Beige Book: National Summary
October 16, 2013
Prepared at the Federal Reserve Bank of Chicago and based on information collected on or before October 7, 2013. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of September through early October. Eight Districts reported similar growth rates in economic activity as during the previous reporting period, while growth slowed some in the Philadelphia, Richmond, Chicago, and Kansas City Districts. Contacts across Districts generally remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.
Consumer spending continued to increase and activity in the travel and tourism sector expanded in most Districts. Business spending and payrolls grew in many Districts. Demand for nonfinancial services rose, and manufacturing activity also expanded modestly. Residential construction continued to increase at a moderate pace. By comparison, nonresidential construction again expanded at a slower rate. Residential and commercial real estate activity varied across Districts, but largely continued to improve. Financial conditions were little changed on balance, with lending activity remaining modest in most Districts. There were mixed reports on agriculture, with excess precipitation and drought both impacting the sector. Energy and mining activity expanded or maintained high levels, with the exception of the coal industry in the eastern half of the nation. Price and wage pressures were again limited.
Consumer Spending and Tourism
Consumer spending grew modestly in most Districts. Auto sales continued to be strong, particularly in the New York District where they were said to be increasingly robust. In contrast, Chicago, Kansas City, and Dallas indicated slower growth in auto sales in September. Growth in retail sales was steady in most of the Districts, but picked up some in Cleveland and Richmond and slowed in Chicago, Kansas City, and Dallas. Contacts in Chicago and Atlanta noted that back-to-school spending was lower than a year ago. However, retailers generally remained optimistic about the holiday shopping season, with contacts in Philadelphia and Chicago expecting this year's holiday sales to be about equal to last year's despite the traditional holiday period being six days shorter this year. In addition, Dallas noted strength in retail imports in advance of the holiday season, with growth stronger than a year ago.
Activity in the travel and tourism sector also expanded in most areas, with the reports from the Atlanta, Boston, and New York Districts being particularly upbeat. Dallas indicated that airline passenger demand slowed seasonally, but was slightly stronger than year-ago levels. Tourism contacts in the Boston District were concerned about the potential impact of a protracted federal government shutdown; and Richmond noted that the shutdown had led to the closing of some tourist attractions, although hotel contacts indicated that these closures did not result in guest cancellations. In addition, Kansas City noted lower tourism activity due in part to the severe effects of recent flooding in Colorado.
Business Spending and Hiring
Business spending grew modestly in most Districts. Overall, inventory investment proceeded at a moderate rate. Retail inventories were said to be in-line with sales in the Boston, Cleveland, Chicago, and Dallas Districts. Philadelphia and Cleveland reported that inventories were on the low side at auto dealers, and Chicago noted the same was true at steel service centers. Philadelphia reported an increase in manufacturers' demand for equipment, while manufacturers in Cleveland and Chicago indicated that current capital outlays were primarily for productivity enhancing investments. Cleveland noted that low natural gas prices and regulatory uncertainty were slowing the build-out of shale-gas transport and processing infrastructure. In contrast, additional infrastructure projects to support natural resource extraction were mentioned in the Richmond, Minneapolis, and Kansas City Districts. Philadelphia and Chicago reported an increase in spending on information technology. Looking ahead, several Districts noted an improvement in capital spending plans. Manufacturers in Philadelphia and St. Louis, high-tech service firms in Kansas City, and retailers in the Cleveland and St. Louis Districts expected to increase capital spending in the months ahead. Technology contacts in San Francisco relayed expectations for a near-term pick-up in spending on both hardware and software products. In addition, Philadelphia and Minneapolis reported slight increases in activity at architecture firms.
Employment growth remained modest in September. Several Districts reported that contacts were cautious to expand payrolls, citing uncertainty surrounding the implementation of the Affordable Care Act and fiscal policy more generally. Cleveland and Dallas noted that retail hiring was primarily limited to staffing of new stores in their Districts, while contacts in Philadelphia, Cleveland, and Chicago reported that hiring for the holiday season would be about the same as last year. In manufacturing, Boston indicated that hiring primarily was for replacement or to fill key needs, New York noted slower job growth, and Chicago reported that manufacturers were cutting back on overtime. Dallas cited scattered reports of hiring in high-tech, fabricated metals, and food manufacturing. Furthermore, demand for skilled labor remained high in many Districts. Examples included technology, healthcare, and engineering occupations in Richmond, economic and health consulting in Boston, legal and compliance positions in the financial services industry in New York, and accountants and financial analysts in the Dallas District.
Demand for nonfinancial services increased modestly from the prior reporting period. Boston reported robust growth in consulting, but noted that activity at a government consulting firm remained weaker due to the effects of sequestration. The Minneapolis District reported increased activity in professional business services, whereas demand was more mixed in the Dallas District with strength in accounting services and a modest decrease in legal services. Demand for staffing services increased in the New York, Philadelphia, Cleveland, and Minneapolis Districts, with New York citing strong demand for information technology occupations and Cleveland highlighting healthcare and manufacturing. In contrast, staffing service activity was down slightly in the Chicago and Dallas Districts. Demand for technology services increased in the Kansas City and San Francisco Districts, but San Francisco indicated that overall demand for nonfinancial services was mixed with healthcare services somewhat weak. Demand for transportation services increased on balance. Port activity remained robust in the Richmond and Atlanta Districts, reflecting exports of grain, auto parts, and forest products and imports of energy products and steel. Atlanta, Kansas City and Dallas cited a modest rise in demand for transportation services. Cleveland reported that the rate of growth in shipping freight volume had slowed recently, and demand for trucking services softened slightly in the Richmond District.
Overall, manufacturing activity expanded modestly in September, but with some notable exceptions among the Districts. Cleveland, St. Louis, and Minneapolis experienced faster growth, while New York, Richmond, and Chicago saw growth weaken. The automotive and aerospace industries continued to be a source of strength in a number of Districts. Demand for fabricated metals was mixed in the Chicago and Richmond Districts, but stronger in the Dallas District. Cleveland, Chicago, St. Louis, and San Francisco reported steady increases in the demand for steel; Cleveland, Chicago, and Atlanta indicated that much of the higher demand was being met by imports. Demand for construction materials remained strong for Philadelphia, increased for Cleveland and San Francisco, was flat for Dallas, and was slightly lower for the Chicago District. Cleveland and Dallas reported strong demand for manufactured inputs to energy production, and demand for heavy equipment improved slightly in the Richmond and Chicago Districts. High-tech manufacturing activity edged up in a number of Districts, with Boston and Dallas reporting slightly higher demand for semiconductors, and biotech manufacturing increasing in San Francisco. While there was little immediate disruption from the federal government shutdown, contacts were worried about the potential impact if the closing became prolonged.
Construction and Real Estate
Construction and real estate activity continued to improve in September. Residential construction increased moderately on balance, growing at a stronger pace in the Minneapolis and Dallas Districts but only slightly in Richmond and Philadelphia. Multifamily construction remained stronger than single-family construction in a number of Districts. Residential real estate activity continued to improve at a moderate pace in most Districts, as home sales and prices continued to rise and inventories remained low. Home sales in the New York and Dallas Districts were strong, with the exception of the Jersey Shore, which is still recovering from Hurricane Sandy. The Philadelphia, Atlanta, and Chicago Districts experienced a more modest improvement in home sales. A number of Districts reported concerns from homebuilders and realtors over rising mortgage rates. However, contacts in the Dallas District indicated that rising interest rates were not hurting affordability and contacts in the Boston District suggested some boost to activity by homebuyers entering the market in anticipation of future increases in rates. Nonresidential construction activity remained modest, but varied by market and District. Growth was strong in the Minneapolis District, but up only slightly in Richmond, Atlanta, and Philadelphia. The Cleveland, Chicago, and St. Louis Districts reported increased activity for industrial building, Cleveland noted strong demand from the healthcare sector, and redevelopment of vacant retail space picked up in Boston. Leasing activity continued to improve modestly in most Districts, but was particularly strong in the Dallas District. A number of Districts reported that vacancy rates continued to fall, rents rose, and the outlook for commercial real estate was generally positive.
Banking and Finance
Financial conditions were little changed on balance from the prior reporting period. Overall loan growth remained modest in most Districts. Consumer loan demand weakened slightly. Reports on mortgage lending were mixed. Several Districts noted a decrease in mortgage lending, citing higher mortgage rates and reduced refinancing activity. However, mortgage originations continued to rise in Philadelphia, Richmond, and Dallas, and rising home prices led to an increase in home equity lending in Philadelphia, Chicago, and San Francisco. Chicago, Cleveland, and Atlanta noted an increase in auto lending, while credit card volumes decreased slightly in Philadelphia. Business loan demand edged higher, with several Districts noting a pick-up in both commercial and industrial and commercial real estate lending. The Philadelphia, Cleveland, Richmond, Chicago, and Dallas Districts reported intense competition on pricing and terms for commercial and industrial loans. In addition, contacts in Philadelphia and Chicago expressed concern about an easing of credit standards on these loans. Overall, however, lending standards were largely unchanged and credit quality continued to improve moderately.
Agriculture and Natural Resources
Heavy rains hurt agriculture in the Richmond, Atlanta, and Kansas City Districts, even resulting in declarations of some natural disaster areas. At the other extreme, some portions of the Chicago, Minneapolis, and Dallas Districts experienced drought conditions, although they eased in some areas over the reporting period. Harvests were reported as behind their normal pace. Nonetheless, crop yields were higher than expected in the Chicago District and about average in the Kansas City District. Strong fruit output was noted in the Richmond, Chicago, and Minneapolis Districts. Cotton output was mixed across the South. Prices fell for corn, soybeans, wheat, hay, cotton, hogs, broilers, turkeys, and eggs, but rose for rice, citrus, grapes, milk, cattle, and dry beans. Livestock producers benefited from lower feed costs, as well as higher beef exports according to the Dallas District. San Francisco reported demand remained strong for most crop and livestock products.
Natural resource extraction increased in September. Oil and natural gas activity remained at high levels in the Cleveland and Dallas Districts, was solid in the Kansas City District, and expanded in the Richmond and Minneapolis Districts. Drilling rig counts were stable in the Richmond and Kansas City Districts, although the latter reported a shift in rigs from oil drilling toward natural gas. This shift was driven in part by expectations of higher natural gas prices and lower oil prices in the future. Atlanta and Dallas noted steady demand for energy. San Francisco indicated that demand for oil products edged up, resulting in increased refinery activity. Refinery expansions continued in the Atlanta District, although the cost of transporting inputs to Gulf Coast refineries rose. Mining activity picked up in the Minneapolis District. Coal production in the Cleveland and Richmond Districts slowed, but output was higher in St. Louis and Kansas City.
Prices and Wages
Price pressures remained limited in September. Most Districts reported only slight increases in commodity prices and limited ability to pass through these increases to their customers. Metal prices fell slightly in the Chicago District, but held steady in Minneapolis and were up slightly in Dallas. The Chicago, Kansas City, Dallas, and San Francisco Districts reported upward pressure on prices for building materials such as asphalt, brick, lumber, and concrete, with Kansas City indicating that concrete was in short supply in the Colorado areas affected by flooding. Energy prices in most Districts were steady to slightly lower than during the prior reporting period. In general, prices for final goods were little changed, except for a faster increase in retail prices in the Richmond District and higher food prices in the Kansas City and Dallas Districts. Wage pressures remained modest overall, though the Minneapolis and Richmond Districts reported moderate wage increases. Most Districts reported continued upward wage pressure for skilled workers, particularly those in consulting, accounting, information technology, engineering, and skilled manufacturing and construction trades.