Beige Book: National Summary
January 13, 2016
Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before January 4, 2016. 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 indicated that economic activity has expanded in nine of the Districts since the previous Beige Book report and contacts in Boston were described as upbeat. Meanwhile, New York and Kansas City described economic activity in their Districts as essentially flat. Atlanta and San Francisco characterized the growth in their Districts as moderate; Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, and Dallas described their Districts' growth as modest. Contacts' outlooks for future growth remained mostly positive in Boston, Philadelphia, Atlanta, Chicago, Kansas City, and Dallas.
Growth of consumer spending ranged from slight to moderate in most Districts, while auto sales were somewhat mixed, as activity has begun to drop off from previously high levels in some Districts. Reports of tourism activity were also mixed.
Among the Districts that reported, nonfinancial services generally grew at a modest or moderate pace, although reports from staffing services and transportation services were somewhat mixed.
With the exception of motor vehicles and aerospace, most manufacturing sectors displayed a weakening in activity. Also, fewer Districts reported increases in manufacturing activity than decreases during the latest reporting period. Several Districts reported the strong dollar's negative impact on demand, while some noted that low energy prices have had a smaller, mixed effect.
Residential and commercial real estate activity generally improved, according to District reports. Stronger activity tended to be cited for multifamily construction and commercial real estate. House prices and commercial rental rates also rose somewhat in most Districts.
Overall, most Districts reported that loan demand grew, credit quality improved, or loan delinquencies fell, with credit standards changing little.
Districts reported that agricultural sectors weakened overall, and farm incomes were stressed. Flooding and drought in various regions aggravated the effects of already low and falling prices for farm commodities, caused in part by weak global demand and the strong dollar. Unseasonably warm winter weather in much of the nation further depressed energy prices and slowed significant segments of that sector.
Labor markets continued to improve, with employment increases evident in reports from seven Districts. Four Districts mentioned signs of labor market tightening. However, Districts reported little overall change in wage and price pressures, with wage increases running from flat to moderate, while price increases tended to be minimal.
Consumer Spending and Tourism
Most Districts reported some growth in consumer spending through the holiday season, with the pace of growth typically characterized as ranging from slight to moderate, and as strong in Minneapolis. New York, Richmond, and Dallas noted that sales were sluggish or had softened. Unseasonably warm weather was blamed for damping overall sales in Cleveland, Richmond, and Dallas, and for weaker apparel sales in New York. Richmond and Chicago also noted disappointing clothing sales. Similarly, San Francisco reported that apparel sales at brick-and-mortar stores failed to meet expectations. Minneapolis noted record-breaking online sales, while Cleveland described greater optimism among retailers anticipating enhanced opportunities from e-commerce.
Auto sales have continued to be positive in most reporting Districts since the previous Beige Book, with strength reported in Richmond, Atlanta, and Chicago. However, Kansas City reported that sales dropped markedly compared with last year, and New York and St. Louis reported recent slowing in activity. Contacts in roughly half of the Districts cited continued lower gas prices as a contributing factor for auto sales, particularly for increases in SUV and light truck sales.
Tourism activity varied across reporting Districts. Philadelphia, Dallas, and San Francisco reported overall increases in activity, while Minneapolis and Kansas City reported mixed conditions. New York indicated further weakening. Mild weather negatively impacted ski activity in New York, Philadelphia, Richmond, and Minneapolis but had a positive impact on shore and national parks visits in the Philadelphia and Minneapolis Districts. Richmond, Atlanta, and St. Louis reported positive hotel bookings and occupancy, while New York reported that hotel revenues were down.
Nonfinancial Services
Overall, nonfinancial services have grown modestly to moderately since the previous Beige Book. Professional and technical services firms saw moderate growth in the Minneapolis, Kansas City, and Dallas Districts. Consulting firms in the Boston District reported strong demand, and the demand for server and cloud computing services continued to rise in the San Francisco District. Contacts in the New York District reported sluggish business activity. Staffing services were somewhat mixed across reporting Districts. Staffing firms in Philadelphia reported strong growth for temporary and permanent placements across a range of sectors, while staffing demand in the Dallas District varied by location. Contacts in New York were somewhat less optimistic about the near-term outlook, while contacts in Boston, Philadelphia, St. Louis, and Kansas City continued to expect positive growth.
Reports on transportation services varied. Atlanta, Minneapolis, and Dallas contacts noted a surge in e-commerce shipments, and parcel companies in St. Louis reported record holiday-related demand. Richmond District ports reported strong vehicle imports, and Atlanta District ports cited strong retail goods imports year over year; however, both Districts noted softening in exports. Cleveland and Kansas City noted general declines that Cleveland attributed to weakness in the energy and steel sectors, and to the export environment.
Manufacturing
Manufacturing activity has been varied across Districts since the last Beige Book period, with nearly half of the Districts reporting overall declines. New York, Philadelphia, Atlanta, Minneapolis, and Kansas City indicated that manufacturing activity declined; however, Cleveland, Richmond, and Chicago reported that manufacturing activity grew modestly to moderately. Dallas characterized its demand as flat or increased, while San Francisco reported that activity was flat to down, on balance.
Boston, Philadelphia, Cleveland, Dallas, and San Francisco noted the strong dollar's negative impact on manufacturers' exports. Contacts in Philadelphia and San Francisco also cited weak global demand as contributing to declines. Boston, Cleveland, and Dallas manufacturers reported the benefit of low energy prices on their margins, but Cleveland contacts indicated that the low energy prices did not offset the impact of the strong dollar. Furthermore, suppliers to the oil and gas exploration sector reported weak, and sometimes deteriorating, demand in Philadelphia, Cleveland, Richmond, Chicago, St. Louis, and Kansas City. The motor vehicle and motor vehicles parts industry generally experienced strong demand in Cleveland, Richmond, and Chicago, and announced significant expansions in St. Louis. The aerospace industry was a bright spot for metals manufacturers in Cleveland and Chicago; in Minneapolis, an aircraft producer was expanding for the launch of a new product.
Contacts in Boston, Atlanta, Minneapolis, St. Louis, and Kansas City remained optimistic about the near-term outlook for manufacturing growth. Expectations in Philadelphia have weakened significantly since the last Beige Book but have remained positive, while the expectations of manufacturers in Cleveland have been mixed. New York contacts were less optimistic about the near-term outlook.
Real Estate and Construction
Residential real estate activity as measured in sales was generally positive in New York, Cleveland, Chicago, and St. Louis. Richmond experienced steady sales with pockets of strength, and Kansas City reported declines. Prices rose slightly to modestly overall in all reporting Districts, and inventories remained low in Boston, Richmond, and Minneapolis, and some parts of the New York District; however, New York City's rental vacancy rate increased. Though Boston contacts expected the market to perform well in 2016, contacts in Cleveland and Kansas City expressed concerns that higher interest rates may slow activity. Residential construction activity was described as modest or moderate in most Districts but was more subdued in New York, Atlanta, and Dallas overall. Multifamily construction continued to be strong in New York, Richmond, Minneapolis, and San Francisco and showed improvement in Chicago.
Most reporting Districts characterized nonresidential real estate activity as modest to moderate; Boston and New York indicated little change. Rental rates rose in more than half of the reporting Districts, and vacancy rates were mixed. Most Districts reported modest or moderate growth in commercial construction, and the Dallas District noted high levels of industrial construction in Dallas-Fort Worth. Contacts in the Atlanta District expect construction activity to increase slightly, while contacts in the Philadelphia, St. Louis, Minneapolis, and Richmond Districts expect overall commercial real estate activity to continue to strengthen at least modestly.
Banking and Finance
Lending activity appears to have improved on net. Loan demand grew on balance in the Philadelphia, St. Louis, and San Francisco Districts. Cleveland, Richmond, and Kansas City reported stable credit demand, on balance, while Dallas noted some recent softening. Philadelphia reported the strongest loan growth for autos, commercial real estate, and commercial and industrial deals, while residential lending was flat to down. San Francisco noted robust growth of automobile loans and mortgage originations. Atlanta reported an increase in residential mortgage lending and refinancing, while New York reported weaker demand from the household sector, but steady commercial demand. Chicago noted continued strength in auto lending and some slowing of loan demand from small and middle-market businesses, while most other household lending was little changed. The slumping energy sector was cited as a factor for lower loan demand by some contacts in the Cleveland, Richmond, and Atlanta Districts.
Credit conditions generally improved. New York, Philadelphia, Richmond, and San Francisco cited improved credit quality, declining delinquencies, or both, in all or part of their Districts. Cleveland reported no change in delinquencies. Dallas contacts noted increasing delinquencies of loans to oil and gas companies. New York, Cleveland, Richmond, and Kansas City reported little or no change in credit standards. Seven Districts described some competitive conditions, including competition from nonbank, online entities, whereas New York cited some narrowing of spreads in all loan categories. However, Chicago noted signs of slight tightening of credit supply.
Agriculture and Natural Resources
Agricultural reports were generally flat to down. With few exceptions, commodity prices for crops and livestock have remained low or have fallen since the previous reporting period, stressing farm incomes. Chicago, Kansas City, and Dallas reported that conditions were not profitable for some producers, as farm input prices have not fallen as fast. These three Districts also cited large harvests as a factor in keeping commodity prices low, while Kansas City and San Francisco reported that weak global demand and the strong dollar held down livestock exports. Drought remained a problem in parts of the San Francisco District for some producers, while heavy rain and flooding continued to impact harvests in the Richmond, Atlanta, St. Louis, and Dallas Districts.
Most segments of the energy sector struggled further, as oil and gas prices continued to decline. Cleveland and Kansas City reported that warmer-than-normal temperatures throughout much of the nation has further increased already abundant inventories of oil and gas and kept downward pressure on already low energy prices. Cleveland, Atlanta, Minneapolis, Kansas City, and Dallas reported continued declines in oil and gas drilling; several of these Districts noted that affected firms continued to experience serious financial stress and to reduce employment. In contrast, Cleveland, Minneapolis, and Dallas cited positive impacts for oil refineries, and Cleveland reported that investment in pipeline construction continues unabated. Coal production fell in the Richmond and St. Louis Districts, and iron ore mining fell in the Minneapolis District.
Employment, Wages, and Prices
District labor markets continued to improve. Richmond reported moderate employment increases, while Philadelphia, Chicago, and Dallas reported slight to modest job growth, and Cleveland indicated little change. On balance, New York and Atlanta contacts reported more hiring, than layoffs. Boston and Minneapolis offered mixed examples but both reported that firms had plans to add employees. St. Louis also reported positive hiring expectations. Labor markets were described as tight or tightening in the New York, Cleveland, Atlanta, and Minneapolis Districts. Staffing firms in New York, Philadelphia, Richmond, and Minneapolis cited various positive signs of strong labor demand, including demand from specific technical sectors in the Boston District to a broad range of sectors in the Philadelphia District. Hiring metrics were reported as flat or mixed from staffing agencies in Cleveland, Chicago, and Dallas.
Overall, wage pressures remained relatively subdued, as evidenced by reports from Philadelphia, Atlanta, Chicago, and Kansas City. Just two Districts--New York and San Francisco--indicated some acceleration in upward wage pressures. Cleveland, Richmond, and Dallas cited mixed reports, ranging from flat to moderate wage pressures. Seven Districts mentioned greater wage pressures for skilled workers in a variety of industries, including construction, manufacturing, financial, professional, technology, and health-care sectors. However, wage pressures among low-skilled positions were almost as pervasive, with six Districts citing pressure stemming from state minimum wage increases and from labor shortages or turnover among entry-level positions in banking, retail, and hospitality.
Nearly all Districts reported that overall price pressures were minimal. Price increases were noted by service-sector firms in New York, Philadelphia, and San Francisco, and by retail outlets and restaurants in Richmond and Kansas City. Prices of inputs and finished goods for manufacturers tended to be stable or declining, although Richmond's manufacturing contacts reported rising prices for both. Falling energy prices, as cited by Richmond, Kansas City, and Dallas, and lower prices for copper, steel, and other commodities, as cited by Boston, Cleveland, Atlanta, and Chicago, were generally described as contributing to lower input costs for manufacturers. Low oil prices were also credited for reducing home heating costs in Minneapolis and airfares in Dallas. Six Districts reported low or falling prices for most crops and livestock. Chicago and Kansas City contacts indicated that large harvests had contributed to the price declines.