Beige Book Report: Philadelphia
September 2, 2015
Aggregate business activity in the Third District continued to grow at a modest pace during the current Beige Book period. Contacts continued to report modest growth in hiring. On balance, only slight increases were reported in wages and prices, including home prices. Moderate growth of economic activity is anticipated over the next six months.
Across sectors, nonauto retailers continued to report a moderate pace of sales growth; however, general services firms indicated a somewhat more modest pace this period compared to the previous reporting period. Staffing firms echoed reports of modest growth, as did lenders, commercial contractors, and leasing agents. Existing home sales and auto sales have picked up since the prior period. Auto dealers and tourism contacts reported modest growth compared with very high levels of activity last year. Manufacturing appears to have slowed somewhat to a slight pace of growth. Homebuilders reported little or no change in activity.
Manufacturing
On balance, Third District manufacturers reported that activity slowed--registering only slight growth during the latest Beige Book period. Contacts reported similar weakness in new orders and in shipments, although shipments picked up a little toward the end of the period. Gains in activity appeared to be stronger among the makers of lumber and wood products, fabricated metal products, and instruments; activity appeared weaker among the makers of paper products, chemicals, industrial machinery, and electronics. A few firms cited difficulties related to the strong dollar.
Despite the current lull, expectations of business activity growth during the next six months have improved since the last Beige Book report. Firms also indicated higher expectations for future capital expenditures; however, plans for future hiring changed little. About one-third of the firms anticipate hiring, while one-tenth expect to decrease employment.
Retail
Retail sales continued at a moderate pace. Citing both underlying economic momentum and exceedingly good weather, convenience store owners reported very strong results for July and early August; their shore locations did especially well. Various contacts reported that outlets at tourist destinations also have been packed with cars. Area malls reported moderate growth overall, while sales at computer stores, women's apparel stores, restaurants, and personal services were stronger. Convenience store operators are bullish for the next 12 months, while mall operators have more modest expectations.
Auto dealers continued to report strong sales through the summer months. Despite record levels last year, New Jersey dealers reported 2 percent growth in volume over the year, and Pennsylvania dealers reported 4 percent growth. Early reports of August sales were comparable to June and July. Auto dealers are optimistic for continued growth through 2016.
Finance
Third District financial firms have continued to report modest overall increases in total loan volumes since the previous Beige Book. Commercial real estate activity picked up during the current period--joining commercial and industrial lending and auto loans as the segments with the strongest growth in volumes. Residential real estate lending was generally flat; refinancing loans appeared to fall in volume. Banking contacts in most parts of the District described a steadily growing economy with little sign of inflation. Contacts remained optimistic for continued growth over the next six months.
Real Estate and Construction
Third District homebuilders have reported little change in the relatively weak levels of new contract signings since the last Beige Book. One contact did note increasing land opportunities as other builders have pulled out. This contact has hired new staff positions to take advantage of the potential growing market share. Brokers in the major Third District housing markets reported strong double-digit growth compared with last year for sales of existing homes. Last year, sales were relatively weak in many markets; however, current sales levels in the Greater Philadelphia area have rebounded and are now higher than they were two years ago. Home prices continued to rise slowly, and the inventory of homes has continued to fall. Philadelphia's Center City remained one of the District's "hot spots," 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. The Third District's larger downtown districts remain the focus of significant new construction for office and mixed-use developments. Center City Philadelphia continues to attract new investment in commercial retail space. While Philadelphia's Class A office space continued to command strong premiums, rents for most categories increased only slightly. Contacts remained optimistic for ongoing growth of both new construction and leasing activity throughout the district into 2016.
Services
Third District service-sector firms reported that overall activity slowed somewhat to a modest pace of growth, although it remains unclear how much of the lull is seasonal. Expectations for future growth remained broadly held and undiminished, with about four-fifths of the firms expecting growth. On balance, firms continued to add full-time positions, while firms reporting fewer part-time, temporary, and contract positions slightly outnumbered the firms reporting more. Staffing firms reported some weakness in temporary positions but were positive overall citing growing job orders for permanent positions driven by economic growth and company expansions, as well as replacement.
As with some manufacturers, defense-related firms continued to report limited opportunities for growth due to federal spending constraints. Tourism contacts at mountain and shore destinations continued to report record levels of summer activity throughout the Third District. While the number of visitors represents a modest improvement over a strong 2014, contacts report that tourists are spending more at area restaurants and shops. Despite these gains, the total revenues at Atlantic City casinos continued to decline.
Prices and Wages
The overall price level has continued to increase slightly since the previous Beige Book period. Over 60 percent of the nonmanufacturing contacts reported little or no change in the prices they pay for inputs and the prices received for their goods and services; over three-fourths of the manufacturing contacts reported the same. On balance, a somewhat higher percentage of firms reported increases in the prices they paid as opposed to decreases. This also held true for prices received by nonmanufacturers; however, the reverse held true among manufacturing firms. Retail contacts reported little price pressure.
Generally, contacts continued to report little change in wage pressures; staffing firms described steady, upward movement in wages. One contact described wages as "inching up." However, contacts from several different sectors independently reported facing higher costs to obtain commercial construction contracts, suggesting that wages have tightened for skilled laborers. Other contacts report some difficulties filling highly technical positions.