NATNews Blog > December 2015 > ​Fed reports economic activity continues to increase at modest pace

    ​Fed reports economic activity continues to increase at modest pace

    12/4/2015 8:30:21 AM
    The 12 Federal Reserve District reports indicate that economic activity increased at a modest pace in most regions of the country since the previous Beige Book report. Economic growth was modest in the Districts of Cleveland, Richmond, Atlanta, Chicago, St. Louis, Dallas and San Francisco. In the Minneapolis District the economy grew moderately, while in the Kansas City District growth was steady on balance with mixed conditions across sectors. In the New York District economic conditions leveled off since the previous report, and in the Philadelphia District aggregate business activity continued to grow at a modest pace. In the Boston District, growth was somewhat slower despite reports of revenue increases.
     
    Consumer spending increased in nearly all Districts since the previous Beige Book, with the pace of sales ranging from sluggish in New York to moderate in Minneapolis and San Francisco. Sales of light vehicles remained robust in recent weeks, with low gasoline prices helping to boost sales of light trucks and larger vehicles. Inventory levels were satisfactory.
     
    Tourism was mixed across reporting Districts. In the Richmond, Atlanta, Minneapolis and Dallas Districts, tourism grew in recent weeks. In the New York District, activity was at or below year-ago levels.
     
    Non-financial services were little changed to stronger, with most of the growth in technology-related services. Transportation activity was softer on balance since the previous report. Port activity remained strong, although largely on the strength of imports, as exports continued to fall. Cargo volume in Dallas remained soft in recent weeks due to the slowdown in energy-related cargo.
     
    Conditions in the manufacturing sector were mixed in recent weeks. The strong dollar, low commodity prices, and weak global demand were named by several Districts as factors for constrained demand. The Boston, Richmond, Atlanta, Chicago, St. Louis and Dallas Districts reported improvements since the previous Beige Book report, while the New York, Philadelphia and Minneapolis Districts reported declines in manufacturing activity. The Boston, St. Louis and Kansas City Districts reported solid capital investment plans. Manufacturers in most Districts looked for slightly improved business conditions in the next six months.
     
    On balance, housing markets improved at a moderate pace since the previous Beige Book, and home prices increased modestly. Home sales rose in the Boston, New York, Philadelphia, Cleveland, Richmond, Chicago and Kansas City Districts. Philadelphia described a "slow growth market" in which inventories were stable at low levels. Housing inventories continued to fall year-over-year in the Boston, Cleveland, Richmond and St. Louis Districts.
     
    Residential construction grew at a modest to moderate pace since the previous report. The New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis and Kansas City Districts reported growth in residential construction, while construction in Dallas and Minneapolis was flat.
     
    Commercial construction strengthened modestly in most Districts. However, the Minneapolis District saw continued strong growth, particularly in cities where commercial permitting increased. In contrast, New York reported little change. Commercial leasing activity generally grew at a moderate pace in recent weeks. Activity increased in the Districts of Boston, Cleveland, Richmond, Atlanta, Chicago, Dallas and San Francisco, but was unchanged in the New York District.
     
    Loan demand increased according to a majority of Districts that report on the sector. Residential mortgage demand was stable on balance. Demand for home equity loans and lines of credit rose in the Richmond and Dallas Districts. Commercial loan demand was reported to be generally strengthening in most Districts. Credit quality was mostly stable. San Francisco noted an increasing role of nontraditional lenders in mortgage markets.
     
    Agricultural conditions varied across Districts in recent weeks. Rainfall helped alleviate drought conditions in the Atlanta and Dallas Districts, while in the Richmond and St. Louis Districts crops suffered from too much moisture. Energy activity declined mildly with limited gas exploration being undertaken. Investment fell at oil and gas exploration and services firms in the Atlanta District as a result of continued weak global demand and an oversupply of oil. The Dallas, St. Louis, Kansas City and San Francisco Districts reported declines in energy activity.
     
    Labor markets continued to tighten modestly, on balance, since the previous Beige Book. The Atlanta, Kansas City and Dallas Districts reported a slight pickup in hiring, while the remaining Districts characterized their increase as modest to moderate. Many Districts indicated that increased hiring was driven by temporary and entry-level positions that were being fulfilled by staffing firms. Employers in several districts reported difficulty finding skilled craftsmen and general laborers in the construction industry. However, the Atlanta, Minneapolis, Kansas City and San Francisco Districts said that difficulties were spreading to lower skilled and entry-level positions. Most Districts said that wage pressures increased only for skilled occupations and for workers that were in short supply.
     
    Prices were generally steady. Input and finished goods prices were stable for manufacturing firms, according to most Districts. Some prices were lower due to further declines in commodity and energy prices as well as the strong dollar. Agricultural commodity prices were also lower. Some upward price pressures were reported by nonmanufacturing firms in the New York, Philadelphia, Richmond, Kansas City and San Francisco Districts.
     
    Consumer Spending
    Consumer spending increased in nearly all Districts since the previous Beige Book, although the gains varied. The Atlanta District reported that retail sales rose slightly above expectations and that the holiday outlook among retailers was optimistic. The pace of growth was modest in the Philadelphia, Cleveland, Chicago, and St. Louis Districts. Chicago District retailers reported that inventories were at comfortable levels. In the Boston District, demand remained strong for home-related items, and in the Cleveland District, revenue increases were driven in part by gasoline and home furnishings. Spending in the New York District was described as generally sluggish, and inventories were up somewhat, but said to be at satisfactory levels. Reports were mixed in the Boston, Richmond and Dallas Districts. While consumer spending declined in the Kansas City District, contacts expected sales to increase slightly in coming months. The remaining Districts reported moderate consumer spending. In the San Francisco District, sales of online games remained brisk and demand for pharmaceutical products remained robust.
     
    Real Estate and Construction
    Housing markets grew at a moderate pace on balance, and home prices also increased modestly since the previous Beige Book. Home sales in the Boston and Cleveland Districts rose since the previous report. The Boston District market for condominiums was generally strong, with sales up year-over-year in every state except Connecticut. In the Richmond District, residential real estate increased moderately. Kansas City residential sales strengthened moderately, led by strong gains in Colorado. Residential real estate continued to improve at a mild pace in the New York, Philadelphia and Chicago Districts. Atlanta District real estate contacts indicated that sales activity held steady since the previous report. In the New York District, weakness was noted at the high end of the single family home market, particularly at the high end of New York City's co-op and condo market. Philadelphia described a "slow growth market" in which inventories were stable at low levels. Dallas single-family housing activity declined seasonally. Housing inventory continued to fall year-over-year in the Boston, Cleveland, Richmond, and St. Louis Districts.
     
    Residential construction grew at a modest to moderate pace since the previous report. The Cleveland and Chicago Districts reported moderate growth, while New York, Philadelphia, St. Louis, and Kansas City Districts reported modest growth in residential construction. In the New York and Atlanta Districts, residential construction was noted as steady. In the New York District, multi-family outpaced single-family construction, with new development largely occurring in or near New York City and suburban rail hubs. In Richmond, single-family home construction grew modestly, while multi-family construction remained strong. Most St. Louis District contacts said that new home construction exceeded that of a year ago. The Kansas City District reported a moderate increase in housing starts, while construction in the Dallas and Minneapolis Districts was flat since the previous report.
     
    Commercial construction strengthened modestly in most Districts since the previous report. The Minneapolis District saw continued strong growth, particularly in cities where commercial permitting increased. The Boston, Cleveland, Atlanta, Chicago, St. Louis, and San Francisco Districts reported moderate commercial construction growth. In the Boston District, office construction grew modestly in the greater Boston region. Demand remained strong in commercial building, multi-family housing, and higher education in the Cleveland District, while in the Atlanta District, non-residential construction was slightly up from a year ago and reports on apartment construction remained robust. The Philadelphia, Richmond and Kansas City Districts reported a modest pace of growth in commercial construction. Commercial construction increased in most major cities in the Richmond District. In contrast, New York reported little change since the previous report. The Dallas District reported that construction remained active, although construction started to taper off in Houston.
     
    Commercial leasing activity generally grew at a moderate pace. Cleveland reported strong growth, while activity in the Districts of Boston, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas and San Francisco expanded at a moderate pace. Commercial real estate improved in the Atlanta District, with increased absorption and rent growth across property types. Improvement in the Chicago District was widely distributed across the retail, industrial, and office segments, with increased demand for both sale and lease properties. Contacts in St. Louis reported slightly higher demand across all sectors, and expected demand to remain the same or increase slightly in the first quarter of 2016. The Minneapolis-St. Paul retail, office, and industrial space had positive net absorption, along with lower vacancy rates. Demand for commercial leasing increased mildly in the Dallas District, while office space activity was strong in the Dallas-Fort Worth area. Commercial leasing activity in New York was unchanged since the previous report.
     
    Banking and Financial Services
    Loan demand increased since the previous Beige Book, according to a majority of Districts that report on the banking and financial services sector. The rise in demand ranged from slight to modest according to the New York, Cleveland, Richmond and Dallas Districts. The Philadelphia and San Francisco Districts reported a moderate rise while the St. Louis District reported the strongest growth. In the Chicago and Kansas City Districts demand was steady. Residential mortgage activity was stable, on balance. The Philadelphia District reported a slight decline in mortgage lending while demand rose slightly according to the Richmond, Atlanta, St. Louis and San Francisco Districts. Demand for home equity loans and lines of credit rose in the Richmond and Dallas Districts. Commercial loan demand was reported to be generally strengthening in most Districts. One exception was the Dallas District, which reported softer lending to businesses, but cited seasonal factors as the likely cause.
     
    Credit quality was generally stable. The New York, Philadelphia, and San Francisco Districts indicated strengthening credit quality as delinquency rates declined and household balance sheets improved. Credit standards tightened slightly for commercial and industrial loans, according to the New York District, and for residential mortgage and business loans according to St. Louis. Dallas noted some tightening of standards in response to slowly declining loan quality among energy sector loans. Some loosening of standards was reported by Richmond and Chicago.
     
    The lending environment remained competitive in most Districts. Atlanta noted that some community depository institutions found it difficult to compete with loan structures and terms offered by larger institutions. St. Louis said some banks experienced a decline in consumer borrowing due to competition from alternative lenders. Richmond reported that private equity was playing a major role in financing merger and acquisition activity. Similarly, San Francisco noted an increasing role of nontraditional lenders in mortgage markets.
     
     
    Employment, Wages, and Prices
    Labor markets continued to tighten modestly, on balance, since the previous Beige Book. The Atlanta, Kansas City and Dallas Districts reported a slight pickup in hiring while the remaining Districts characterized their increase as modest to moderate. Many Districts indicated that increased hiring was driven by temporary and entry-level positions that were being fulfilled by staffing firms. The exception was the Chicago District, where staffing agencies said activity had slowed. Difficulties finding skilled workers persisted, but varied by location and occupation. The Atlanta, Minneapolis, Kansas City and San Francisco Districts said that difficulties were spreading to lower skilled and entry-level positions. Several Districts reported difficulty finding skilled craftsmen and general laborers in the construction industry. The Dallas and San Francisco Districts noted that labor shortages may have constrained building activity in some areas.
     
    Wage pressures were generally stable to increasing. Most Districts said that wage pressures increased only for skilled occupations and for workers that were in short supply, although a few Districts saw broader pressure. Cleveland said that wage pressures were widespread, especially for higher-skilled jobs, while Atlanta reported signs of emerging pressure to raise starting wages, even among low-skilled jobs. The Atlanta and San Francisco Districts said some companies were revising incentives and benefit programs to retain and attract talent. Chicago, on the other hand, reported some firms cutting benefit packages to contain labor costs. A few Districts mentioned issues related to the minimum wage. For example, contacts in the Boston District cited increased labor costs for restaurants due to changes in minimum wages, and the Chicago District said recent initiatives were putting upward wage pressures on low paying jobs. Finally, the Dallas District reported that some hospitality contacts increased starting pay as a preemptive measure for future minimum wage increases.
     
    Prices were generally steady, although reports varied. Input and finished goods prices were stable for manufacturing firms, according to most Districts. However, the Richmond District indicated an increase in raw materials and finished goods prices while intermediate input prices were slightly lower according to the Boston, Atlanta, St. Louis and Kansas City Districts. In some Districts lower input prices were attributed to further declines in commodity and energy prices as well as the strong dollar. For example, Dallas said that a trucking firm was passing lower fuel costs on to customers and Boston reported that the strong dollar put downward pressure on prices. The Cleveland District noted that some manufacturers were cutting prices to compete with foreign imports. Some upward price pressures were noted by nonmanufacturing firms in the Districts of New York, Philadelphia, Richmond, St. Louis, Kansas City and San Francisco. Price declines were reported for agricultural commodities such as raw milk, cotton, soybean, wheat, chickens, hogs, and cattle. However, the San Francisco District reported that drought conditions reduced cattle herd sizes leading to supply shortages and higher meat prices.