quality, slight improvements were noted in Philadelphia and Cleveland, and modest advancements were made in Richmond and Kansas City. The New York and Dallas Districts reported especially strong increases. San Francisco indicated no net change in credit quality but noted that credit standards had tightened and that small business lending was primarily reserved for better-quality borrowers. Credit standards were reported to be loosening in the Atlanta District. New York, Cleveland, Richmond, and Kansas City indicated that standards were unchanged.
The majority of Districts described mixed or declining residential mortgage borrowing; only Dallas and San Francisco reported slight growth. New York, Philadelphia, Cleveland, and Richmond cited the inclement weather as a factor reducing home sales and therefore mortgage borrowing. However, the Philadelphia District also added that bankers reported growing consumer confidence.
Commercial loan volumes grew in each of the Districts reporting on banking except St. Louis, where lending declined marginally. Overall commercial mortgage lending grew in the New York, Philadelphia, Atlanta, Minneapolis, Kansas City, and San Francisco Districts. Cleveland and Chicago saw increased lending for equipment purchases. Kansas City reported greater demand for agriculture loans. Deposits were up in the Cleveland, Kansas City, and Dallas Districts but little changed in New York. Delinquency rates declined in New York and Cleveland.
Agriculture and Natural Resources
Agricultural conditions varied across Districts in recent weeks. In the Chicago District, conditions improved. Kansas City and Dallas reported mild growth in the sector, while San Francisco reported stable demand for agricultural products. However, agricultural conditions weakened in the Richmond, Atlanta, St. Louis, and Minneapolis Districts. Adverse weather affected several districts. Winter wheat suffered as a result of dry conditions in the Kansas City District, and drought conditions continued to worsen in Dallas. In contrast, wet field conditions delayed planting in the Richmond and Atlanta Districts. Additionally, Chicago noted that the slow arrival of spring-like weather delayed fieldwork, although in some areas crops perform well after late planting. Minneapolis and San Francisco reported that winter weather disrupted transportation of some crops. In most Districts, crop prices increased in recent weeks but were below year-ago levels. Higher soybean prices shifted planting intentions away from corn. Dairy demand boomed in Dallas, especially for export, and prices for dairy products moved to record highs. Hog operations in a few Districts were battling a virus, and pork prices continued to rise. Beef prices reached record highs.
Activity in the energy industry increased modestly since the last report, with moderate growth reported by the Richmond, Kansas City, and Dallas Districts. San Francisco reported a mild increase. In Kansas City, the number of active oil and natural gas drilling rigs edged up, and expectations for the coming months were positive. San Francisco reported that crude oil production increased robustly. Demand for oilfield services was very healthy in the Dallas District, particularly in West Texas. Crude oil prices generally increased. Natural gas production was stable at a high level. Minneapolis reported strong growth in natural gas and increased exploration in North Dakota. Prices of natural gas and natural gas liquids stabilized. Coal production declined at a slower rate in Cleveland and St. Louis due in part to higher demand from domestic electric utilities. The Richmond District reported steady coal production as inventories were replenished from this winter's drawdown. Cleveland and St. Louis indicated a mild decline in coal production. The Minneapolis District reported that mining was stable, with production at ore mines roughly level with a year earlier.
Employment, Wages, and Prices
Recent reports on labor market conditions were mixed but generally positive. For example, the New York, Chicago, and Minneapolis Districts saw modest to moderate growth in employment. Dallas noted that transportation and manufacturing firms added jobs. Boston, however, indicated that few firms outside of advertising and consulting were hiring. Both Philadelphia and Atlanta said that firms planned to make capital expenditures to boost efficiency before they would hire. Employers in the New York, Cleveland, Richmond, Chicago, Kansas City, and Dallas Districts reported difficulty finding skilled workers. More specifically: New York, Richmond, and Chicago mentioned the IT field, Atlanta noted a need for truckers, Kansas City cited labor shortages for skilled positions, and Dallas reported that a food manufacturer found skilled labor in short supply.
In most Districts, wage pressures were generally portrayed as contained or minimal. For example, New York reported only scattered wage pressures and Philadelphia added that very few contacts are seeing wage pressures. In Cleveland, wage pressures were contained, Minneapolis reported that wage increases were moderate. However, Dallas cited several reports of upward wage pressures, and San Francisco added that wage gains remained quite modest overall but noted increases for certain occupations and in certain areas.
Prices were mostly steady, with scattered reports of increases. The New York District described price pressures as subdued in manufacturing and steady in the service sector. In Philadelphia manufacturing prices paid and received edged up, and in Richmond, prices of raw materials and finished goods rose more slowly since the previous Beige Book. Retail prices were steady in Boston while food prices moved up modestly in the Atlanta, Chicago, Kansas City, Dallas and San Francisco Districts. Boston reported that costs and prices increased between zero and four percent. Cleveland, Atlanta, Chicago, Kansas City, Dallas, and San Francisco Districts all said that prices of metals, brick, and cement rose modestly. Chicago noted that prices for corn, soybeans, dairy, hogs, and cattle increased. Kansas City also saw higher livestock prices. Prices of various categories of construction materials rose in some districts; in Cleveland, concrete, drywall, and hardwood prices all trended higher. The Kansas City District indicated that drywall and roofing prices rose and were expected to rise further. In San Francisco, wood and insulation prices edged up. Changes in natural gas prices varied: Minnesota reported increases while Dallas reported decreases as the winter weather subsided. The Cleveland District reported that spot prices for steam coal rose slightly, while the metallurgical coal price growth was flat.