‹ Back to Archive Search

Beige Book Report: Philadelphia

March 7, 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. Nonauto retail sales, tourist activity, manufacturing, nonfinancial services, and nonresidential leasing markets grew modestly, while little change was noted by contacts from new home construction, existing home sales, and nonresidential construction. Auto sales continued to decline modestly. On balance, employment, wages, and prices continued to grow modestly. The percentage of firms anticipating continued growth over the next six months remained essentially the same; however, the percentage fell somewhat among manufacturers and rose among nonmanufacturers. Several contacts observed that sentiment appears to be running a bit hotter than tangible signs of production and investment.

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, while average hours worked edged higher over the period for manufacturing firms but fell among nonmanufacturers.

On balance, wage growth held steady at a modest pace; the share of nonmanufacturing firms reporting increases held steady at about one-third. Most banking contacts noted the apparent disconnect between frequent talk of labor shortages and the lack of evidence that wages are rising significantly in response.

Staffing firms reported being busy in many of the District's labor markets; wage pressures varied a bit more. In two markets, wage rates were up about 3 percent, while firms pushed back against 3 percent hikes in another market with mostly manufacturing clients. Staffing contacts also noted healthy receivables and an absence of any other signs of financial deterioration from clients.

On balance, prices modestly, although greater price pressures began to emerge among manufacturers. Most contacts continued to report no change in prices paid and received. However, the percentage of manufacturing firms reporting increases rose significantly for prices paid and for prices received for their own goods. Among nonmanufacturing firms, contacts reported little change for prices paid and received.

Builders continued to note rising prices for construction materials as well as labor, but no acceleration. Existing home prices also continued to rise, as sellers have failed to emerge in sufficient quantity to provide inventories that meet the demand in most markets.

Looking ahead one year, manufacturing firms now anticipate receiving significantly higher prices for their own goods and services than they expected one quarter earlier. However, nonmanufacturing firms have lowered their expectations slightly. Overall, firms also reported somewhat higher expectations for annual consumer inflation.

On balance, manufacturing activity continued at a modest pace of growth, with little change in shipments and in general activity, although orders dipped somewhat.

The makers of chemicals, primary metal products, industrial machinery, and electronic equipment continued to note gains in new orders and shipments; firms in the lumber, paper, and fabricated metal sectors reported more mixed results with some declines in activity.

Most manufacturing contacts continued to expect general activity to increase over the next six months; however, the percentage of firms expecting future increases did retreat below 60 percent. By comparison, the percentage of firms expecting increases in future capital expenditures and future employment held mostly steady at levels just above 40 percent.

Consumer Spending
On balance, nonauto retail sales continued to grow modestly. While the weather this year was generally more inviting for shoppers than last year, one contact noted that a snowstorm in January hurt sales when it occurred and then again in February because several school districts chose to make up that time on Presidents' Day, thereby affecting the critical holiday sale.

Auto dealers continued to report modest declines in year-over-year sales this period. Although sales remain at high levels, dealers noted lower profitability and worries about the future.

Tourism contacts continued to report modest growth overall. A Philadelphia contact noted that hotels benefited from several large conventions, Eagles' home playoff games, and the Super Bowl itself, which drew local fans for downtown hotel stays in anticipation of the evening celebration. A Delaware contact reported strong growth from an inland hotel and heavy traffic, packed outlets, and busy recreation venues at the shore, although shore hotels did not benefit. Also, Atlantic City's casino revenues returned to negative year-over-year comparisons.

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 and the percentage of firms reporting greater orders were essentially unchanged. However, expectations about future growth were more widespread, with nearly two-thirds of the firms anticipating increased activity.

Financial Services
Financial firms reported little change in overall loan volumes (excluding credit cards) after experiencing modest growth in the prior Beige Book period. Volumes did grow moderately in mortgages, commercial real estate loans, and commercial and industrial (C&I) lending. Home equity lines fell moderately, and auto loans dropped slightly, while growth of other consumer loans was strong.

Credit card lending fell substantially as consumers paid down holiday bills; however, the seasonal decline this year matched the decline in the comparable prior-year period. Also, 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. Although they described the confidence of consumers and businesses as running high, many noted that the sentiment appears greater than the tangible evidence of new consumption and investment. Overall, contacts noted that credit standards remain unchanged, credit quality remains very sound, and credit conditions were not expected to shift through the current year.

Real Estate and Construction
Homebuilders reported little overall change in activity. Sales traffic was weak as the year began and was only just beginning to pick up as February drew to a close. Contacts mentioned several possible factors, including higher interest rates and weekend distractions from the Eagles' playoff run.

Brokers in Third District housing markets reported mixed results for existing homes sales, with slight increases in the Lehigh Valley and the Greater Philadelphia area, but a modest decrease at the Jersey Shore. Increasingly lower inventories of houses continue to constrain sales and place upward pressure on house prices.

Nonresidential real estate contacts reported little change in the high levels of overall construction, although activity may begin to wane a bit at year-end unless new projects are forthcoming. Industrial/warehouse space continues to be the most robust sector throughout much of the District. Contacts have expressed more caution about multifamily housing and office space projects, which have tempered their pace. Neither real estate nor banking contacts have expressed concern about overbuilding of commercial real estate. Leasing activity has picked up a bit to a modest pace, mostly due to a growing cohort of leases that are up for renewal.

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