Beige Book: National Summary
July 15, 2015
Prepared at the Federal Reserve Bank of Atlanta and based on information collected before July 3, 2015. 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.
All twelve Federal Reserve Districts indicated that economic activity expanded from mid-May through June. Activity in New York, Philadelphia, and Kansas City grew at a modest pace, while Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco saw moderate growth. Compared with the previous report, growth remained steady in Cleveland, and Boston reported conditions were stable or improving. Boston, Philadelphia, Atlanta, Kansas City, and Dallas reported that contacts were optimistic about future growth, while Chicago and San Francisco cited optimism coming from specific sectors. Improvements in consumer spending varied by District. Some Districts indicated that low energy prices helped boost spending, while some border Districts noted weakness tied to the rising dollar. Automobile sales increased in almost all Districts. Tourism expanded in most regions, except New York where activity slowed.
Nonfinancial services experienced moderate growth since the previous report. Boston, Richmond, St. Louis, Minneapolis, and Dallas noted strength in professional and business services. Boston and Richmond saw growth increase for healthcare services.
Transportation activity was mixed across the country. Trucking was weak in Philadelphia but volumes held steady in Dallas. Ports in Richmond cited record volumes in freight. Reports on manufacturing activity were uneven across the country, but positive in Boston, Philadelphia, Richmond, Atlanta, Chicago, and St. Louis.
Reports on residential and commercial real estate markets were positive. Home sales increased for most Districts, although Philadelphia and Dallas reported sales were mixed, and New York reported a decline in sales volume. Most Districts noted home price appreciation. Residential construction activity varied across most of the country. Commercial real estate activity increased at a modest pace for several Districts, while non-residential construction, especially multifamily, was strong in many Districts.
Lending activity increased since the last report. Real estate lending was up in half of the Districts. Consumer lending, particularly auto loans, rose in several Districts. Districts that reported on delinquency rates indicated that they were low. Credit quality and credit standards were mostly unchanged since the previous report.
Among Districts reporting on agriculture, rainfall damaged crops in Chicago and St. Louis but helped improve growing conditions in Dallas. Oil and natural gas drilling declined in Cleveland, Minneapolis, Kansas City, and Dallas. Coal production was flat in Cleveland and down in Richmond. Energy related capital expenditures were down in some Districts.
Across Districts, employment levels increased or were steady in most sectors, although there were some reports of layoffs in manufacturing and energy industries. Labor market tightness was reported in Boston, Atlanta, Minneapolis, and Dallas.
Most Districts cited only modest wage pressures aside from positions that required specialized skills or were in high-demand. Prices for inputs and finished goods remained steady since the previous report.
Consumer Spending and Tourism
Consumer spending increased across all Districts since the previous reporting period, albeit at varying degrees. Philadelphia, Cleveland, and San Francisco noted that low energy prices were a contributing factor to improved consumer spending at some retail locations and restaurants. The strengthening dollar was cited by Minneapolis and Dallas as the cause of soft growth along border areas. Among Districts reporting on auto sales, sales were up except in St. Louis, where sales were mixed. Cleveland, Chicago, and Kansas City noted a shift in product mix from cars towards SUVs and light trucks. St. Louis reported increased activity in auto service and parts departments, with some contacts attributing this to customers investing in their own cars rather than purchasing new vehicles. Contacts in Chicago expect to record higher overall sales for 2015 due to further strengthening of new and used vehicle sales, and the outlook in Philadelphia, Cleveland, and Dallas remains optimistic.
Tourism improved in Districts reporting on the sector, with the exception of New York, where there were further signs of slowing. Richmond reported slightly stronger activity compared with a year ago, while Atlanta and Minneapolis indicated conditions were solid. Tourism strengthened somewhat in Kansas City but was lower than last year, and Philadelphia and San Francisco reported modest growth. Spending by tourists increased in Philadelphia, Richmond, and Atlanta. New tourist attractions opened in St. Louis. Hospitality contacts in Richmond and Atlanta noted strong advanced bookings for the summer season.
Nonfinancial Services
Overall, Districts reporting on nonfinancial business services, such as information technology, healthcare, and professional and business services, indicated moderate growth since the previous report. Boston, Richmond, St. Louis, Minneapolis, and Dallas all noted strength in professional and business services. Kansas City reported that sales increased, but at a slower pace, than the previous report. In addition, San Francisco said that activity in technology services remained strong. Boston, St. Louis, and Kansas City reported expansionary plans in the nonfinancial services sector. Growth in healthcare services continued according to reports from Boston and Richmond. In contrast, plans for layoffs in education and healthcare were reported by St. Louis. Boston, Philadelphia, Minneapolis, and Kansas City noted expectations for continued growth in the nonfinancial services sector.
Reports on transportation activity were mixed. In Philadelphia, trucking activity continued to show signs of weakness. Dallas indicated trucking volumes remained steady; Richmond cited faster growth rates; and New York described activity as brisk. Warehousing and storage companies in St. Louis noted plans for new hiring and expansion. Cleveland attributed increases in freight shipments to seasonal factors and a clearing of cargo backlogs at West Coast ports. Ports in Richmond reported record volumes in container freight along with higher shipments of autos, and Atlanta ports cited double-digit increases in container trade and break bulk cargo. However, Atlanta and Dallas reported lower volumes in ocean shipping since the last report. Atlanta noted year-to-date railroad shipments were flat compared with the same period last year, as well as a decline in overall air cargo tonnage. Contacts in Cleveland have a moderate outlook for growth over the short term; the outlook in Kansas City is positive going forward; and contacts in Dallas anticipate strong demand in the third quarter.
Manufacturing
Manufacturing activity was uneven across Districts from mid-May through June. Philadelphia, Richmond, Atlanta, and Chicago reported that business activity increased. Boston reported mostly positive conditions, and St. Louis indicated that plans for manufacturing activity were positive since the previous report. In contrast, Cleveland, Kansas City, and Dallas reported a decline in activity. Minneapolis indicated mixed business activity, while New York and San Francisco reported flat conditions. Boston, Cleveland, and Dallas noted the strong dollar was dampening export demand, and slowdowns in the oil and gas industry were said to be negatively affecting orders in Cleveland, Chicago and Dallas.
Auto manufacturers and industry suppliers in some Districts reported strong demand, with the exception of Cleveland, which reported year-over-year declines in production at auto assembly plants. Boston and San Francisco indicated that semiconductor manufacturing was either strong or on the upswing. With only a few exceptions, fabricated and primary metal producers cited strong demand and solid growth was reported in the aerospace, construction, and plastics and rubber industries. Mixed or flat growth was reported in the chemical, electronics, food, and high-tech industries.
Similar to current conditions, the outlook varied across Districts, with some expecting moderate improvements in demand and others expecting flat or weaker conditions.
Real Estate and Construction
Several Districts reported that residential real estate activity had increased during the reporting period, including Richmond, St. Louis, Minneapolis, and Kansas City. Additionally, New York indicated that housing markets continued to improve and Dallas noted that residential real estate activity generally remained solid. Home sales were reported as generally increasing across most markets in Boston, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City. Richmond cited improvement, and San Francisco reported continued growth in home sales. Philadelphia and Dallas indicated that home sales activity was mixed, and New York indicated that sales volume in some markets was down. Boston, New York, and Richmond reported low levels of inventory, and Minneapolis indicated that inventory had decreased from the year-earlier level in some markets; and Kansas City noted that inventories continued to fall. Most Districts indicated that home prices were generally up over the reporting period. Reports on residential construction activity varied by District. Richmond, St. Louis, and Minneapolis indicated that activity was mixed. Cleveland reported that single-family starts picked up across most of the District; Atlanta noted that construction was up from the year-ago level, and Kansas City indicated that residential construction expanded. Boston, Cleveland, Atlanta, Kansas City, Dallas, and San Francisco each reported contacts having positive residential real estate outlooks.
Several Districts, including Chicago, St. Louis, and Kansas City, indicated that commercial real estate activity was mostly positive and that it continued to increase at a modest to moderate pace. Low and declining vacancy rates were highlighted by several Districts, including Chicago, St. Louis, Kansas City, and Dallas. New York reported that availability rates varied by submarket and property type. Rents were noted as being up slightly, increasing, or rising in Philadelphia, Richmond, and Dallas. Some Districts, like Philadelphia and Cleveland, indicated that nonresidential construction activity continued at its previous pace, while other Districts such as Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, noted an increased level of nonresidential construction activity. Multifamily construction was described as strong, elevated, robust, and picking up by several Districts, including New York, Richmond, Atlanta, Dallas and San Francisco. Commercial real estate outlooks remained fairly favorable. Philadelphia was generally optimistic, Atlanta remained positive; Kansas City expected strengthening in the months ahead; and Dallas remained cautiously optimistic.
Banking and Financial Services
Overall demand for loans during the reporting period increased in New York, Richmond, Atlanta, and Dallas, and was stable in Kansas City. Consumer loan demand was steady in Chicago and Kansas City. Commercial loan demand increased in New York, strengthened in Richmond, and remained robust in San Francisco. Reports of commercial and industrial (C&I) loan growth were mixed, and ranged from strong in Philadelphia, to increased in New York and St. Louis, flat in Chicago, and slower in Dallas. Loan volume increased at a modest to moderate pace in Philadelphia, Cleveland, and St. Louis. Mortgage lending grew steadily in Chicago, Kansas City, and San Francisco. Cleveland noted seasonal increases in mortgage loans, and Richmond reported a modest increase. Real estate lending was flat in Philadelphia, and increased in St. Louis. Mortgage refinancing increased in Atlanta and held steady in Chicago. Several Districts including Philadelphia, Cleveland, Atlanta, and San Francisco, reported increased consumer lending, with particularly strong growth in auto loans. Competitive pricing for prime auto loans in Chicago led to further expansion of sub-prime auto lending. Revolving credit for consumers expanded in San Francisco. Home equity lending increased in Cleveland and Atlanta, where banks faced increased competition for loans from nonbank lenders.
Credit quality was unchanged in New York, Cleveland, and Kansas City, remained strong in Dallas, and improved in San Francisco. Richmond reported credit quality was stable with a slight decline in rural areas of the District. Delinquencies were lower in New York, remained at low levels in Cleveland and Chicago, and remained modest in San Francisco. Boston's report noted low interest rates and generous terms for commercial real estate mortgages and construction loans. Credit standards were largely unchanged in other Districts including Cleveland, Kansas City, and Dallas, while there were mixed changes in Richmond. Deposit levels increased in St. Louis, Dallas, and San Francisco, and remained stable in Kansas City.
Agriculture and Natural Resources
Agricultural conditions were mixed. Significant rainfall affected several Districts, with crop damage reported by Chicago and St. Louis. Chicago also noted disruptions to grain shipping caused by high Mississippi River water levels. Kansas City reported that heavy rains resulted in lowered expectations for the winter agricultural harvest, although the rain also improved soil moisture for developing crops and pastures. Dallas reported that rainfall relieved drought and improved growing conditions. Drought continued in San Francisco, although agricultural output generally expanded over the reporting period. Atlanta reported soybean and cotton plantings were close to their five-year averages. Minneapolis indicated crop progress was ahead of schedule and saw no new outbreaks of avian flu among poultry stock. Chicago and San Francisco noted the avian flu outbreak resulted in higher prices for poultry and eggs. Kansas City said beef cattle production was lower than last year, holding cattle prices high. San Francisco also mentioned low cattle supply as ranchers replenished herds. San Francisco reported demand for forestry products remained flat as foreign demand slowed and domestic gains were limited.
Reports continued to reflect decreases in oil and natural gas drilling activity in Cleveland, Minneapolis, Kansas City, and Dallas. Coal production continued to decline in Richmond and St. Louis and was little changed in Cleveland. Natural gas production was unchanged in Richmond since the previous report and growth slowed in Kansas City. Steady withdrawals of crude oil inventories continued in Cushing, Oklahoma, as seasonal demand for petroleum products picked up and refinery utilization rates rose, according to reports from Kansas City. Refinery utilization rates also remained strong in Dallas. Reports of capital spending declines continued in Cleveland, Atlanta, and Dallas, resulting in some labor cutbacks in Atlanta and Dallas. Heavy machinery manufacturers in Chicago noted weak demand from the oil and gas industry for mining equipment. Accounting firms in Dallas reported growing activity in mergers and acquisitions among oil and gas related firms, while bankers in Atlanta continued to report a slowdown in lending tied to the energy sector.
Employment, Wages, and Prices
Employment levels picked up in various industries across Districts since the last reporting period. Service-related firms in particular experienced payroll expansion in Boston, Philadelphia, Richmond, St. Louis, and Dallas. New York and St. Louis noted increased demand for human resource professionals to recruit new employees. Reports from manufacturing firms were mixed, with Cleveland, Richmond, and St. Louis noting increased job openings and/or payroll gains, whereas manufacturers in Boston and Dallas cited layoffs. Although downsizing continued in the energy sector in Atlanta, Minneapolis, and Dallas, the pace abated in Dallas since the last report. Accounts of sustained labor market tightness spanned several Districts, including Boston, Atlanta, Minneapolis, and Dallas. Firms from several Districts continued to describe shortages for particular types of skilled labor, predominantly in the construction industry.
Wage pressures were modest across most areas of the country, outside of some specialized skill and high-demand occupations in sectors such as information technology, transportation, and construction. Reports from Kansas City and San Francisco were more robust, indicating intensifying wage pressure across a broader range of industries. Cleveland, Chicago, and San Francisco all highlighted a growing sense among business contacts that recent announcements of minimum wage hikes and pay increases at a number of large retailers could prompt broader wage pressure across other industries as firms compete to remain attractive employers.
Inflation pressures remained largely unchanged since the last report. Reports from Boston, New York, Cleveland, Atlanta, and Chicago indicated that retail price growth was subdued. Richmond reported that retail price growth slowed, while Kansas City saw an acceleration in retailers' input and selling prices. Atlanta and San Francisco highlighted the dampening effect on the cost of imported goods and commodities from the appreciating dollar and softness in commodity prices.