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Beige Book: National Summary

July 17, 2013

Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before July 8, 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.

Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to increase at a modest to moderate pace since the previous survey. Manufacturing expanded in most Districts since the previous report, with many Districts reporting increases in new orders, shipments, or production. Most Districts noted that overall consumer spending and auto sales increased during the reporting period. Activity in a wide variety of nonfinancial services was stable or increased in most reporting Districts. Transportation was stable or increased in several Districts. Tourism remained strong in some reporting Districts, although several Districts noted softness from bad weather. Residential real estate and construction activity increased at a moderate to strong pace in all reporting Districts. Commercial real estate market conditions and construction continued to improve across the Districts. Banking conditions generally improved across the Districts. Credit quality improved, while credit standards remained largely unchanged. Agricultural conditions were mixed, as weather patterns varied, while extraction was generally stable or increased.

Hiring held steady or increased at a measured pace in most Districts, with some contacts noting reluctance to hire permanent or full-time workers. Wage pressures generally remained contained, although some Districts reported modest or moderate wage growth in some sectors. Price pressures for inputs and final goods remained stable or modest.

Manufacturing and Other Business Activity
Manufacturing increased in most Districts since the previous survey. The exception was Kansas City, which noted a slight contraction, with storms retarding some activity. Most Districts reported stable or increasing new orders, shipments, and production. Reports from contacts in the Cleveland, Chicago, and St. Louis Districts indicated moderate growth in manufacturing. The Minneapolis District further noted that more manufacturing firms increased activity than in the previous report; the Boston, New York, Richmond, Atlanta, and San Francisco Districts noted that the uptick was modest; and the Philadelphia and Dallas Districts noted slight improvements. Firms in the Boston, Philadelphia, and San Francisco Districts were broadly optimistic about prospects for the second half of 2013, while manufacturers in the Richmond District were cautiously optimistic; contacts expressed mixed outlooks in the Dallas District, and contacts in the Cleveland and Atlanta District do not expect future production to be as high as previously projected.

Strong demand in residential construction continued to stimulate the manufacturing sector in several Districts. Home-building suppliers in the Philadelphia and Cleveland Districts reported strong activity. Wood product manufacturers expanded operations and increased production in the St. Louis and San Francisco Districts. A cement producer in the Dallas District saw a very strong market. Demand for construction equipment picked up in the Chicago District.

Automobile manufacturing remained a source of strength in the Chicago, St. Louis and Minneapolis Districts. Steel and metal production increased in several Districts, including Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco. Fabricated metal manufacturers in the Philadelphia and Dallas Districts reported gains. Primary metal production was steady at strong levels in the Dallas District, while reports on primary metal orders in the Philadelphia District were mixed. Specialty metal manufacturers in Chicago saw modest improvement in demand. The metal-forming business in Minneapolis is having a very strong year. Gains were reported by petroleum refining manufacturers in the St. Louis and Dallas Districts. Reports on semiconductor orders in the Dallas District were mixed, and semiconductor firms in the San Francisco District said sales increased substantially. Electronic equipment firms in the Philadelphia District reported lower activity. Food producers in the Philadelphia and Kansas City Districts saw weaker activity, while demand for heavy equipment in the Chicago District remained soft.

Nonfinancial services activity was steady or increased in the New York, Philadelphia, Richmond, St. Louis, Minneapolis, and Dallas Districts. Transportation services were stable in the Richmond and Kansas City Districts, increased in the Cleveland, Atlanta, and Dallas Districts, and contracted in the St. Louis District. Consulting service firms in the Boston, St. Louis, and Minneapolis Districts have experienced increased demand and expanded operations since the previous reporting period. Accounting service contacts in the Richmond and Dallas Districts saw strong demand, while telecommunication service providers in the Richmond and St. Louis District reported increased activity. High-tech service firms in the Kansas City District and a software design firm in the Richmond District saw rising revenues, and software developers were in high demand in the San Francisco District.

Consumer Spending and Tourism
Most Districts noted that overall consumer spending increased during the reporting period. Reports from the Boston, Chicago, Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, and San Francisco Districts indicated modest or moderate growth in retail spending, while reports from the Cleveland, Kansas City, and Dallas Districts indicated steady to slightly higher sales. The New York District noted that retail sales in May and June had softened. Retailers in the New York, Cleveland, Atlanta, and St. Louis Districts reported that sales had not met expectations. Contacts in the New York, Philadelphia, Cleveland, Richmond, and Atlanta Districts also noted that weather conditions constrained retail activity. Demand for tech products was strong or increased in the Boston and San Francisco Districts. The Kansas City District reported that appliance purchases were slow, while the Richmond District reported that big ticket item sales were high. Inventories were at desired levels or slightly high in the New York and Cleveland Districts, and remained tight in the Chicago District. The outlook among retailers was positive in the Cleveland, Dallas, and San Francisco Districts and cautiously optimistic in the St. Louis District.

Most Districts that reported on automobile sales noted increased sales during the reporting period. Strong sales were reported in the Philadelphia, Richmond, Atlanta, Chicago, and San Francisco Districts. Reports from the Cleveland, St. Louis, Minneapolis, and Kansas City Districts indicated steady to moderate sales growth, and contacts in the Dallas District reported that sales were slightly softer than the previous reporting period, although still strong. New car sales increased in the St. Louis and San Francisco Districts, while they held steady at favorable levels relative to the same period last year in the New York District. Used car sales increased in the Cleveland, Richmond, St. Louis, and San Francisco Districts. Auto dealers in the Cleveland, Richmond, Chicago, and Minneapolis Districts reported strong sales for pick-up trucks. The Kansas City and Cleveland Districts expressed an optimistic outlook for future sales.

Travel and tourism increased in the Boston, Philadelphia, Richmond, Atlanta, Kansas City, and Dallas Districts. The New York District noted that tourism had been mixed but fairly robust since the previous report. San Francisco also reported that travel and tourism was mixed across the District. Weather conditions affected tourism in some areas of the Boston, Philadelphia, and Minneapolis Districts.

Real Estate and Construction
Residential real estate activity increased at a moderate to strong pace in most Districts. Most Districts reported increases in home sales. Cleveland noted that June sales of single-family homes were down compared with earlier in the spring but up from last year. Boston, New York, Minneapolis, Kansas City, Dallas, and San Francisco noted strong residential real estate markets. Home prices increased throughout the majority of the reporting Districts. Boston, New York, Richmond, Atlanta, Minneapolis, Kansas City, and Dallas noted low or declining home inventories and upward pressures on home prices in some areas. Residential construction activity also improved moderately across the Districts, and contacts in New York, Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco reported faster growth in multi-family construction, in particular.

Commercial real estate market conditions continued to improve across most Districts. New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco reported modest to moderate improvements in nonresidential real estate activity. Dallas reported strong growth in leasing activity for office and industrial space. Boston and Richmond reported that commercial real estate conditions were holding steady or improving, depending on location. Nonresidential construction activity was stable or increased throughout the nation. Philadelphia, Atlanta, and Richmond reported that commercial construction was flat to slightly up, while Cleveland, Chicago, St. Louis, Minneapolis, and Dallas noted improvements in commercial construction.

Banking and Finance
Reports on banking conditions were generally positive across the Districts. Overall loan demand increased modestly across most reporting Districts. New York District bankers reported mixed but generally steady loan demand. Some bankers in the Cleveland, Chicago, and Dallas Districts noted competitive pressures to reduce loan pricing. Bankers in the Philadelphia, Richmond, Cleveland, Atlanta, and Chicago Districts noted a shift toward new home mortgages and away from refinancing (which was led, in part, by increases in interest rates).

Reports on credit quality indicated slight to moderate improvements across the reporting Districts. Improvements were noted by the New York, Philadelphia, Kansas City, and Dallas Districts. Credit standards remained largely unchanged, although some bankers in the Atlanta and Philadelphia Districts noted increased competition to ease credit standards.

Agriculture and Natural Resource Industries
Agricultural conditions varied across the Districts because of differing weather conditions. Crop conditions improved in the Chicago and St. Louis Districts, while agricultural production increased in the San Francisco District and is expected to improve in the Kansas City District. Extremely wet conditions delayed planting and even resulted in some farmers in the Richmond and Minneapolis Districts planting soybeans instead of corn. Excessive rains in the Richmond District also damaged the wheat crop in some areas. Contacts noted persistent drought conditions in some areas of the Kansas City and San Francisco Districts and in most of the Dallas District. Winter wheat harvest output yields were highly variable because of crop damage from freezing and drought in the Dallas and Kansas City Districts. The condition of pastureland in the Atlanta and St. Louis Districts improved since the previous report.

Coal production was lower compared with the same time last year for the Cleveland, St. Louis, and Richmond Districts. Energy activity remained robust or steady at high levels in the Atlanta and Dallas District. Natural gas production was stable in the Cleveland District and continued to increase in the Richmond District. Drilling declined in the Cleveland District, was flat in the Kansas City District, and increased in the Richmond District. Oil and gas exploration was up slightly in the Minneapolis District. Mining was flat in the Kansas City District, weakened in the Chicago District, and was sluggish in the Minneapolis District.

Employment, Wages, and Prices
Hiring held steady or increased at a measured pace in most Districts. Contacts in the Philadelphia, Richmond, and Chicago Districts were cautious or reluctant to hire permanent or full-time staff. The Richmond and Chicago Districts noted relatively stronger demand for part-time workers. Transportation contacts in the Cleveland, Atlanta, and Kansas City Districts noted some difficulty finding qualified drivers. Contacts in the New York, Richmond, and San Francisco Districts reported high demand for technology workers.

Most Districts reported that wage pressures remained limited or contained. The Chicago and Minneapolis Districts reported moderate wage pressures. The Chicago District noted that rising healthcare and other benefit costs were being passed onto employees. Contacts in the New York and San Francisco Districts noted that competition for technology workers had an effect on salaries. The Richmond District noted that wage growth picked up in the manufacturing sector, remained robust at non-retail establishments, and flattened at retail businesses.

Overall consumer and input price pressures remained stable or modest in most reporting Districts, although some Districts noted price increases. Most notably, the Cleveland, Atlanta, Chicago, Minneapolis, and San Francisco Districts noted upward pressures on the prices of construction materials. The Philadelphia and Richmond Districts reported price increases for raw materials and finished goods among manufacturers. The New York District reported that input price pressures have abated further in manufacturing but remained widespread in services. Retail prices remained steady in the Boston, New York, Cleveland, Kansas City, and Dallas District, while retail price growth slowed in the Richmond District and wholesale retail prices increased in the Chicago District.