NATNews Blog > October 2016 > ​The Fed reports economy continues to grow, construction continues to expand

    ​The Fed reports economy continues to grow, construction continues to expand

    10/19/2016 2:51:25 PM
    Reports from the 12 Federal Reserve Districts suggest national economic activity continued to expand during the reporting period from late August to early October. Most districts indicated a modest or moderate pace of expansion; however, the New York District reported no change in overall activity. Compared with the previous report, the pace of growth improved in the St. Louis, Kansas City and Dallas districts. Outlooks were mostly positive, with growth expected to continue at a slight to moderate pace in several districts.
     
    Labor market conditions remained tight, with modest employment and wage growth noted over the reporting period. Most districts characterized input costs and/or output prices as fairly flat, but prices increased slightly on net.
     
    Manufacturing activity was mixed, and the strong dollar continued to dampen exports of manufactured goods according to a few district reports. Most regions saw an uptick in retail spending, and outlooks were for modest growth in the months ahead.
     
    Reports on auto sales and tourism varied across districts. Demand for nonfinancial services generally increased, and staffing firms noted steady or higher demand. Port traffic and e-commerce-related activity rose in districts that commented on it, but reports on other transportation services mostly indicated weakness.
     
    Residential construction and real estate activity expanded further, although low home inventories continued to constrain sales in a few districts. Home price appreciation continued at a modest pace in general, and commercial real estate activity and construction improved since the last report. Demand for business and consumer loans increased, aside from some seasonal slowing, and credit quality remained strong or improved.
     
    Agricultural conditions were mixed, as low commodity prices pressured farm revenues despite generally strong crop yields. There were signs of stabilization in the oil and natural gas sector, while reports of coal production were mixed.
     
    Employment, Wages and Prices

    Employment expanded at a modest pace over the reporting period. Reports of hiring were strongest in the Richmond, Chicago, St. Louis, and San Francisco districts. Layoffs in the manufacturing sector were noted in the New York, Philadelphia, Cleveland and Richmond districts. The Dallas District reported that energy-sector layoffs had abated, and manufacturing employment was stable following payroll reductions in recent months. Labor market conditions remained tight across most districts.
     
    While reports of labor shortages varied across skill levels and industries, there were multiple mentions of difficulty hiring in manufacturing, hospitality, health care, truck transportation, and sales. The Richmond, Dallas and San Francisco districts noted a lack of construction workers, with some contacts noting these shortages were constraining construction activity.
     
    Wage growth held fairly steady at modest levels, although some districts reported rising pressure for certain sectors. The Philadelphia District cited more upward wage pressure for some skilled jobs, while the St. Louis and San Francisco districts said pressure intensified for some entry-level positions. These increases were often driven by a shortage of available workers.
     
    Overall price growth was mild. Most districts reported flat input costs, although a slight increase was noted by firms in the Kansas City and Dallas districts, and among manufacturing firms in the Richmond and Minneapolis districts.
     
    Manufacturing

    Reports on the manufacturing sector were quite varied across districts. The Boston, Philadelphia, Chicago, Kansas City, and Dallas districts noted increased factory activity, while activity declined in the Richmond and Atlanta districts and was steady to weaker in the New York District. The remaining districts cited flat or mixed activity.
     
    Consumer Spending and Tourism

    Overall consumer spending was mixed this reporting period. The near-term outlook in the Boston, Philadelphia, Richmond, Atlanta, and St. Louis districts was for modest growth, while contacts in the Cleveland and Kansas City districts anticipated mostly flat sales.
    • Retail sales increased in a majority of reporting districts.
    • Reports on automobile sales were mixed
    • Tourism activity was mixed across the nation
     
    Nonfinancial Services

    Demand for nonfinancial services generally expanded since the previous report. However, the New York District cited flat to declining activity, and Philadelphia's report noted that the pace of expansion slowed slightly from the previous period.
    • Activity in healthcare services expanded
    • Demand for high-tech or information technology services increased
    • Staffing services demand grew at about the same pace or improved slightly since the prior report
    • Demand for transportation services and freight activity declined on net, partly reflecting weak exports, excess capacity, and lower shipments of energy-related products.
     
    Construction and Real Estate

    Residential real estate activity expanded in most districts since the prior report, and contacts in a few districts expressed optimism about future growth.

    Homes sales fell markedly in the Kansas City District, while slight to moderate gains were reported by most of the other districts. Demand for lower-priced homes was solid in districts that commented on it, while sales of higher-priced homes slowed in the New York, Chicago, and Dallas districts, and in Alaska according to San Francisco's report.

    Home inventories were generally reported to be low or declining and were restraining sales growth according to the Boston, Philadelphia, and Minneapolis districts. Home prices continued to rise at a modest pace across much of the country, which contacts in some districts attributed to tight inventories and labor constraints. Growth in residential construction was generally flat to up during the reporting period, with particular strength noted in the San Francisco District. However, construction activity dipped slightly in the Richmond District partly due to lot shortages.
     
    Reports on multifamily activity varied but were positive on net. Strength in the apartment market was noted by the Dallas District (excluding the Houston metro area), while activity was mixed in the New York District. Growth in multifamily construction was positive in the Boston and Atlanta districts but was mixed in the Richmond District and slowed further according to New York's report.
     
    Commercial real estate leasing activity generally improved, and outlooks were mostly optimistic, although contacts in a few districts expressed concern about economic uncertainty surrounding the upcoming presidential elections. Commercial rents were flat to up, and vacancy rates were generally low and/or declined in reporting districts, except in the Houston metro area where office vacancies increased further. Sales of commercial properties were characterized as robust in the Chicago, Minneapolis, and San Francisco districts but softened in the greater Boston area. Commercial construction increased on net, with contacts in the Cleveland and Atlanta Districts reporting increased or high backlogs. Shortages of skilled labor remained a constraint on construction activity in some districts, such as Cleveland and San Francisco.
     
    Banking and Finance

    Overall loan demand increased, although there were some scattered reports of seasonal softening in some categories of lending. Reports on residential lending were mixed, ranging from some seasonal slowing to growing. Commercial and industrial lending increased overall, although the Cleveland District noted lending is at a slower pace than desired and the New York District reported steady demand.
     
    Competition for borrowers remained strong across a number of reporting districts. Loan quality remained strong or improved in the Philadelphia, Cleveland, Dallas, and San Francisco districts, and the New York and San Francisco districts said delinquency rates remained low or declined since the last report. Credit standards were mostly unchanged this reporting period.
     
    Agriculture and Natural Resources

    Agricultural producers faced mixed conditions during the reporting period, as several districts reported strong production for crops yet noted that low commodity prices continued to put pressure on farm incomes.
    • Record crops were expected for corn and soybeans in several districts.
    • Yields of pistachios, almonds, and walnuts were expected to reach record levels this year.
    • Above-average rainfall over the last several weeks slowed fieldwork in the Chicago and Minneapolis districts, and hampered the cotton crop in some parts of the Dallas District
    • Persistently weak farm income continued to reduce borrower liquidity in the Kansas City District
    • Farmers in the Dallas District were concerned about their ability to get adequate financing for 2017
     
    Signs of stabilization in the oil and gas sector continued, while coal production was up in the Cleveland and Richmond districts but down in the St. Louis District.