Beige Book Report: Philadelphia
June 3, 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; auto sales grew moderately as well--a slight pick-up in pace from the prior reporting period. Nonauto retailers and contacts involved in both the construction and leasing of commercial real estate continued to report modest growth. Manufacturers, meanwhile, continued to report only slight growth, while transportation activity appeared to decline slightly. Brokers reported modest growth in regard to existing home sales, and residential builders reported mixed construction and sales activity. Reports from tourism contacts were generally positive with encouraging signs for a solid summer season.
Lending volumes appeared to accelerate to a modest pace of growth, and credit quality continued to improve. As in the previous Beige Book, contacts reported slight increases in wages and home prices. 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. New orders grew slightly, while shipments remained mostly flat. Gains in activity appeared to be stronger among the makers of industrial machinery, paper products, and rubber and plastic products; activity appeared weaker among the makers of primary and fabricated metal products. Contacts whose businesses are involved in natural gas and pipeline work noted negative impacts of low energy prices through decreased drilling activity and lowered capital expenditure budgets.
Expectations of business activity growth during the next six months have changed little since the last Beige Book report and remained positive at levels typical for an expansionary period. Additionally, firms had higher expectations of future employment and steady capital expenditures.
Retail
Retail sales grew modestly over the year, on average, according to Third District contacts. For area malls, April sales appeared to have been negatively impacted by an earlier Easter this year, which likely pushed back holiday-related purchases into March. An outlet mall operator reported moderate sales growth for April over the year but said that sales would have been higher if Easter had fallen later in the month. Regular malls reported a more negative impact. Year-over-year sales for April for regular mall retailers were down overall and for apparel; however, when combined with March sales, which were stronger, to account for the effect of the Easter shift, net sales were modestly positive. Contacts also reported restaurant sales increased moderately at both malls and outlet malls in April, which they attributed to nicer weather and more discretionary spending by consumers. Contacts continued to expect modest growth throughout 2015.
Auto dealers reported moderate growth in sales year over year, a slight pick-up in pace from the last reporting period. A Pennsylvania contact reported that sales in April were slightly better than last year, which itself was a strong year. Sales in New Jersey were flat through April over the year. One New Jersey contact showed little concern about the slower growth, noting that sales were strong in 2014 and current year-to-date statewide sales volumes are approaching record highs. Contacts cited anecdotal evidence suggesting strong sales in May in both Pennsylvania and New Jersey. Auto dealers remained optimistic for continued growth in 2015.
Finance
Third District financial firms have reported modest overall increases in total loan volume since the previous Beige Book. Strong growth was reported for commercial and industrial lending, credit card lines, and auto loans. Loans secured by real estate grew modestly, and other consumer credit lines declined slightly. 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 continued confidence in the quality of their loan portfolios. According to a mortgage servicing contact, the mortgage industry continues to normalize and lending standards appear to be loosening somewhat. Newer vintages of mortgages have not performed as well as vintages from a few years ago but continue to perform well historically. Contacts are generally optimistic for continued growth prospects in 2015.
Real Estate and Construction
Third District homebuilders have reported mixed conditions and little overall growth since the last Beige Book. Traffic remained disappointing through April, and contract signings were down. Moreover, homebuilders continued to report an absence of young first-time homebuyers. Contacts indicated that activity in May has been slow and inconsistent after having been stronger at the beginning of the year. Brokers reported that existing home sales slowed somewhat in April on a year-over-year basis throughout most of the larger urbanized areas of the Third District, including the Jersey Shore. An exception was the Greater Philadelphia area, where a broker indicated that the market was starting to fare better in April, with sales in the region improving on 2014 and 2013--which had been a stronger year--as well. Further, pending sales increased in April, suggesting to him that the pipeline is picking up, though the active inventory of houses in the fastest-selling price points remains low. Overall, prices are rising slightly.
Nonresidential real estate contacts reported that construction and leasing activity continued at a modest pace. New construction continued to be driven by projects in downtown Allentown and Philadelphia that include office, retail, and residential components. Throughout the Third District, industrial/warehouse projects and suburban office renovations remain active and 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 Philadelphia and have been spilling over into suburban areas, especially for Class A or better office space. Contacts remained optimistic for the ongoing growth of both new construction and leasing activity in 2015.
Services
Overall, Third District service-sector firms have continued to report moderate growth in activity since the previous Beige Book. Firms continued to report increases in new orders and sales, on net. A central Pennsylvania staffing contact reported that demand for services has remained consistently strong since the previous Beige Book, with hiring occurring across sectors, including health, education, and manufacturing. The contact noted some difficulty in finding enough qualified people to fill open positions and that the most in-demand skill is accounting. According to a transportation services analyst, even taking into account a temporary lull due to regulatory constraints, both trucking and rail activity looked weaker compared with a year ago. Several service-sector firms reported little or no wage pressures. Service-sector contacts continue to be optimistic that growth trends for their firms will remain positive over the next six months.
Third District tourist areas reported steady activity along with strong early booking activity heading into the summer season. Contacts reported strong rental rates for season resorts in southern New Jersey along the shore. Casinos that remain open in Atlantic City following last year's downsizing are showing some improvement; although the overall number of visitors is slightly reduced, existing casinos have been able to realize higher occupancy rates. A Delaware banking contact noted that outlet shopping centers along the Delaware shore have seen elevated traffic counts and that a forecast for a below-average hurricane season this year is encouraging for summer shore activity.
Prices and Wages
The overall price level has continued to increase slightly since the previous Beige Book period. Nonmanufacturing firms continued to report increases in the prices they pay for inputs and the prices received for their goods and services. Furthermore, the share of firms reporting higher prices for their goods and services has grown notably since the prior period. Most manufacturing firms reported steady input prices and prices for their own products. Contacts reported expectations of stable prices for food and commodities. Most contacts, including those from staffing firms, continued to note little significant change in wage pressures.