NATNews Blog > March 2016 > Federal Reserve: Economic Growth Continues to Expand

    Federal Reserve: Economic Growth Continues to Expand

    3/3/2016 8:31:36 AM
    Reports from the 12 Federal Reserve Districts continued to indicate that economic activity expanded in most districts since the previous Beige Book report.
     
    Economic growth increased moderately in Richmond and San Francisco and at a modest pace in Cleveland, Atlanta, Chicago, and Minneapolis. Philadelphia reported a slight increase in economic activity, and St. Louis described conditions as mixed. Most contacts in Boston cited higher sales or revenues than a year-ago but mixed results since the previous month. New York and Dallas described economic activity as flat, and Kansas City noted a modest decline in activity.
     
    Across the nation, business contacts were generally optimistic about future economic growth.
     
    Consumer spending increased in the majority of Districts, although Kansas City and Dallas noted some weakness. Auto sales were mixed, but remained at elevated levels in most Districts. Tourism activity strengthened in most reporting Districts.
     
    Nonfinancial services activity grew slightly since the previous report, and demand for staffing services moved higher. Transportation activity was mixed, with weakness in the energy and agriculture sectors and lower export volumes limiting gains.
     
    Overall, manufacturing activity was flat, although conditions varied considerably across Districts. Most Districts noted that weak demand from the energy sector was creating a significant headwind for manufacturers, although contacts in San Francisco mentioned that low energy costs had reduced production costs for steel products. Many Districts reported that the strengthening dollar and weakening global outlook had negatively affected international exports.
     
    Residential real estate sales rose in most Districts since the last report, and home inventories were low in the majority of Districts. Residential construction activity strengthened, as several Districts noted strong growth in multifamily construction. Nonresidential real estate sales also picked up, on net, although sales ranged from flat to strong across all Districts.
     
    In the banking and finance sector, most Districts reported slight to modest increases in loan demand, stable credit quality and unchanged credit standards.
     
    Agricultural economic conditions were flat to down moderately, as low commodity prices and weak global demand continued to put downward pressure on farm income. The energy sector contracted further since the last report due to lower coal production and additional declines in the oil and gas industry.
     
    Labor market conditions continued to improve, with the majority of Districts reporting modest gains. Wage growth varied considerably, from flat to strong, across all Districts, and most Districts reported that consumer prices held steady.
     
    Real Estate and Construction
    Residential real estate sales were up since the last report across all Districts, with the exception of New York and Kansas City where sales were somewhat weaker in part due to normal seasonal patterns. The Boston, Cleveland, St. Louis, and San Francisco Districts reported strong growth in sales, and contacts in Boston and Cleveland cited relatively mild winter weather as a positive contribution to growth. Low- to moderately-priced homes sold better than higher-priced homes in Cleveland, Kansas City, and Dallas. Condo sales increased across the Boston and Cleveland Districts but slowed somewhat in New York City. New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, Minneapolis, and Kansas City reported low residential real estate inventories, and contacts in the Boston District reported that inventory of both single-family homes and condos were below year-ago levels. Residential real estate prices increased in the Boston, Cleveland, Richmond, Chicago, Kansas City, and Dallas Districts, while New York and Philadelphia reported little or no increase in house prices.
     
    Residential construction generally strengthened since the previous survey period, with only Philadelphia and Kansas City reporting declines. Contacts from the New York District reported sluggish single-family construction but robust multifamily construction. Boston, Richmond, and San Francisco also reported strong growth in multifamily construction, and St. Louis noted an increase in speculative multifamily construction projects.
     
    Districts characterized nonresidential real estate sales and leasing growth as flat to strong. Contacts in Cleveland cited growth in demand from the healthcare and higher education sectors and to a lesser extent the manufacturing, commercial real estate (excluding office buildings) and multifamily housing sectors. Commercial occupancy rates rose in San Francisco, spurring higher lease rates and additional construction projects. Commercial vacancy rates were nearing or below prerecession levels in Minneapolis despite significant new commercial real estate construction, and St. Paul saw more commercial net absorption in the last year than in the previous ten years combined. Similarly, industrial vacancy rates decreased across the Cleveland, St. Louis, and Dallas Districts. Demand for commercial real estate space grew robustly in Chicago across retail, industrial and office segments, but there was concern that the lack of commercial construction and increased demand would lead to space shortages and price bubbles. Commercial leasing activity in Boston was steady, and fundamentals remained strong. Richmond commercial leasing activity increased moderately for the retail market since the previous report, while activity in the office and industrial markets was tepid. Commercial rents increased in Philadelphia, and contacts in Atlanta noted generally improving rents as well as increased absorption.
     
    With respect to nonresidential construction, the New York District reported that availability rates and asking rents held steady for office space, but that new office construction had weakened further. Commercial construction continued to expand at a robust pace in Minneapolis, but industrial construction slowed in the Chicago District.
     
    Banking and Finance
     Loan demand increased in most Districts, although New York and Kansas City reported mixed or steady demand and Philadelphia experienced a slight decline. St. Louis reported strong demand for mortgages and commercial and industrial loans, while demand for consumer loans remained unchanged.  Banks in the Atlanta District reported healthy pipelines in residential lending and increased mortgage refinancing. New York reported mixed loan demand at small-to-medium-sized banks including weakening demand for consumer loans and residential mortgages but rising demand for commercial loans. While lending grew in most categories in Dallas, contacts indicated that low oil prices continued to suppress demand. Contacts in Chicago noted that concerns about slower global economic growth had led to declines in equity markets, wider spreads for asset-backed securities, and an increase in financial market uncertainty, and in Dallas, financial market and monetary policy uncertainty had created concerns about 2016 growth prospects.
     
    Credit quality was stable for most Districts. Improved loan quality was noted in Philadelphia, Richmond, and San Francisco. However, in the San Francisco District, it was noted that low commodity prices could undermine asset quality in the agricultural sector in the months ahead. In St. Louis, loan delinquencies were unchanged to slightly lower in all loan categories, but creditworthiness of applicants improved.
     
    Credit standards remained the same for most Districts. In Philadelphia, some contacts noted a tightening of standards, especially for energy-related industries. In St. Louis, credit standards were unchanged to somewhat tighter for all loan categories. Loan pricing was competitive in Atlanta and Chicago. Banking contacts in Philadelphia indicated a competitive lending environment. Competition among banks intensified somewhat in recent weeks in the Richmond District. In San Francisco, lender competition for qualified borrowers was vigorous. Cleveland reported consumers increasingly turning to non-bank competitors for auto lending.
     
    Employment, Wages, and Prices
    Labor market conditions continued to strengthen since the previous reporting period, with the majority of Districts reporting modest growth in the labor market. However, labor conditions were mixed in Atlanta and Dallas, and Atlanta, Dallas, and San Francisco noted decreased employment in the energy sector. Contacts in New York, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City reported difficulty in finding skilled workers including information technology, engineering, specialty healthcare, construction, manufacturing, and transportation employees. Contacts in Cleveland and Richmond noted that low-skilled positions were becoming increasingly difficult to fill, but contacts in Atlanta reported that low- to mid-skilled positions were easier to fill. Retail employment was down slightly in Dallas due to weak sales, while Kansas City contacts reported a shortage of available retail salespeople.
     
    Wages generally increased, as most Districts experienced slight to strong wage growth. However, the Kansas City, Richmond and Atlanta Districts reported flat wage growth. St. Louis noted strong wage growth as fifty-six percent of contacts, the highest in two years, reported that wages were above year-ago levels. Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, and San Francisco reported positive wage growth among high-skilled workers, especially for occupations in the technology, high-skilled manufacturing, aerospace and defense, financial services, and professional technical sectors. Furthermore, Cleveland, Richmond, Atlanta, Chicago, and Kansas City reported wage growth among low-skill and entry-level positions. A contact in Chicago attributed the rise of entry-level wages in Michigan to an increase in the minimum wage. Staffing firms in the Boston District reported single-digit wage increases, but staffing services contacts in Dallas cited easing wage pressures, especially in Houston. Wage pressures moderated in the service sector in Richmond but continued upward pressure was cited in New York. Wages in the retail sector declined in the Kansas City District but increased in Cleveland.