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Beige Book Report: Philadelphia

October 18, 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, new home sales, and tourism grew modestly; nonresidential construction and leasing appeared to grow slightly; and nonauto retail sales and new home construction activity exhibited little change. Auto sales, which had declined modestly in the prior period, showed modest growth in the current period. On balance, wages and prices continued to grow at a modest pace, but employment flattened out. Overall, firms appear to anticipate continued modest growth over the next six months, with a larger percentage of firms expecting growth.

Employment and Wages
Employment changed little during the Beige Book period, slowing from a modest pace of growth in the prior period. Reports of net additions to staff were subdued for both manufacturing and nonmanufacturing firms, and most contacts reported no change in staff levels. Average hours worked decreased over the period for manufacturing firms but held steady among nonmanufacturers.

On balance, wage growth held steady at a modest pace. Staffing firms and other contacts generally reported steady wage growth and tight labor markets in certain areas and for certain occupations. One staffing firm noted strong order activity and a need to act quickly to fill positions.

On balance, prices continued to rise modestly. Among manufacturing contacts, more firms reported increases, particularly in input costs, during the current period than the prior period; slightly fewer service-sector contacts reported input cost increases. A majority of contacts indicated no change in prices paid and received.

Retailers and banking contacts generally noted no signs of inflation, while homebuilders reported further increases in lumber costs. Overall, existing home prices continued to edge up.

On balance, manufacturing activity continued at a modest pace of growth and showed signs of improvement. Higher percentages of firms reported increases in new orders and shipments compared with the prior period.

Firms in most sectors continued to note gains in both new orders and shipments, including makers of paper products, chemicals, fabricated metal products, industrial machinery, and electronic products.

Generally, manufacturing contacts continued to expect growth over the next six months. The percentage of firms expecting future increases for general activity rose, while it held mostly steady for future increases in capital expenditures and employment.

Consumer Spending
Nonauto retail contacts reported little change in sales, on balance, similar to the prior Beige Book period. An outlets operator reported modest, but slowing, sales growth in August and September, with strength in shoes and jeans as well as housewares and furniture. Convenience store contacts indicated a slight pickup in traffic and spending in September, which they attributed more to favorable weather than to a shift in the sales trend.

Auto dealers throughout the region reported modest increases in year-over-year sales this period, an improvement from the modest declines during the prior period. New Jersey dealers indicated that the pickup in sales was driven by incentives and wondered how manufacturers would alter incentives around a spike in demand following the recent hurricanes. Although sales remained generally in line with the high levels seen in 2016, dealers continued to face difficulty sustaining profitability.

Tourism contacts generally indicated a continuation of modest growth. Strong gains were reported from the Poconos and shore locations in Delaware and New Jersey. A New Jersey banking contact indicated that activity remained strong through the end of September, and the shore market had its best year in quite some time. Atlantic City's casino revenues were flat in August relative to the previous year, propped up by Internet gaming. A Philadelphia analyst noted stronger-than-expected hotel demand but year-over-year decreases in room rates because of fewer citywide conventions this year compared with last year.

Nonfinancial Services
Service-sector firms continued to report modest growth in general activity since the prior Beige Book period, and new orders and sales strengthened further, on balance. One large service-sector firm noted continued improvement in the payment performance of its customers. Expectations about future growth remained elevated, with nearly 60 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 auto loans and other consumer loans, while commercial real estate loans grew slightly. Commercial and industrial loan volumes improved over the period, posting modest growth following declines over the prior Beige Book period. Credit card volumes--which are highly seasonal--continued to grow at a modest rate over the Beige Book period but outpaced growth in the comparable year-ago period. In general, banking contacts tended to describe economic growth as slow and steady.

Real Estate and Construction
Homebuilders generally reported little change during the current period, similar to the previous period. The current period covered weeks that are typically slow for traffic and contract signings; some builders reported no real pickup at the end of September following the expected slow period.

Brokers in most major Third District housing markets continued to report modest growth of existing home sales, but no increase of inventories. One broker noted general slowing in pending sales and does not expect the supply of homes to significantly increase for some time.

Nonresidential real estate contacts continued to report slight growth in construction and leasing activity. Contractors reported that despite a slight softening over the summer, overall, labor hours have picked up in September, suggesting more new construction activity. This year has been the second most active year in the past five years (behind 2016), and contacts expect activity to keep up in 2018.

For more information about District economic conditions visit: www.philadelphiafed.org/research-and-data/regional-economy