Beige Book: National Summary
June 5, 2013
Prepared at the Federal Reserve Bank of Minneapolis and based on information collected on or before May 24, 2013. This document summarizes comments received from business and other contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.
Overall economic activity increased at a modest to moderate pace since the previous report across all Federal Reserve Districts except the Dallas District, which reported strong economic growth. The manufacturing sector expanded in most Districts since the previous Beige Book. Most Districts noted slight to moderate gains in consumer spending and a moderate increase in vehicle sales. Tourism showed signs of strength in several Districts. A wide variety of business services expanded, and transportation traffic increased for producer, consumer, and trade goods. Residential real estate and construction activity increased at a moderate to strong pace in all Districts. Commercial real estate and construction activity grew at a modest to moderate pace in most Districts. Overall bank lending increased since the previous report. Credit quality and deposits increased, while credit standards were largely unchanged. Agricultural conditions remained mixed across Districts, as weather patterns varied. Overall activity in the energy sector was flat, and mining was down.
Hiring increased at a measured pace in several Districts, with some contacts noting difficulty finding qualified workers. Wage pressures remained contained overall, although several Districts reported a modest or moderate rise for selected occupations. Districts reported level prices to mild price increases; some manufacturers raised prices and some increases for input prices were noted.
The manufacturing sector expanded in most Districts since the previous Beige Book. Activity increased in the Boston, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts. Manufacturing contacts in the New York District reported steady business activity. In the Philadelphia District, manufacturers reported that orders and shipments have fallen somewhat, and in the Richmond District, manufacturing activity softened since the previous report, although there were scattered reports of improvement. Most firms in the Boston District are reasonably optimistic about the outlook, and many contacts in the Cleveland District believe that business conditions will continue to improve slowly during the second half of the year. However, the near-term outlook has waned somewhat in the New York District.
Continuing a theme from the previous report, strength in residential construction was a boon to manufacturers who supplied that industry. Firms in the Philadelphia District supplying the home-building sector reported strong orders, and the Cleveland District noted that suppliers to residential construction were among those seeing the strongest activity, while the Richmond, St. Louis, Dallas, and San Francisco Districts all reported increased demand for lumber or wood products. Growth in the auto industry was noted by the Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis Districts, although the Chicago District reported that the auto industry grew at a more moderate pace. Producers of inputs for the oil and gas industries saw growth in the Philadelphia, Cleveland, and Atlanta Districts. The food processing industry grew in the Philadelphia and Dallas Districts. Electrical equipment saw increased activity in the Boston and San Francisco Districts but lower activity in the Philadelphia District. Demand for fabricated metals expanded in the Philadelphia District, while specialty metal manufacturers in the Chicago District reported small increases in new orders, noting that their customers had become more cautious. Fabricated metals producers in the Dallas District reported that demand remained steady for both private and public projects.
The defense industry experienced weakening activity in the Cleveland District, and a producer of defense equipment in the Richmond District cited government sequestration and orders being canceled or delayed. Steel production was mixed. Steel producers in the Cleveland District reported that shipping volume was stable but remains below levels seen early in the first quarter, and both the Cleveland and Chicago Districts noted an increase in imports of steel. The St. Louis and San Francisco Districts reported an increase in demand for steel. Lower demand for primary metals was noted in the Philadelphia and Dallas Districts.
Consumer Spending and Tourism
Most Districts noted that consumer spending increased during the reporting period, ranging from slight to moderate gains. Retail activity in the Boston, Philadelphia, and Dallas Districts was characterized as modest or moderate, while the Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and San Francisco Districts reported slight growth. Retailers in the New York District reported that sales were tepid in April but picked up in May. Meanwhile, the Richmond District noted that sales were flat during the reporting period. The Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, and Minneapolis Districts reported that late winter weather slowed retail sales; the Chicago District noted that sales picked up once warmer weather arrived. Demand for home furnishings and furniture was strong or picked up in the Boston, Cleveland, and Richmond Districts; however, furniture sales slowed in the Chicago District. The Kansas City District reported that appliance purchases were particularly strong. Inventories were generally at desired levels in the New York and Chicago Districts. The outlook for retail spending was positive in the Kansas City and Dallas Districts, while more cautious expectations were noted in the Boston, Cleveland, and St. Louis Districts.
Vehicle sales generally increased moderately across Districts. The New York, Richmond, and San Francisco Districts reported that sales remained strong or at high levels. Meanwhile, the Minneapolis District reported modest growth in auto sales, and contacts in the Kansas City District reported that sales declined. Used car sales increased in the Chicago and St. Louis Districts, while the Richmond District noted that the availability of used cars improved. Meanwhile, the New York, Cleveland, and San Francisco Districts reported a shortage of used cars or a decline in used car sales. Inventories increased in the Cleveland and Kansas City Districts, while inventories were lean in the Philadelphia District. More respondents to a St. Louis District survey indicated that inventories were too high than too low. The Philadelphia, Cleveland, St. Louis, Kansas City, and Dallas Districts noted that the outlook for future sales was generally positive.
Tourism showed signs of strength in several Districts. The Boston District reported increased tourism revenues but noted that attendance at museums and attractions was down, perhaps due to weather affecting leisure travel plans. The New York District noted that tourism activity was mixed but fairly robust since the previous report. The Richmond District reported that unseasonably cool weather negatively affected some resorts. Leisure and international travel continued to experience healthy demand in the Atlanta District. Extended winter weather boosted skiing in parts of the Minneapolis District. The San Francisco District reported that travel and tourism activity in Hawaii was robust, while activity in southern California declined a bit. Hotel occupancy and room rates were higher in the Atlanta and Kansas City Districts. Advanced bookings and the overall outlook for summer travel were optimistic, but the San Francisco District noted some concern that the flow of international visitors could taper off in coming months due to potential weakness in the global economy.
Nonfinancial services activity grew at a modest to moderate pace since the previous report. The Philadelphia District noted steady gains, while moderate growth was reported in the Minneapolis District. The San Francisco District saw flat demand for health care and legal services. The Boston District noted sluggish activity in information technology services, while the Kansas City District saw increased demand for high tech services. Information technology, distribution, business support, health care, engineering, and hospitality firms expanded in the St. Louis District. The Richmond District reported "renewed vigor," especially for technology and architectural firms. The Dallas District saw strong demand for accounting services and modest increases in legal services.
Transportation activity increased. The Cleveland District noted strong activity, while both import and export traffic increased in the Richmond District. The Atlanta District reported increased movement of petroleum products and wood products but decreased shipments of grain products, metallic ores, military machinery, and transportation equipment. The Dallas District saw increased cargo and container volumes. The Kansas City District reported slower transportation activity due to poor weather conditions. Minneapolis District contacts expected small increases in freight traffic in the second half of the year.
Real Estate and Construction
Residential real estate and construction activity increased at a moderate to strong pace in all Districts. Several Districts reported that higher demand and low inventory of homes available for sale are resulting in multiple offers on properties. Almost all Districts reported higher home sale prices. The Kansas City District reported concerns that appraisals were not keeping pace with price increases. Foreclosed properties available for sale have declined significantly in the San Francisco District. The rental market remains tight with noticeable increases in rental rates in the New York District. Residential construction increased across all of the reporting Districts. Several Districts noted increases in multifamily projects. The Minneapolis District reported that many markets saw huge percentage increases in building permits from a year ago. Builders are cutting back on discounting in the Cleveland District. The Richmond District noted that increased construction has pushed up the price of building lots, and the Atlanta District reported that the lack of available lots has constrained building activity. The Philadelphia District commented that builders are facing problems, as the long housing recession has disrupted the supply chain for materials and the pool of skilled workers.
Commercial real estate and construction activity expanded at a modest to moderate pace in most Districts. The New York District reported that the Manhattan market is particularly robust. The Chicago District noted that an increase in demand for leasing was pushing up commercial rents, with strong demand from the health care sector. However, a market in the Boston District indicated no change in commercial rents or vacancy rates since the previous report. A market in the Richmond District had more hotels complete construction, and retail space was absorbed at a faster pace. Commercial construction continues to expand. The Philadelphia District said that most construction activity is related to ongoing demand for industrial warehouse space, higher education facilities, and public utility infrastructure. The Atlanta District reported that most activity was coming from build-to-suit projects. The Dallas District noted an increase in office building construction. The Cleveland District said that many projects are in development, but new inquiries are weak. The San Francisco District noted that in some regions, construction of publicly funded commercial projects has slowed due to funding constraints from state and local governments.
Banking and Finance
Overall bank lending increased modestly since the previous report. The Cleveland District noted that consumer demand for auto loans increased and that demand for residential loans shifted from refinancing to new purchases. The Chicago District indicated modest growth in business loan demand. The Dallas District reported robust growth in residential mortgages and auto lending with continued weakness in corporate transactions. The New York District saw an increase in demand for all types of loans except commercial and industrial loans, where demand was unchanged. San Francisco District banking contacts reported ample liquidity and competition among lenders for well-qualified business borrowers but limited credit availability for small businesses. The Philadelphia District noted slow loan growth, and the Atlanta District reported weak loan activity.
Credit quality improved, on balance. The New York and Cleveland Districts reported widespread decreases in delinquency rates for business and consumer loans. Several Districts reported that credit standards have not changed much since the previous report.
Agriculture and Natural Resources
Agricultural conditions remained mixed across Districts, as weather patterns varied. Recent rains brought drought relief to the Atlanta, Chicago, and Minneapolis Districts but delayed or slowed plantings in the Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts. Meanwhile, drought conditions worsened in the Dallas District, and contacts in the San Francisco District remained concerned that limited water availability in parts of the District could pass through to lower seasonal hiring and reduced agricultural output in coming months. Farm incomes increased in the Minneapolis District, while farm income growth softened in the Kansas City District. Well over 90 percent of the St. Louis District's winter wheat crop was rated in fair or better condition, but winter wheat crop conditions deteriorated further in the Kansas City District, with much of the crop in relatively poor condition. Forage crops were having a great spring in the Richmond District, and pastures and hayfields were in good condition.
Overall activity in the energy sector was flat, and mining was down. The San Francisco District saw decreased natural gas drilling. The Cleveland, Atlanta, and Kansas City Districts noted that oil activity was flat and that natural gas activity was up. The Minneapolis District reported that the energy sector remained strong. The Dallas District said that drilling activity was up. Coal mining was down slightly in the Cleveland and St. Louis Districts, while coal mining in the Kansas City District was steady. Iron ore mining production was down in the Minneapolis District.
Employment, Wages, and Prices
Hiring increased at a measured pace in several Districts, with some contacts noting difficulty finding qualified workers. Labor markets continued to improve in the New York District. The Boston District reported that with only a few exceptions, businesses were not hiring much beyond replacement, while labor markets in the Richmond District were uneven. Labor markets continued to improve slowly in the Chicago District. The St. Louis District reported that employment levels over the past three months have stayed the same or increased for a majority of contacts. Labor markets tightened in the Minneapolis District, particularly near the oil boom area in western North Dakota and eastern Montana, although some easing in the pace of growth was noted over the past six months. Labor markets were steady in the Dallas District. The New York, Philadelphia, Richmond, Minneapolis, Kansas City, and Dallas Districts cited examples of contacts reporting difficulty finding qualified people to fill vacancies. The Richmond and Cleveland Districts noted that new hours of service regulations may exacerbate difficulty finding truck drivers. A number of Districts reported solid demand for workers in information technology, health care, and engineering. The Richmond and Atlanta Districts cited employment reductions due to cutbacks in government orders or staffing at government offices. Among staffing services firms, billable hours increased in the Philadelphia District but decreased in the Boston District. Meanwhile, staffing services were steady in the Dallas District and mixed in the Cleveland District. The outlook for hiring was generally positive in the Richmond and Minneapolis Districts.
Wage pressures remained contained overall, though several Districts reported a modest or moderate rise for selected occupations. The Cleveland, Minneapolis, Dallas, and San Francisco Districts indicated that overall wage pressures were subdued. The Philadelphia and Kansas City Districts reported that wage pressures increased slightly, while reports were mixed in the Richmond District. The New York District noted that although qualified job candidates were said to be increasingly hard to find, most employers were holding the line on compensation. Exceptions included increased wages for home builders in the Philadelphia District, and legal and financial services in the Dallas District. Contacts in the Richmond, Chicago, and Kansas City Districts expressed concern over the effect of health care reform on labor costs. The Philadelphia and Cleveland Districts reported increased costs for health insurance.
Districts reported level prices to mild price increases. The Boston District reported that aside from food, input prices were generally unchanged, although a few manufacturers have raised their own prices. Manufacturers in the Richmond District indicated that finished goods prices grew at a somewhat quicker pace. The Kansas City District reported that while finished goods prices remained fairly flat, manufacturers planned to raise finished good prices over the next few months to partially offset higher input costs. However, most firms in the Atlanta District continued to report having little pricing power, and the Chicago District noted that pass-through to downstream prices remained limited. The Philadelphia and Cleveland Districts reported higher construction materials prices. Meanwhile, the San Francisco District noted that prices for cement, logs, and lumber edged up, while prices for wood products, steel, and some metals declined. Gasoline prices spiked higher in the Minneapolis District, and several Districts noted that natural gas prices increased since the previous report. The Dallas District reported that most contacts expect price increases to remain modest for the remainder of the year.