Beige Book Report: Philadelphia
July 15, 2015
Aggregate business activity in the Third District continued to grow at a modest pace during this current Beige Book period. Contacts continued to report modest growth in hiring and only slight increases in wages; price increases also remained relatively slight, with most contacts reporting little change. Moderate growth of economic activity is anticipated over the next six months. Across sectors, general service-sector firms continued to report a moderate pace of growth; however, staffing firms indicated a somewhat more modest pace this period. Tourism contacts reported modest growth compared with a strong year-ago season, while auto dealers reported relatively flat sales against their record highs from the spring of 2014. Overall, nonauto retail sales continued to grow modestly, although contacts offered mixed reports. On balance, lending volumes also continued to grow at a modest pace. Manufacturing resumed a modest pace of growth, and nonresidential construction and leasing continued at a modest pace. Homebuilders reported little or no change in activity. Existing home sales reports were mixed, but this was against a backdrop of weak growth in the spring of 2014. Home prices continued to rise slightly.
Manufacturing
Third District manufacturers reported that overall activity picked up to a modest pace of growth during the latest Beige Book period. Contacts reported similar improvements in new orders and in shipments. Gains in activity appeared to be stronger among the makers of paper products, chemical products, rubber and plastic products, industrial machinery, and fabricated metal products; activity appeared weaker among the makers of food products, primary metal products, and electronics. Slightly more than half of the contacts indicated that underlying demand for their products had increased over the past three months, while one-fifth reported no change.
Expectations of business activity growth during the next six months, particularly for new orders and shipments, have improved somewhat since the last Beige Book report. However, firms indicated little change in their expectations of future employment while softening plans for future capital expenditures.
Retail
Retail sales rose moderately, but the reports were mixed. Contacts reported record sales at convenience store locations, moderate sales growth at area malls, but only modest growth at outlet stores. Convenience stores that sell gasoline continue to report stronger sales of nonfuel items due, in part, to the ongoing, relatively low price of gas. Contacts continued to state that customers remain value driven. A convenience store contact indicated that the very strong sales in May bode well for the stores' summer season. Generally, contacts continued to expect modest growth throughout 2015.
Auto dealers reported strong sales in May. However, compared with last year when sales were hitting record-high levels, growth has been reported as flat or down. June sales are also expected to remain strong but may also not exceed last year's robust pace. Auto dealers remained optimistic for continued strong sales in 2015, although outperforming 2014 may be in doubt.
Finance
Third District financial firms have continued to report modest overall increases in total loan volume since the previous Beige Book. Strong growth was reported for commercial and industrial lending and auto loans, while most real estate lending and other loans were relatively flat. Generally, banking contacts described a slow, steady pick-up in activity and remained optimistic for the remainder of the year.
Real Estate and Construction
Third District homebuilders have reported little or no change in activity since the last Beige Book. Contacts reported that economic and financial conditions remained challenging for contract signings on new homes. Activity remained inconsistent through the current time period. However, surviving smaller builders are generally meeting their plans and expect this year to be as good as, if not better than, last year. Brokers in the Philadelphia and Harrisburg areas reported continued year-over-year gains in home sales; however, the prior spring had been relatively weak. The Lehigh Valley and southern Jersey Shore markets reported decreases despite comparison with last year's weak sales. Home prices continued to rise slightly. Neighborhoods in and around Philadelphia's Center City remain a "hot spot," with greater demand, more sales, and stronger price gains.
Nonresidential real estate contacts reported little change to the modest pace of construction and leasing activity seen earlier. Downtown Allentown and Philadelphia remain the focus of significant new construction for office and mixed-use developments. While most of the new office demand stems from firms moving around the region, contacts suggest that some demand is being driven by employment growth from existing firms and from new locations by out-of-market firms. Overall, commercial rents continued to increase slightly. Contacts generally 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, and they remain even more optimistic about the next six months. More than one-third of the firms reported increases in employment--a higher percentage than the prior period. In contrast, contacts at staffing firms generally indicated that their activity had been somewhat slower and that their clients have been slow to make decisions to place orders and to hire recommended job placements. Trucking activity continued to show signs of weakness from the underlying economy, according to a transportation services analyst; however, the Third District remains a dominant location for warehouse distribution centers. Tourism contacts at shore destinations reported record levels of activity in Delaware and New Jersey--representing a modest improvement over a strong 2014. Early reports also suggest that tourists may be spending more, with high-end restaurants booking up on many nights. Atlantic City casino activity remains an exception, with the total take continuing its years-long slide unabated.
Prices and Wages
The overall price level has continued to increase slightly since the previous Beige Book period. About half of the nonmanufacturing contacts and three-fourths of the manufacturing contacts reported little or no change in the prices they pay for inputs and the prices received for their goods and services. Over one-third of the nonmanufacturing contacts reported increases. Among manufacturers, contacts reporting increases outnumbered those reporting decreases--a reversal from the prior period. Generally, contacts reported little change in wage pressures; some highly skilled and technical positions continue to be difficult to fill.