Beige Book: National Summary
October 14, 2015
Prepared at the Federal Reserve Bank of New York and based on information collected on or before October 5, 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.Reports from the twelve Federal Reserve Districts point to continued modest expansion in economic activity during the reporting period from mid-August through early October. The pace of growth was characterized as modest in the New York, Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis Districts, while the Minneapolis, Dallas, and San Francisco Districts described growth as moderate. Boston and Richmond reported that activity increased. Kansas City, on the other hand, noted a slight decline in economic activity. Compared with the previous report, the pace of growth is said to have slowed in the Richmond and Chicago Districts. A number of Districts cite the strong dollar as restraining manufacturing activity as well as tourism spending. Business contacts across the nation were generally optimistic about the near-term outlook.
Consumer spending grew moderately in the latest reporting period. Most Districts reported that non-auto sales grew at a modest or moderate rate, while vehicle sales generally grew more strongly; tourism across the nation was mixed. Nonfinancial services activity generally strengthened since the previous report, although freight transport activity weakened.
Manufacturing turned in a mixed but generally weaker performance during the latest reporting period, with a number of Districts noting adverse effects from the energy sector. Some strength was reported in the motor vehicles, aerospace, and transportation equipment industries, while metals industries were generally weaker--in part, due to the strong dollar.
Both the housing and commercial real estate markets improved since the last report. Home prices and sales volume increased in almost all regions, and a number of Districts noted relative strength in the market for lower or moderately priced homes. Both residential rental markets and commercial real estate markets were mostly stronger. Commercial and residential multi-family construction showed further strength; single-family construction activity was more mixed but did increase modestly.
Reports on the banking and finance sector were generally positive--lending activity increased, loan quality was steady to improved, and lending standards were little changed or somewhat easier.
Agricultural conditions were mixed. Growing conditions and farm output were solid in some Districts, but there were adverse effects from droughts in the south, as well as excessive rainfall in the Richmond and St. Louis Districts. Lower crop and livestock prices raised concerns that farm income may weaken. Activity in the energy industry weakened since the last report.
Labor markets tightened in most Districts, with some reports of labor shortages--particularly for skilled workers. Wage growth was mostly subdued, though there were scattered reports of increased wage pressures. Prices remained fairly stable across the nation, as most Districts reported that prices of both inputs and finished goods were little changed or up only slightly, though some Districts report declines for energy, as well as other inputs.
Consumer Spending and Tourism
Consumer spending grew at a moderate pace over the latest reporting period. Most Districts indicated that non-auto retail sales expanded at a modest or moderate rate. New York and Atlanta characterized sales as mixed, while Richmond and Chicago noted that growth slowed; Kansas City, however, indicated that sales weakened slightly. Contacts were described as generally optimistic about the sales outlook in the Boston, Philadelphia, Atlanta, Kansas City, and Dallas Districts.
Vehicle sales generally increased in the latest reporting period. Richmond, Atlanta, Chicago, and Dallas characterized auto sales as strengthening; New York said they were steady to stronger; and St. Louis and Minneapolis described them as mixed. Modest growth in vehicle sales was reported in the Philadelphia, Cleveland, and Kansas City Districts.
Tourism was mixed across the nation. Minneapolis and San Francisco indicated increased activity, and Philadelphia, Atlanta, and Chicago reported that tourism was at high or strong levels. In contrast, tourism was seen to have weakened in the New York, Kansas City, and Dallas Districts. The strong dollar was mentioned as a restraining factor by New York, Minneapolis, and Dallas.
Nonfinancial Services
Nonfinancial services activity generally strengthened since the previous report. The New York, Philadelphia, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts reported that service-sector activity expanded, on balance, while such activity was reported to be mixed in the Richmond District. Revenues increased for advertising and business services firms in the Boston District, while Dallas reported particularly strong demand for logistics and accounting services and little evidence of negative effects on professional services from lower energy prices. Activity in the technology services sector expanded in the San Francisco District, particularly for cloud-based remote services.
On balance, goods transportation services softened since the previous report. Some declines in shipments and cargo volumes were noted in the Cleveland, Atlanta, St. Louis, Kansas City, and Dallas Districts, particularly metals and energy-related shipments. Partially offsetting these declines, motor vehicle shipments were said to have increased in the Cleveland and Dallas Districts. In addition, port contacts in the Richmond District noted that exports softened and imports strengthened due to the strong dollar, while port contacts in the Atlanta District reported strong demand across all cargo types. Sturdy demand for trucking services was noted in the Atlanta and Dallas Districts.
Manufacturing
On the whole, manufacturing conditions were generally sluggish. Reports were mixed across Districts, and among those that saw some increase in activity, such improvement was mild. Chicago and St. Louis reported modest growth in manufacturing activity, and Dallas reported that most manufacturers saw an increase in demand since the last report. On the other hand, Cleveland, Richmond, Boston, Minneapolis, and San Francisco all reported that manufacturing activity was flat or mixed, while the remaining four Districts--New York, Philadelphia, Atlanta, and Kansas City--noted that manufacturing activity had declined. Several Districts reported fairly strong growth in activity related to motor vehicles, aerospace, and transportation equipment. Cleveland, Chicago, and San Francisco all reported that the demand for steel remained weak, with the strong dollar and competition from China cited as factors driving this trend. Falling demand from the energy sector was also cited as a source of weakness by a number of Districts. Activity related to primary and fabricated metals was mixed, with Chicago and Kansas City seeing weakness in these sectors, while Philadelphia, St. Louis and Dallas saw some expansion in metals related industries. Demand for high tech manufacturing picked up slightly in the Dallas District, while semiconductor sales slowed in the San Francisco District.
Real Estate and Construction
Residential real estate activity has generally improved since the last report, with almost all Districts reporting rising prices and sales volume. One exception was the Chicago District, where prices and sales volume were generally steady. A number of Districts noted that the market for lower or moderately priced homes has outperformed the high end of the market. The inventory of available homes was reported to be low in the Boston, New York, Richmond, and St. Louis Districts; and San Francisco reported a shortage of available land in some areas. On the other hand, Philadelphia reported adequate inventories, and Dallas noted a fair amount of supply in the pipeline. Boston, New York, and Chicago indicated rising residential rents, while Minneapolis reported sharp declines in rents in energy-producing areas of North Dakota. Residential construction has been mixed but generally stronger in the latest reporting period, with multi-family outpacing single-family construction. Strong multi-family construction was highlighted in the New York, Cleveland, Richmond, and San Francisco Districts, while Atlanta reported strong residential construction generally. However, Minneapolis and Kansas City reported declines in new home construction. Philadelphia mentioned a lack of new construction, while Dallas reported that new construction has been restrained by labor shortages; Chicago indicated little change.
Commercial real estate markets have shown signs of strengthening in all twelve Districts. Most Districts noted improvement across all major segments, though New York and St. Louis noted some increased slack in the market for retail space. Commercial construction was also stronger in most Districts. Boston and St. Louis noted brisk construction in the health sector, including senior care facilities, and Cleveland also indicated strong demand for senior living structures. New York, on the other hand, noted some pullback in new commercial construction, though activity remained fairly brisk.
Banking and Financial Services
Reports from the banking sector were generally positive. Loan demand or volume was reported to be growing in the Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Dallas, and San Francisco Districts. Other Districts indicated mixed loan demand: New York reported rising demand for commercial loans but declining demand for refinancing, and Kansas City indicated weaker demand for agricultural loans but steady demand in other categories.
Credit conditions were mixed but mostly improved. Improved loan quality or declining delinquency rates were noted in New York, while Cleveland, Richmond, and Kansas City reported little change. Richmond and Chicago indicated some easing in lending standards, while New York, Kansas City, and Dallas reported no change. San Francisco reported tight lending conditions in the residential real estate segment.
Agriculture and Natural Resources
Agriculture conditions were mixed. Growing conditions and farm output were solid in some Districts, while either drought or excessive moisture hampered production in other Districts. Several Districts reported lower prices for crops and livestock, raising concerns that farm income may weaken as a result. Drought conditions were seen in parts of the Atlanta and Dallas Districts, and excessive rainfall was reported in the Richmond and St. Louis Districts. Corn and soybean crops were reported as being in excellent shape by Chicago, Minneapolis and Kansas City, and the San Francisco District reported that grain yield has been excellent.
Activity in the energy industry declined further since the last report, particularly in the Minneapolis, Kansas City and Dallas Districts, where the number of active drilling rigs fell. Dallas said that the demand for oilfield services remained depressed, and exploration and production companies reduced business activities in the Atlanta District. Coal production fell in the St. Louis District and in parts of the Richmond District, and natural gas production was flat in the Richmond District.
Employment, Wages and Prices
Labor markets generally tightened since the previous report. The New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Dallas Districts indicated that employment was up modestly to moderately. Boston reported that most advertising and consulting firms planned to increase hiring, while manufacturers were cutting staff. Many Districts continued to report that employers were having difficulty finding skilled workers, and, in some cases, unskilled workers. Scattered labor shortages were reported in construction (Cleveland, Chicago, San Francisco), trucking (New York, St. Louis, Kansas City), and information technology (New York, Kansas City, San Francisco). However, contacts in the Philadelphia District noted relatively more growth of part time and temporary positions compared to full-time positions, and Dallas reported that layoffs in the energy industry were still underway.
Wage growth remained subdued in most Districts since the previous report. The Boston, Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and Dallas Districts noted only slight to modest wage increases. To the extent that more significant wage increases were observed, they were largely concentrated among highly skilled workers in information technology, health care, professional services, and some of the skilled trades. However, New York noted increased wage pressure for both skilled and less skilled workers, and San Francisco noted that the impact of higher minimum wages implemented over the past year began to filter through to the retail sector and resulted in increased wages for some lower-skilled workers.
Price pressures were said to be contained, as most Districts reported that both input and finished goods prices were little changed or up only slightly since the previous report. Contacts in the Kansas City District noted that prices grew more slowly than in recent months, and eased in some sectors. Moreover, low or declining prices for energy products, technology goods, some agricultural commodities, and metals were cited by some Districts.