Beige Book Report: Philadelphia
November 29, 2017
Summary of Economic Activity
Aggregate business activity in the Third District continued at a modest pace of growth during the current Beige Book period. Manufacturing, nonfinancial services, and tourism grew modestly, while new home construction, existing home sales, nonresidential construction, and leasing appeared to grow slightly. Auto sales and nonauto retail sales appeared to decline slightly, after growing and remaining steady, respectively, during the prior period. On balance, employment resumed a modest pace of growth, and wages and prices continued to grow modestly. Overall, firms appear to anticipate continued growth over the next six months, but with a somewhat smaller percentage of firms expecting growth.
Employment and Wages
Employment resumed a modest pace of growth during the current Beige Book period following a lull during the prior period. Reports of net additions to staff rose for both manufacturing and nonmanufacturing firms. Average hours worked changed little over the period for manufacturing firms but dipped a bit among nonmanufacturers. Retailers reported little change to their typical hiring plans in preparation for the holidays.
On balance, wage growth held steady at a modest pace, with about 40 percent of nonmanufacturing firms reporting increases. Numerous firms have reported a lack of qualified labor for skilled positions or that they are offering a somewhat higher entry-level wage to attract labor. Staffing firms continued to report difficulties filling job orders and noted that an inordinate amount of their business is refilling positions due to turnovers, including quits by recent placements.
Prices
On balance, price levels continued to rise modestly. Across all contacts, the percentage of firms reporting increases in prices received for their own goods and services was lower during the current period than the prior period. For prices paid, the percentage of manufacturing firms reporting increases changed little, while the percentage of nonmanufacturing firms rose. A majority of contacts indicated no change in prices paid and received.
Retailers and banking contacts continued to report no signs of inflationary pressure, while homebuilders, reported increases for a broadening array of construction materials, including lumber and products containing petroleum. Overall, existing home prices continued to edge up, with some variance across markets and price categories.
Looking ahead one year, firms anticipate a 2.1 percent increase in prices received for their own goods and services--a bit lower than one quarter prior. Firms also reported expectations of about 2.4 percent annual inflation for consumers--also lower than earlier in the fall.
Manufacturing
On balance, manufacturing activity continued at a modest pace of growth, but signs of a slowdown emerged. The percentage of firms reporting increases in new orders and shipments fell compared with the prior period.
The makers of paper products, chemicals, primary metal products, fabricated metal products, and industrial machinery continued to note gains in new orders and shipments; firms in the lumber and electronic equipment sectors reported declines in activity.
Generally, manufacturing contacts continued to expect growth over the next six months. The percentage of firms expecting future increases for general activity dipped somewhat but remains above 50 percent. However, the percentage of firms expecting increases held mostly steady regarding future capital expenditures and rose a bit for future employment.
Consumer Spending
On balance, nonauto retail sales may have fallen slightly, essentially little changed from the prior Beige Book period. Mall and outlets operators noted that unseasonably warm weather depressed sales of winter apparel. An outlets operator reported that overall October sales were flat compared with last year. Convenience store contacts reported that business remained soft, as customers chase value and competition expands.
Auto dealers reported slight declines overall in year-over-year sales this period, a retreat from the modest increases during the prior period. Dealers were hopeful for stronger sales at year end, beginning with Black Friday, to boost 2017 totals. Manufacturers continued to provide incentives for dealers to sustain sales.
Tourism contacts generally indicated a continuation of modest growth. A Philadelphia analyst reported that overall travel demand remains stronger than in the prior year period, locally and nationally. In September, Atlantic City's casino revenues resumed a modest rate of growth relative to the prior year and sustained that growth in October. A Delaware shore hotel operator noted some weakening of rooms booked, room rates, and overall levels of spending at area stores and restaurants; however, the prior year had been very strong.
Nonfinancial Services
Service-sector firms have continued to report modest growth in general activity since the prior Beige Book period; however, new orders and sales softened somewhat, as did reports of general activity. Expectations about future growth have lessened somewhat since the prior Beige Book period but remained positive, with about 50 percent of the firms anticipating increased activity.
Financial Services
Financial firms reported modest growth of overall loan volumes (excluding credit cards)--similar to the prior Beige Book period. Loan volumes grew modestly in most categories, including mortgages, commercial real estate, commercial and industrial loans, and other consumer loans. Growth in auto loan volumes was stronger, while home equity lines were flat over the period. Credit card volumes--which are highly seasonal--changed little over the Beige Book period, which is similar to the same period last year.
Banking contacts tended to describe economic growth as slow and steady. On balance, loan portfolios were described as healthy, with low delinquencies and no significant signs of concern.
Real Estate and Construction
After little change through the summer and early fall, homebuilders generally reported a slight pickup in activity during the current period, particularly in the early weeks of November. In one area where single-family home construction remained weak, a builder noted that demand for remodeling work was strong.
On balance, brokers in Third District housing markets reported that ongoing weak inventory levels have slowed existing home sales to a slight pace of growth in the current period. Vacation home markets are an exception due to a recent resurgence of second home purchases.
Nonresidential real estate contacts continued to report slight growth at high levels in construction activity. Architecture and engineering contacts reported record years, with particularly strong demand for institutional and energy-related projects. Industrial/warehouse markets throughout the Third District are generally characterized by rising rates and ongoing strong demand for new construction. Leasing activity also appeared to grow slightly, although markets vary significantly by sector and geography.
For more information about District economic conditions visit: www.philadelphiafed.org/research-and-data/regional-economy