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Thomson
Reuters
The Federal Reserve says the economy continued to grow across
most of the US, according to its Beige Book released on
Wednesday.
The Beige Book is a compilation of anecdotes on the economies in
the Fed’s 12 districts.
This document has been prepared ahead of the Federal Open
Markets Committee’s December 13-14 meeting, when it is likely to
vote for the only interest-rate hike of 2016. The Cleveland Fed
prepared this edition.
Minutes of the pre-election
meeting in November showed that the Fed thought it would be
appropriate to raise rates «relatively soon.» The minutes,
however, did not account for the postelection surge in Treasury
yields and inflation expectations. Meanwhile, traders are almost
certain of the Fed’s next move, pricing
in a 100% chance of a hike in December, according to
Bloomberg.
Much was said in the Beige Book about the presidential election.
Some contacts said business owners attributed softening auto
sales and hiring to uncertainty surrounding the election. Most
districts said demand for new vehicles fell, with shoppers opting
for used cars instead. And on real estate, the Fed’s contacts
said commercial construction grew in most districts.
The downside of a strong US dollar was among the issues that the
Fed’s contacts brought up. Some wondered whether tourism would
remain strong if the greenback continued to rally against other
major currencies.
The Fed also announced that beginning next year, the Beige Book
will provide more consistent
summaries and have a new design. For example, every district
will include concise highlights in 50 words or less before
diving into detailed anecdotes.
Here’s the full
text:
Reports from the twelve Federal Reserve Districts indicate that
the economy continued to expand across most regions from early
October through mid-November. Activity in the Boston,
Minneapolis, and San Francisco Districts grew at a moderate pace,
while Atlanta, Chicago, St. Louis, and Dallas cited modest
growth. Philadelphia, Cleveland, and Kansas City cited a slight
pace of growth. Richmond characterized economic activity as
mixed, and New York said activity has remained flat since the
last report. Outlooks were mainly positive, with six Districts
expecting moderate growth.
Demand for manufactured products was mixed during the current
reporting period, with the strong dollar being cited as a
headwind to more robust demand in a few Districts. Modest to
moderate increases in capital investment are expected in several
other Districts. Business service firms saw rising activity,
especially for high-tech and information technology services.
Reports from ground freight carriers were mixed, while port cargo
increased. A majority of Districts reported higher retail sales,
especially for apparel and furniture. New motor vehicle sales
declined in most Districts, with a few Districts noting a shift
in demand toward used vehicles. Tourism was mostly positive
relative to year-ago levels. Residential real estate activity
improved across most Districts. Single-family construction starts
were higher in a majority of Districts, while multifamily
construction reports were mixed. Activity in nonresidential real
estate expanded in many Districts. Banking conditions were
largely stable, with some improvement seen in loan demand.
Farmers across reporting Districts were generally satisfied with
this year’s harvests. However, low commodity prices continue to
weigh on farm income. Investment in oil and gas drilling
increased slightly, while reports on coal production were mixed.
A tightening in labor market conditions was reported by seven
Districts, with modest employment growth on balance. Districts
noted slight upward pressure on overall prices.
Manufacturing
Demand for manufactured products was mixed during the current
reporting period. Boston, New York, Atlanta, Chicago, and St.
Louis reported modest or moderate growth, while Richmond noted
that factory activity declined. The remaining Districts said that
production was mixed or grew slightly. Gains in activity among
chemical firms were reported in Boston, Philadelphia, and Dallas.
The auto industry was a source of strength in Cleveland,
Richmond, Chicago, and St. Louis. Machinery manufacturing rose in
Philadelphia, St. Louis, and Kansas City, but it declined in
Chicago and Dallas. Aerospace-related manufacturers saw improving
activity in Chicago, St. Louis, and Kansas City, while their
counterparts in San Francisco saw orders decline. Philadelphia
and Dallas noted weakening in fabricated metal products
manufacturing, while producers in St. Louis are expanding
capacity. The electronics industry expanded in Kansas City and
San Francisco, while firms in Philadelphia noted weaker activity.
The strong dollar remains a key concern for exporters in the
Boston, Dallas, and San Francisco Districts. In contrast, Kansas
City reported that export orders continued to expand. Modest to
moderate increases in capital investment are expected in the
Philadelphia, Richmond, St. Louis, Minneapolis, and Kansas City
Districts, with several companies announcing facility expansion
plans in St. Louis and Minneapolis. The overall outlook by
manufacturers in New York, Philadelphia, Atlanta, St. Louis,
Kansas, and Dallas is positive, with most expecting growth in new
orders and production during the next several months.
Nonfinancial Services
Most Districts experienced growth in nonfinancial services since
the previous reporting period. New York was an exception, with
reports of flat to declining activity among service-sector firms.
Nevertheless, New York service contacts remained positive about
the near-term outlook. High-tech and information technology
services expanded in Richmond, St. Louis, Kansas City, Dallas,
and San Francisco. Most healthcare contacts anticipated future
growth; however, San Francisco expressed concerns about potential
changes to the Affordable Care Act.
Reports on transportation services were mixed. Kansas City
reported a moderate decline in activity, while Atlanta reported
little change and Dallas reported mixed cargo volumes. On the
other hand, Cleveland, Richmond, St. Louis, and San Francisco
experienced varying degrees of expansion. Atlanta and San
Francisco noted continued strength in e-commerce shipments, while
Cleveland contacts noted that Internet retailers are
transitioning to on-demand delivery service providers for
shipping as opposed to traditional ground carriers. Atlanta
reported growth in port cargo shipments and a decline in trucking
activity. Richmond noted stronger port traffic in recent weeks,
and a national trucking firm in that District reported downward
rate pressures because of excess capacity. Dallas noted steady
truck and seaport cargo volumes.
Consumer Spending and Tourism
The Boston, Minneapolis, and San Francisco Districts reported
that retail sales expanded at a moderate pace on balance.
Retailers in New York, Chicago, St. Louis, and Kansas City
reported that sales were mixed to slightly higher, while their
counterparts in Philadelphia, Richmond, and Atlanta characterized
sales as unchanged. Weakening sales were seen in Cleveland and
Dallas. Apparel sales were doing well in Boston, Philadelphia,
Minneapolis, and San Francisco, while contacts in Cleveland and
Dallas suggested that the unusually warm weather may have hurt
apparel sales. Boston, Cleveland, and Chicago saw an increase in
furniture purchases. Cleveland and San Francisco noted declining
sales at brick-and-mortar stores, a situation which they
attributed to a consumer shift toward online purchasing. Contacts
in Cleveland and Atlanta noted that sellers have little control
over product pricing. Retailers in Boston, Cleveland, Atlanta,
and Kansas City expect modest positive sales growth during the
rest of the year and remain optimistic for the holiday season.
Dallas suggested that retail demand may not increase in the near
term, driven partially by low sales in border cities because of
the strong value of the dollar.
Motor vehicle sales declined slightly in most reporting Districts
during the period. Kansas City saw sales decline well below
year-earlier levels. In contrast, new vehicle sales in Chicago
were characterized as strong, a circumstance which dealers
attributed in part to aggressive incentives. Philadelphia
indicated that light vehicle sales were plateauing at high
levels, while Cleveland reported modest growth in motor vehicle
sales but noted that this was driven by the used vehicle market.
The New York and St. Louis Districts also noticed a shift in
demand toward used vehicles. Richmond and St. Louis contacts
suggested that softening vehicle sales might be attributed to
uncertainty surrounding the presidential election, while contacts
in Dallas point to energy-related weaknesses as a factor in the
sales decline. Respondents in St. Louis and Kansas City expected
a modest pickup in vehicle sales during the next several months,
while contacts in Dallas were less confident for future growth.
Tourism was mostly positive relative to year-earlier levels:
Boston, Minneapolis, and San Francisco experienced strong growth,
while Philadelphia and Kansas City reported modest growth in
activity. Respondents in Boston noticed continued strong
international travel, although some contacts expressed
uncertainty about the trend’s continuing in 2017 if the dollar
remains strong. New York reported that attendance at Broadway
theaters slumped in October; however, revenues have increased and
are on par with those of a year earlier.
Real Estate and Construction
Residential real estate activity improved across Districts.
Reports about existing- and new-home sales were mixed, but most
Districts noted a slight to modest increase during the period.
Residential construction was up in the Cleveland, Atlanta,
Chicago, St. Louis, Minneapolis, Kansas City, and Dallas
Districts. Home prices grew in many Districts, including Boston,
Philadelphia, Cleveland, Atlanta, St. Louis, Kansas City, and San
Francisco. Philadelphia reported that the strength of the
single-family market is in high-end housing. In contrast, Kansas
City reported that sales of low- and medium-priced homes
continued to outpace sales of higher-priced homes. Dallas
reported that the sales of lower-priced homes remained solid.
Home inventories were generally reported to be low or declining
and restraining sales growth. Boston, Philadelphia, Cleveland,
Richmond, and Minneapolis reported low or decreasing inventories.
Reports on inventory levels varied in Atlanta, while inventories
held steady in Kansas City.
Commercial construction activity moved higher in the New York,
Cleveland, Richmond, Atlanta, St. Louis, Kansas City, and San
Francisco Districts. In contrast, Minneapolis noted a slowing in
commercial construction. The Boston, Richmond, Minneapolis, and
San Francisco Districts reported increases in leasing activity,
while Philadelphia noted a lull in nonresidential leasing growth
compared with the prior period. Dallas reported leasing activity
as mostly unchanged. Commercial sales activity continued to be
robust in Minneapolis and grew modestly in Kansas City. Ongoing
multifamily construction has been steady at a fairly high level
in New York. Multifamily construction varied in the Atlanta
District and slowed somewhat in Richmond, Minneapolis, and San
Francisco.
Banking and Finance
District reports indicated that the demand for credit varied
widely. On the commercial side, New York, Philadelphia, and St.
Louis experienced strong demand for commercial and industrial
loans, while C&I lending was slower in Dallas. Commercial
real estate lending was strong in the New York, Philadelphia, and
Cleveland Districts. In Atlanta, some small businesses had
trouble obtaining credit, and St. Louis reported slightly lower
credit worthiness for agricultural customers only. Residential
mortgage activity was steady in New York and Kansas City; higher
in Philadelphia, Richmond, Chicago, and Dallas; and strong in
Cleveland and St. Louis. Auto lending was unchanged in St. Louis,
up in Philadelphia and Dallas, and strong in Cleveland and
Chicago. Credit quality was unchanged across most Districts,
though improvements were seen in New York, Philadelphia, and
Chicago. Credit standards tightened in select loan categories in
the Boston, New York, and Philadelphia Districts, but they
loosened slightly in Richmond, where contacts reported facing
competition that used more aggressive loan structures.
Agriculture and Natural Resources
Although agricultural conditions varied widely, farmers across
reporting Districts were generally satisfied with this year’s
harvests. However, low commodity prices continue to weigh on farm
income. Atlanta, Chicago, Minneapolis, and Dallas reported strong
yields of corn and soybeans. Cotton harvests were above year-ago
levels in Atlanta, St. Louis, and Dallas. The Richmond District
reported that the biggest impact on international trade was in
the poultry industry, with the loss of four million to five
million birds killed by Hurricane Matthew and related floods. San
Francisco noted that the strong dollar continued to hold back
exports of agricultural products, particularly apples and pears.
Contacts in St. Louis, Minneapolis, Kansas City, and Dallas said
that farm incomes are flat or lower compared to those of a year
ago. There were scattered reports about issues surrounding loan
repayment and crop financing for 2017.
The energy sector continued to improve slowly across many of the
reporting Districts. Cleveland, Minneapolis, Kansas City, and
Dallas saw a slight increase in oil and gas drilling. Contacts in
Dallas re-affirmed that oil and gas activity will pick up
gradually in 2017. However, these expectations have moderated in
light of recent revisions to the global oil demand and supply
outlooks. An oversupply of crude oil and gasoline continued in
the Atlanta District, a situation which perpetuated a high demand
for inventory storage. Coal production increased slightly in the
Cleveland and Richmond Districts, but declined in St. Louis. The
Minneapolis District noted that shipments of iron ore on the
Great Lakes in September were more than 5 percent below levels of
a year earlier. Contacts in Minneapolis and Atlanta reported
expansion of renewable energy projects, particularly solar and
wind.
Employment, Wages, and Prices
Employment continued to expand during the period. The Richmond,
Chicago, St. Louis, and San Francisco Districts all reported
moderate increases, while Boston and Minneapolis saw employment
rise at a modest pace. Overall, employment increased slightly in
Philadelphia, was little changed in Cleveland, and held steady or
increased in Dallas. Manufacturing employment reports were mixed,
with four Districts reporting flat or declining payrolls and two
Districts reporting increases in manufacturing employment. The
Boston, Philadelphia, and Cleveland Districts noted increases in
retail employment or hours, while the Richmond District noted
decreases. Most Districts saw increases in staffing activity.
Boston reported fairly strong activity, with most staffing firms’
revenues increasing 10 percent to 25 percent year-over-year.
Staffing firms in Cleveland attributed a modest decline in the
number of job openings and placements to uncertainty stemming
from the presidential election.
As in the past four Beige Books, wage growth was characterized
generally as modest, on balance, by district contacts. The St.
Louis, Minneapolis, and San Francisco Districts all reported
moderate wage growth. Wage growth was modest in six of the twelve
Districts: Boston, New York, Philadelphia, Atlanta, Kansas City,
and Dallas. In the Richmond District, wages increased slightly.
Cleveland reported that wage pressures were more evident for
select occupations, while Dallas noted that wage pressures were
more widespread. Seven districts–Boston, New York, Philadelphia,
Atlanta, Chicago, St. Louis, and Dallas–noted that labor markets
were tightening. Staffing services reported rising wages or
difficulty filling positions without wage increases in a majority
of the Districts.
Overall, there was slight price growth during the period. The
Philadelphia, Chicago, St. Louis, and Minneapolis Districts
reported modest price increases, while most of the remaining
Districts reported slight or limited price increases. The retail
and services sectors reported slight to modest price increases,
while agricultural product prices have stabilized at low levels.
Contacts in the Philadelphia, Cleveland, Atlanta, St. Louis, and
Minneapolis Districts reported increases in the cost of building
materials, and contacts in the Atlanta and Dallas Districts noted
downward pressure on freight transportation prices.
Return to topReturn to top
First District–Boston
Most First District businesses contacted in early November
reported ongoing moderate growth in sales or revenues. Retailers
cited year-over-year sales results ranging from very small
declines to mid-single-digit increases. Manufacturing respondents
reported increased sales from a year ago. Staffing firms noted
fairly strong year-over-year revenue increases in recent months.
In commercial real estate, leasing activity was flat or up
modestly in most First District markets. Residential real estate
contacts continued to cite rising prices, but closed sales were
up in some states and down in others. Most respondents indicated
they were raising wages modestly to recruit and retain workers.
Prices were said to have increased only slightly.
Retail and Tourism
Retail contacts consulted this round reported year-over-year
sales results — both overall and on a same-store basis through
— October and mid-November ranging from flat or very low
single-digit decreases to increases in the mid-single digits.
Prices remained flat or rose 1 percent to 2 percent. Respondents
said they expect that the current fiscal year will end with
modest positive sales growth and that this positive growth will
continue in 2017. All categories of apparel, furniture, and home
furnishings sold well. Contacted retailers said they plan to hire
more workers, raise wages for some or all positions to attract
new hires, and raise wages for some or all categories to retain
existing workers. Two contacts noted that the need to pay higher
wages would cut into their operating profits and one of them
indicated that competitive pressures prevent them from raising
retail prices in order to absorb higher labor costs.
A Boston-based tourism contact reported that their latest data
(through September) showed continued strong business and leisure
travel. Inbound air travel to Logan International Airport was up
6 percent year-over-year through 2016:Q3; international visitors
were up 19 percent over the same period. The number of travelers
from Asia increased 34 percent at least in part because of new
airline service to Boston in 2016. Self-reported data indicate
that one-third of this increase in visitors from Asia reflects
business travel and two-thirds leisure travel. Occupancy rates in
Boston-area hotels were flat in September, but average September
room rates were up 5 percent from a year earlier, bringing the
average room rate to a high not seen since 2012. Attendance at
local area attractions and museums in September was up 6 percent
year-over-year. Contacts expressed some uncertainty about whether
the strong international travel numbers will continue in 2017,
especially for leisure travelers, if the U.S. dollar remains
strong against other major currencies.
Manufacturing and Related Services
All nine manufacturing respondents in this Beige Book round
reported increased sales from a year earlier. A furniture
manufacturer reported strong sales for the first time after
several years in which the long-term viability of the firm was in
question. Three contacts said that the strong dollar and weak
commodity prices have slowed sales; two of these indicated that
the strong dollar had weakened sales in Europe. A manufacturer of
specialty chemicals reports that his plants are running «24/7.»
There appears to be little upward pricing pressure right now. All
contacts reported that prices were steady or down. A milk
producer said that milk prices were down 10 or more percent
versus a year ago.
Despite seeing stronger sales, only two contacts reported major
hiring. One, a specialty chemical manufacturer, said that finding
hourly workers was exceedingly difficult. This contact said that
only one out of every three or four hourly hires works out; the
problem is absenteeism, with many workers unable or unwilling to
work five days in a row. Another respondent said that eight out
of ten potential hourly hires either cannot pass a drug test or
cannot pass a simple math test. Several of our contacts said they
had trouble finding engineers. Two contacts reported lower
headcount due to «attrition» or new systems.
One contact reported significant revisions to capital expenditure
plans since we last talked 12 weeks ago; they said that they will
more than double spending on new plant and equipment as a result
of the successful introduction of a new product. The contact
noted that the bar for investment is higher than before the
recession: before the recession, an investment project needed to
make sense even if sales fell 5 percent but now the rule is that
it must make sense even if sales fall 25 percent.
Staffing Services
Business activity in the New England staffing services industry
has been fairly strong in the past couple of months:
year-over-year revenues increased between 10 percent and 25
percent for all but one responding firm. Labor demand continued
to increase and labor supply continued to tighten in the fall.
Legal, marketing, and medical assistant positions were
particularly hard to fill. One contact cited the «often
negligible» difference between public benefits that potential job
candidates receive and earnings from a minimum wage job as a
possible explanation of the tightening labor supply. Bill and pay
rates have stayed flat or risen: most staffing firms are not
getting pushback in response to increasing pay rates. One contact
pointed out that his clients recognize that it has become more
costly to recruit and secure qualified and experienced
candidates. Most of the staffing firms plan to increase in size
in 2017, citing the need for specific skills to grow the company,
overworked staff, and expected increases in revenue. All firms
plan to increase wages for their employees over the next year.
Looking forward, staffing contacts were optimistic about how
their companies will fare in the coming months; however, they
recognize that the new administration introduces some
uncertainty. Two contacts expressed optimism concerning the new
political climate, predicting tax cuts.
Commercial Real Estate
Commercial leasing activity was flat or up modestly across the
First District. In the Portland area, office leasing activity was
flat at a slow-to-modest pace, but vacancy rates remained very
low. Office leasing was also flat in greater Hartford. However,
Connecticut continued to see fairly robust activity in the
industrial property market, including sales, construction, and
leasing. In Rhode Island, commercial leasing activity was up
modestly from the third quarter, the office vacancy rate was down
significantly from a year earlier, and asking rents for office
space were on the rise. A contact noted that despite these
improved fundamentals, office rents in downtown Providence remain
too low to justify new office construction. In Boston, office
leasing volume was flat and one contact said the rate of growth
of high-tech firms was slowing. However, Boston’s office vacancy
rate continued to decline slowly, thanks to the paucity of new
construction in recent years. Contacts reported that lending
terms for construction loans continued to tighten. While some
investors reportedly are nervous that property prices in prime
commercial real estate markets such as Boston are poised to
decline moving forward, the most sought- after properties in the
Boston area continued to trade at record prices.
The outlook among contacts was cautiously optimistic, on balance,
and most agreed that it was too soon to predict the impact on
commercial real estate markets of the incoming Trump
administration. Nonetheless, contacts in Boston and Hartford
expect tepid economic growth moving forward based on local
conditions, and a Providence contact cited space constraints as a
barrier to economic growth. All contacts expected borrowing costs
for commercial real estate to increase and price appreciation to
slow or turn negative as a result. However, contacts opined that
investors’ equity positions are strong enough to weather moderate
price declines.
Residential Real Estate
As in recent months, residential real estate markets in the First
District showed healthy buyer activity with increasing strains on
inventory. Closed sales for single-family homes and condos were
mixed, with moderate year-over-year increases in some states and
moderate decreases in others (five of the six First District
states as well as the Boston metro area reported year-over-year
changes from September 2015 to September 2016; Maine reported
changes from October 2015 to October 2016). Pending sales,
however, were up across the board for single-family homes and
mostly increasing for condos. A Boston contact noted that buyer
demand was «remarkable» while a contact in Rhode Island called
2016 «a banner year for home sales.» Despite the mixed results
for closed sales, the increasing pending sales numbers indicate a
positive outlook going forward. A Massachusetts contact said
«buyers in October kept up this summer’s momentum into the fall.»
As usual though, many contacts cited decreasing inventory as a
drag on the market. Inventories decreased year-over-year in every
reporting region for both single-family homes and condos.
Contacts expressed concern that this trend is driving prices up
and pricing out first-time home buyers.
Prices also were generally increasing year-over-year. Median
sales prices for single-family homes increased in every reporting
region. For condos, the same was true in all but two First
District states. Buoyed by strong buyer demand and shrinking
inventories, prices remained at or near record levels in some
areas. Several contacts again characterized the market as a
«seller’s market,» given that sellers are able to price homes at
their desired level and still have an abundance of buyers to
choose from.
Overall, contacts seemed optimistic about the outlook. Many were
wary of low inventory, but maintained that buyers seemed unfazed
by the heavy competition and high prices. Several contacts cited
low interest rates, low unemployment, and the stable economy as
reasons for their optimism.
Return to topReturn to top
Second District–New York
Economic activity in the Second District has remained flat since
the last report, while labor markets have remained tight.
Contacts continue to report little change in selling prices, as
well as in price and wage pressures, though a rising number of
service-sector contacts anticipate wage hikes in the months
ahead. Manufacturers note a modest pickup in business activity,
while service firms continue to report steady to softer activity.
Both consumer spending and tourism have remained sluggish since
the last report. Residential and commercial real estate markets
have been mixed but steady overall. Residential construction has
held steady, while office construction has picked up. Banks
report strengthening loan demand, continued improvement in
delinquency rates, and somewhat tighter credit standards on
commercial borrowers.
Consumer Spending
Retail merchandise sales remained soft in October but showed some
signs of picking up in early November. Two major retail chains
report that sales in the region remained sluggish and below plan
in October, though both note a modest pickup in the first half of
November. Similarly, retailers in upstate New York note that
sales were essentially flat in October but improved somewhat in
early November. Prices throughout the district are reported to be
steady to up slightly, while discounting has remained about the
same. Inventories are described as being in good shape.
Auto dealers in upstate New York report that new vehicle sales
have been steady to somewhat weaker in October and into early
November, while sales of used vehicles were flat to up modestly.
One contact attributes some of the recent weakness to
manufacturers having scaled back incentives, noting that
production has been scaled back. Inventories of new vehicles are
reported to have risen moderately due to slowing sales activity.
Retail and wholesale credit conditions remain favorable.
Tourism activity has been mostly steady since the last report.
Attendance at Broadway theatres slumped in October and early
November and was below comparable 2015 levels; however, revenues
have increased and are on par with a year earlier, reflecting
higher average ticket prices. After rising in September, consumer
confidence in the Middle Atlantic states (NY, NJ, PA) retreated
in October, though it remains at reasonably high level.
Construction and Real Estate
The District’s housing markets have been mixed since the last
report, with the high end continuing to underperform. New York
City’s rental market has been mostly steady, except at the high
end, where the inventory has risen and rents have drifted down.
Landlord concessions have grown increasingly prevalent,
especially in Manhattan and Brooklyn. In contrast, rental markets
in northern New Jersey and across upstate New York have
stre