Beige Book Report: Philadelphia
April 18, 2018
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 activity appeared to accelerate to a moderate pace, while nonauto retail sales, tourist activity, nonfinancial services, and nonresidential leasing markets grew modestly. Contacts from new home construction and nonresidential construction reported no change in activity. Auto sales continued to decline modestly, and existing home sales fell moderately. On balance, employment, wages, and prices continued to grow modestly. Contacts from various sectors noted that manufacturers may need to train workers and raise wages to attract and retain employees. The growth outlook over the next six months remained positive, with over half of all firms anticipating increases in general activity.
Employment and Wages
Employment continued to grow at a modest pace during the current Beige Book period. Manufacturing and nonmanufacturing firms reported ongoing net additions to staff; average hours worked edged down over the period for manufacturing firms but rose among nonmanufacturers.
While wage growth edged higher among some contacts, on balance, the pace appeared to remain modest. The share of nonmanufacturing firms reporting increases broadened to over 40 percent. However, most banking contacts continued to note few signs of wage inflation.
Staffing firms continued to report steady demand for temporary workers and direct hires in several local labor markets. Wage pressures continued to be higher in tighter markets, such as central Pennsylvania, where one firm reported wages rising 4 percent over the year.
One staffing firm noted manufacturing clients' reluctance to raise wage rates. Among our contacts, manufacturers were most likely to cite a lack of skilled labor; however, one contact recently said that "higher pay and good medical benefits help in recruiting and keeping people." That contact also noted that the firm is raising prices to cover the cost and is running at 100 percent of practical capacity. Another manufacturer stated, "It's time for private enterprise to learn more about how to bring in raw talent and train up to the requirements."
Prices
On balance, prices rose modestly, as most contacts continued to report no change in prices paid and received. The percentage of manufacturing firms reporting increases edged down from the prior period for prices paid and for prices received for their own goods. Among nonmanufacturing firms, slightly more contacts noted increases for prices paid and received than during the prior period.
Builders continued to note rising prices for construction materials as well as labor and noted concerns about a potential trade war. Contacts cited double-digit price hikes for lumber and drywall and expressed concern for steel and reinforced concrete.
Looking ahead six months, manufacturing firms continued to anticipate higher prices, with nearly two-thirds expecting increases in prices paid and over half expecting increases in prices received for their own goods. Of the 22 manufacturing firms that offered general comments, seven mentioned impacts from recent tariffs or proposed tariffs--most noted rising prices or anticipated rising prices; just one firm anticipated greater demand.
Manufacturing
On balance, manufacturing activity accelerated a bit to a moderate pace of growth, with more firms reporting increases in shipments and new orders.
The makers of paper products, chemicals, primary and fabricated metal products, industrial machinery, and electronic equipment tended to note gains in new orders and shipments; no sectors noted declines. The growth may be partially due to seasonal trends because the same pattern was apparent during the same period last year.
Most manufacturing contacts continued to expect general activity to increase over the next six months; the percentage of firms expecting future increases remained between 55 percent and 60 percent. The percentage of firms expecting increases in future capital expenditures and future employment also held steady at just above 40 percent.
Consumer Spending
On balance, nonauto retail sales continued to grow modestly. Retailers were generally more positive about consumer demand, despite losing several shopping days to winter storms, including the Monday after Easter. Closings and consolidations of stores, brands, and malls appear to be boosting sales for surviving retail locations.
Auto dealers continued to report modest declines in year-over-year sales this period. However, sales remain at high levels, and dealers are optimistic that the year will end with only a slight decline.
Tourism contacts continued to report modest growth overall. A Delaware contact reported heavy traffic, busy outlets, optimistic merchants, and several new hotels in the planning stages. New Jersey contacts were less optimistic regarding the local housing rental market in southern beach communities. Atlantic City's casino revenues fell on a year-over-year basis for a third consecutive month, which dampens neighboring shore activity.
Nonfinancial Services
On balance, service-sector firms have continued to report modest growth in general activity since the prior Beige Book period. The percentage of firms reporting an increase in sales edged down, while the percentage reporting an increase in new orders rose. Expectations of future growth remained high but the percentage of firms anticipating increased activity slipped below 60 percent.
Financial Services
Financial firms continued to report little change in overall loan volumes (excluding credit cards). Volumes did grow moderately in mortgages, commercial real estate loans, and commercial and industrial lending. Home equity lines, auto loans, and other consumer loans (not elsewhere classified) fell moderately.
Credit card lending fell further as consumers continued paying down holiday bills. Over the entire year, credit card loan volumes and total lending in all the other categories combined have grown at a moderate pace.
Banking contacts continued to describe solid ongoing economic growth in most parts of the District, with high consumer sentiment and business confidence. Overall, contacts noted that credit standards remain unchanged and credit quality remains very sound.
Real Estate and Construction
Homebuilders reported challenging weather conditions for construction activity and mixed reports for new contracts, suggesting little overall change in activity. Single-family detached home construction continues to give way to greater demand for townhomes, apartments, and condos.
According to Third District brokers, ongoing low inventories of houses for sale continued to constrain sales and place upward pressure on prices. Sales of existing homes fell moderately in February across most major markets compared with the same period last year; brokers saw no signs of an improvement in March.
Nonresidential real estate contacts reported no change in the already high levels of construction activity and the modest growth in leasing activity. Contractors report sufficient work to carry through to year-end, but a few new projects must break ground to maintain current activity levels through 2019. Although demand varies by sector and geography, rents tend to be rising in many markets, especially for industrial/warehouse sectors everywhere and for most sectors within the city of Philadelphia.
For more information about District economic conditions visit: www.philadelphiafed.org/research-and-data/regional-economy