Beige Book Report: Philadelphia
April 19, 2017
Summary of Economic Activity
Aggregate business activity in the Third District continued at a modest pace during the current Beige Book reporting period. Manufacturing, nonfinancial services, and homebuilding continued at a moderate pace of growth. Five sectors--nonauto consumer spending, auto sales, lending, and nonresidential construction and leasing--were essentially flat, similar to the prior period. Existing home sales grew slightly after declining last period. According to most contacts, employment, wages, and prices continued to grow at a modest pace. Overall, firms continued to expect moderate growth over the next six months.
Employment and Wages
Employment has continued at a modest pace of growth since the prior report. A higher percentage of manufacturing firms reported increases in employment this period than during the prior period. Manufacturers also continued to note increases in the number of average hours worked. Employment indicators from nonmanufacturing firms also improved, as contacts reported overall increases in full-time and part-time staff as well as workweek hours.
On balance, wage pressures continued to be modest, although contacts reported tightening labor markets. A majority of manufacturers reported labor shortages and skills mismatches, but less than half indicated increasing wages as a result. A Pennsylvania staffing firm continued to see strong demand for staffing services from companies across various sectors and noted a stronger pickup in wages than usual. Wage pressures remained modest for nonmanufacturers, though a slightly lower percentage of nonmanufacturing contacts reported wage increases this period than during the prior period.
Prices
On balance, price levels continued to rise modestly. More than two-thirds of firms' contacts reported no change at all in prices paid and prices received. Of the remaining firms, more reported increases than decreases with the exception of prices received by nonmanufacturing firms, which decreased slightly, on net. Homebuilders noted large increases in lumber and millwork costs and continued pressures for labor costs. Overall, the sales prices of existing homes rose slightly, although this varied across markets and price categories.
Manufacturing
Reports from manufacturers continued to suggest overall moderate growth. Higher percentages of firms reported increases in both new orders and shipments this period compared with the prior period.
Overall, gains in activity were indicated by most major sectors, including the makers of lumber products, paper products, chemicals, primary and fabricated metal products, industrial machinery, and electronic products.
Roughly two-thirds of the manufacturing contacts were optimistic that orders, shipments, and general activity would grow over the next six months, up slightly from the prior Beige Book period. Firms also expressed broader optimism for future employment and capital expenditures.
Consumer Spending
Nonauto retail sales were little changed on balance during the period, according to several analysts. One area chain reported a good month followed by a tough one that was largely impacted by the March snowstorm. However, the contact has started to express slight concern of a general slowdown in consumer spending beyond the weather impacts, as sales continued to underperform expectations. A mall operator noted pronounced weakness for winter apparel and also reported mixed sales over the Beige Book period--modestly up one month then down the next--with only a few retailers showing positive trends. Restaurant and food sales at malls were also down slightly.
Auto dealers reported year-over-year sales were flat to slightly down this period, after increasing slightly during the last Beige Book period. Pennsylvania dealers reported fairly steady activity, slightly up but similar to last year. Sales in New Jersey declined relative to last year's levels. Although contacts in New Jersey expressed uncertainty about keeping pace with the historic highs of the past two years, they expressed optimism that 2017 would still be a strong year. Dealers also continued to face high inventory and difficulty sustaining profitability and margins.
Tourism contacts generally indicated a continuation of modest growth. Philadelphia area hotels continued to report strong demand. A contact in the Poconos reported that while February had been a weaker month because of the mild weather, the late-season snowstorm in March led to a significant pickup in snow-related activities and boosted overall first-quarter performance. A Delaware contact noted that traffic counts and spending were up at Delaware beaches. In Atlantic City, casino revenues flattened this period after posting year-over-year gains in the prior period.
Nonfinancial Services
Third District service-sector firms continued to report moderate growth in general activity, overall, although the pace slowed somewhat from the prior period. Responses suggested little change in the pace of new orders but a slowing in the pace of sales. Expectations about future growth, which had tempered during the prior Beige Book period, changed little, and contacts remain optimistic.
Financial Services
Third District financial firms have reported little change in overall loan volumes excluding credit cards since the last Beige Book, similar to the prior period. Commercial real estate loan volumes grew notably, and volumes of residential mortgages grew slightly. Home equity loans posted modest decreases, and auto loans and commercial and industrial loans decreased slightly. Separately, a seasonal decline in credit card volumes that began in the prior period continued in this period, with a rate of decline similar to the change observed over the same period last year.
Most contacts continued to report competitive loan pricing and no signs of inflation. In general, banking contacts continued to express cautious optimism for slow, steady growth.
Real Estate and Construction
Homebuilders continued to report moderate increases in traffic, contract signings, and construction backlogs. A South Jersey builder noted a continuation of the longest run of steady sales (since November) in over 10 years, while a Pennsylvania builder started to see more first-time homebuyers compared with last year. Some contacts wondered if recent interest rate increases helped get potential buyers off the fence.
Brokers in most major Third District housing markets reported a slight increase in existing home sales, following a modest decline last period. Contacts continued to report low levels of inventory.
Nonresidential real estate contacts covering much of the Third District continued to report little change overall to the relatively high levels of construction and leasing activity. Contractors noted a slight seasonal lull in construction activity, but they expect a pickup later in the year from large projects in the pipeline.