Beige Book Report: Philadelphia
October 14, 2015
Aggregate business activity in the Third District continued to grow at a modest pace during the current Beige Book period. In addition, most contacts continued to report modest growth in hiring, although staffing firms reported stronger results. 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, activity at staffing firms accelerated from a modest pace of growth during the prior period to strong growth during the current period. Lenders also reported moderate growth of loan volumes in contrast to more modest growth during the prior period. Nonauto retailers continued to report a moderate pace of sales growth. Sales at general services firms continued at a modest pace but appeared to have strengthened a bit and were nearing the more moderate growth that the broad sector typically reports. Commercial contractors, commercial leasing agents, and residential brokers continued to report modest growth. Auto dealers and tourism contacts also reported modest growth compared with very high levels of activity last year. Manufacturing continued to grow slightly. Homebuilders reported slight growth overall; flat for most, but stronger than before for a few.
Manufacturing
During the latest Beige Book period, more contacts indicated that general activity had declined; however, contacts reported little change in the slight growth of new orders and in shipments. Moreover, employment picked up a bit among manufacturers. Gains in activity appeared to be stronger among the makers of lumber and wood products, paper products, fabricated metal products, and instruments; activity appeared weaker among the makers of chemicals, primary metals, and electronics. Firms continued to cite concerns about the strong dollar; however, a contact at one firm noted that the firm was building inventories of commodity inputs while prices were low.
Despite the weakness in general activity suggested by contacts, their expectations of growth during the next six months have remained the same since the last Beige Book report, if not slightly better. Firms also indicated higher expectations for future capital expenditures; however, plans for future hiring sagged a bit. Still, nearly three times more firms anticipate hiring workers than firms that expect to decrease employment.
Retail
Retail sales continued at a moderate pace. An improving economy and continued good weather were cited as factors. Convenience store owners reported continued strong results for August and the first-half of September. Area malls reported moderate growth overall, although apparel sales were somewhat flat. Contacts continued to express optimism for growth through 2016.
Auto dealers continued to report modest sales growth into the fall but from high levels. New Jersey dealers reported record-high levels with moderate sales growth over the prior year. Pennsylvania dealers reported slight sales growth; they had reported record highs last period. Early reports for September suggested that sales may be reaching a plateau; dealers expressed some concern that inventory levels have thinned (in part due to recalls), which may limit sales growth through year-end. Overall, auto dealers remained optimistic for continued growth through 2016.
Finance
Third District financial firms have reported moderate overall increases in total loan volumes since the previous Beige Book--an increase from the prior more modest rate. Commercial real estate activity, commercial and industrial lending, auto loans, and other consumer lending (excluding credit cards) were the segments with the strongest growth in volumes. Residential real estate lending volumes remained essentially flat for mortgages and refinancing loans. 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
Overall, Third District homebuilders have reported a slight improvement since the last Beige Book. A central Pennsylvania builder reported a pickup in traffic, a strong level of contract signings, and firm prices in August and September; sales were mixed between spec homes and contracts for delivery in 2016. Other builders in New Jersey and Pennsylvania noted ongoing softness. Builders did not cite any recent cost increases for materials; however, most continue to struggle with labor costs and securing timely delivery of subcontract work. Brokers in the major Third District housing markets continued to report modest growth of existing home sales. The relative lack of new home construction continues to buoy existing home sales. Year-over-year comparisons have begun to diminish, as 2014's sales began to strengthen near year-end. Inventory levels remain relatively unchanged at sufficiently high levels such that price increases are constrained and limited to select local markets.
Nonresidential real estate contacts reported little change to the modest pace of growth in construction and leasing activity seen earlier. Activity remains focused on urban, upscale mixed-use developments and on industrial warehouse space. One contact noted that large firms with good credit are emerging early (as much as two years in advance of lease expirations) to discuss their future office space needs--a tactic not seen yet during the current economic expansion, and an indicator of concerns that supply will become constrained and rents will rise. 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 continued to pick up after a summer swoon--still at a modest pace, but nearing the more moderate pace of growth that generally characterizes the broad service sector. Expectations for future growth remained strong, with more than four-fifths of the firms expecting growth. On balance, firms continued to add to payrolls; over the past period, firms reported more growth of part time, temporary, and contract positions than of full-time hires.
Staffing firms throughout the Third District reported significantly stronger growth for temporary positions and permanent placements and across all sectors. Several firms reported their strongest levels of activity since the past recession began, with growth driven by firm expansions as well as replacement hires.
Tourism activity continued at high levels for modest growth over the prior year. "Spectacular" weather, a later Labor Day weekend, and a papal visit contributed to increased visitors and spending in most of the Third District tourist destinations. The brief papal visit to Philadelphia shifted significant spending from Center City stores and restaurants to mountain and shore destinations, as the region's population made way for tourists from around the nation and around the world.
Prices and Wages
General price levels have continued to rise slightly since the previous Beige Book period; however, reported increases appeared weaker than before. Roughly two-thirds of the contacts reported no significant change in the prices they pay for inputs and the prices received for their goods and services. Compared with last period, fewer nonmanufacturing contacts reported increases of prices paid, while relatively more reported decreases of prices received. In manufacturing, more contacts reported price decreases in both categories. On balance, manufacturers reported no change in prices paid and a decrease in prices received. Retail contacts reported little pressure to raise prices.
Generally, contacts continued to report little change in wage pressures. However, several staffing contacts indicated difficulties recruiting for low-skill positions. Low wages and compensation were cited as one factor. Another factor is the undesirability of the fluctuating schedule associated with fulfillment centers where employees are only needed for a few days at a time. In other sectors, contacts continued to report some difficulties filling highly technical positions.