April 15, 2015
Aggregate business activity in the Third District continued to grow at a modest pace during this current Beige Book period. Staffing firms and other general service-sector firms continued to report a moderate pace of growth; however, auto sales appear to have slowed to a modest pace of growth after adjusting for the relatively colder winter weather effects in 2014 compared with 2015. Nonauto retailers continued to report modest growth, as did the commercial real estate sectors for construction and for leasing of existing commercial properties. Manufacturers continued to report only slight growth, and brokers reported the same in regard to existing home sales. Residential builders responded with mixed reports of slower construction progress due to bad weather but also reported rising inquiries and contract signings. Reports from tourism contacts also were mixed, with late snow and cold conditions extending the ski season somewhat but limiting visitor traffic at shore destinations.
Lending volumes appeared to slow--registering only a slight pace of growth. Generally, credit quality continued to improve. As in the previous Beige Book, contacts reported slight increases in wages and home prices. Overall price levels were also up slightly, but some prices fell, as the impact of lower energy prices worked its way through the economy. Contacts continued to anticipate moderate growth of economic activity over the next six months.
Manufacturing
Overall, Third District manufacturers continued to report a slight pace of growth during the latest Beige Book period. Reports of new orders changed little from last period, but shipments fell slightly, possibly because of weather impacts. Gains in activity appeared to be stronger among the makers of industrial machinery, electronic equipment, and paper products; activity appeared weaker among the makers of primary and fabricated metal products. Producers of wood products for the home construction sector also expressed very positive comments about current activity and expected orders; one firm noted that incoming orders included more special features for the first time since the downturn, and another cited her company's own investment in three new $450,000 trucks.
Expectations of growth during the next six months remained positive at levels typical for an expansionary period. Some firms continued to note greater uncertainty due to anticipated weak demand from customers serving the energy production sectors; however, few have noted direct reductions yet. Firms reported slight decreases in their expectations of future employment and capital expenditures. These shifts were driven by fewer firms reporting expected hiring and by more firms reporting decreases in future spending.
Retail
Actual growth estimates of nonauto retail sales (year over year) were reasonably strong, according to Third District contacts. However, after adjusting these data for effects of harsh weather on 2014 sales, nonauto retail sales appear to have continued growing modestly. Operators of malls, outlet malls, and convenience stores agreed that lower energy prices were also boosting sales; one contact indicated that consumers had more discretionary income from energy savings at home and at the pump. According to contacts, consumers remain focused on low prices; thus, retailers continue to compete with heavy promotions and to experience very tight margins. Contacts continued to expect modest growth throughout 2015.
Auto dealers reported modest growth in sales year over year--lower than last period. As with general retail sales, auto sales growth was higher year over year, until adjusting for the severe winter weather last year and for one fewer sales weekend in March 2015. Pennsylvania dealers reported that March 2014 had benefited from a rebound off of low February sales due to heavy snows. This year's bleak winter weather continued into March, thereby limiting the normal rise in sales from February to March. Similarly, New Jersey dealers anticipated higher sales in March than in February, but they were far below last year's tally. Auto dealers remained optimistic for overall growth in 2015.
Finance
Third District financial firms have reported only slight overall increases in total loan volume since the previous Beige Book. Volumes continued to decrease seasonally for credit card lines, as consumers paid down their post-holiday debt; similarly, volumes of home equity lines fell. Strong growth was reported for commercial and industrial lending, while mortgages, commercial real estate loans, and auto loans grew little, if at all. On a year-over-year basis, loans secured by real estate were up slightly while most other loans were up modestly. Banking contacts generally expressed growing confidence in the quality of their loan portfolios and in their customers' balance sheets. Furthermore, contacts described growing confidence and stability in the consumer market. On the business side, contacts reported some increased hiring and a growing readiness for greater investment in expanding new capacity and/or new businesses. Contacts are generally optimistic for continued growth prospects in 2015.
Real Estate and Construction
Third District homebuilders reported that winter weather slowed some work in progress and delayed some starts, but that traffic, inquiries, and contract signings showed improvements at times during February and March. Overall, conditions remained mixed with little overall growth. Homebuilders continued to report an absence of first-time homebuyers; most sales were made to higher-income, move-up buyers. Builders are still expecting a little growth in 2015. Brokers reported that existing home sales were slightly greater in February on a year-over-year basis throughout most of the larger urbanized areas of the Third District, including the Jersey shore. The winter weather a year ago kept last year's numbers low; however, this past winter was only somewhat better for touring homes on weekends. A broker in the Greater Philadelphia area indicated that the market appears to be picking up momentum in March with pending sales up by double-digits year over year. There is still a lack of inventory at the fastest-selling price points, while high-priced homes tend to linger on the market. Overall, prices are rising slightly. Brokers remained hopeful for greater growth in 2015.
Nonresidential real estate contacts reported little change to the modest pace of construction and leasing activity. New construction continued to be dominated by projects in downtown Allentown and Philadelphia that include office, retail, and residential components. Throughout the Third District, industrial/warehouse projects, public infrastructure, and suburban office renovations remain active and in demand. Design and renovations to improve energy-efficiency are also in demand. Contacts attributed a little continued rent pressure on office space to some emerging employment growth. Demand and rent pressures are greatest in downtown and suburban Philadelphia, especially for Class A or better office space. Center City Philadelphia residential and retail markets, as well as several select suburban office markets, also continued to be active. Contacts remained optimistic for the ongoing growth of both new construction and leasing activity in 2015.
Services
Third District service-sector firms have continued to report moderate growth in activity since the previous Beige Book. About half of all firms continued to report increases in new orders and sales, but, this time, somewhat more firms reported decreases in new orders and sales. Several large services firms reported steady, moderate growth. For these firms, the year was off to a good start with no long weather disruptions and somewhat lower costs. A central Pennsylvania staffing contact reported that his firm was very busy and that the area unemployment rate was very low. The contact also reported that there were more open positions than people unemployed. Several service-sector firms reported little or no wage pressure. Among all service-sector contacts, nearly three-fourths reported expectations that growth trends for their firms will remain positive over the next six months; none anticipated declines.
Third District tourist areas reported mixed conditions as the winter drew to a close. The added snow and cold extended the ski season a little, but conditions were too harsh to attract extra visitors along the shore. However, contacts up and down the shore have reported very strong early bookings for the summer season, with many weekends booked up. After a one-month anomalous increase in January, revenue results for Atlantic City casinos resumed the old patter of double-digit declines in February.
Prices and Wages
More Third District contacts reported price decreases than are typical; however, the overall price level has continued to increase slightly since the previous Beige Book period. Manufacturing contacts reported slight decreases in the prices they pay and the prices received for their products since the prior period. The number of firms noting increases remained the same, while the number of firms noting decreases rose significantly. Among nonmanufacturing firms, a somewhat higher percentage of contacts reported increases of prices paid since the prior period, and a somewhat greater percentage reported decreases of prices received; the overall indexes for prices paid and for prices received remained positive. Most contacts, including those from staffing firms, continued to note little significant change in wage pressures. One contact reported that retailers generally plan to hire at the same levels as last summer with no wage increases.