Beige Book: Economy continues to grow modestly

One day prior to the vice presidential debate the Federal Reserve issued its latest Beige Book reports from the twelve Federal Reserve Districts indicated that economic activity generally expanded modestly since the last report. The New York District noted a leveling off in economic activity. In general, other Districts reported that growth continued at a modest pace.

Consumer spending was generally reported to be flat to up slightly since the last report. A number of Districts characterized retail sales as expanding at a modest pace, while reports from New York, Chicago, and Kansas City indicated flat or softening sales. Vehicle sales were also generally characterized as stable but up from a year earlier and generally at favorable levels. Most Districts described tourism as fairly robust, while New York and Dallas indicated some scattered signs of weakening.

Residential real estate conditions improved since the last report. Most Districts reported strengthening in existing home sales, while prices were described as steady to increasing, with declining inventories noted in the Boston, Atlanta, Minneapolis, Dallas, and San Francisco Districts.

Residential construction was also described as rising in most Districts. Commercial real estate markets were mixed since the last report. Office markets showed signs of softening in the northeastern Districts--Boston, New York, and Philadelphia--while most other Districts reported stable or mixed market conditions. Industrial markets showed some strength in the New York, Philadelphia, Cleveland, and Atlanta Districts, while softer conditions were noted in Richmond.

Conditions in the manufacturing sector were mixed but, on rbalance, somewhat improved since the last report. The nonfinancial services sector showed modest improvement in the latest reporting period. Richmond, Minneapolis, Dallas, and San Francisco reported some expansion in activity, while New York and Philadelphia indicated steady or mixed conditions.

Overall loan demand was steady to stronger in most Districts. Credit standards were little changed since the last report, and a number of Districts noted improvements in loan quality or steady to declining delinquency rates. Activity in the energy sector remained robust.

Districts mostly reported little change in prices of both finished goods and inputs. Prices for agricultural commodities and petroleum-based products were generally reported to be higher, while natural gas prices were said to be low or declining.

Employment conditions were little changed since the last report. 

Consumer Spending and Tourism


Consumer spending was mixed but generally reported to be flat to up slightly over the latest reporting period. Retail sales were said to have improved modestly in the Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco Districts, while sales were characterized as flat to softer in the New York and Kansas City Districts.

In general, retail sales were reported to be running only modestly ahead of a year ago. A number of reports noted various factors affecting sales, such as rising gasoline prices, political uncertainty, concerns about the "fiscal cliff" and weather.

Vehicle sales were mixed but generally at favorable levels. Sales of new vehicles were steady to stronger and running ahead of comparable 2011 levels.

Tourism was generally described as steady at robust levels, though there have been scattered indications of some softening. Boston, New York, Philadelphia, Richmond, Atlanta, Minneapolis and San Francisco described tourism as strong.

Even Districts reporting strength noted some pockets of softening: Boston reported a small drop in advance bookings; New York indicated a dip in activity in mid-September.

Real Estate and Construction


Residential real estate showed widespread improvement since the last report.

All twelve Districts reported that existing home sales strengthened, in some cases substantially. Selling prices were steady or rising.

Modest price increases were reported in the New York, Richmond, Chicago, and Kansas City Districts.

New York and Richmond reported relatively strong demand at the high and low ends of the market,

New home construction and sales were more mixed but still mostly improved.

Multi-family construction, in particular, was described as robust in the Boston, New York, Atlanta, Chicago, and Dallas Districts.

Residential rental markets continued to be characterized as strong, even in the New York and Atlanta Districts where rents increased somewhat less strongly than in recent months.

Commercial real estate markets were mixed since the last report.

Office markets showed signs of softening in the northeastern Districts--Boston, New York and Philadelphia--with New York remarking on substantial new supply coming on the market in early 2013.

Industrial markets showed some strength in the New York, Philadelphia, Cleveland and Atlanta Districts

Manufacturing


Conditions in the manufacturing sector were mixed since the last report, though on balance, more Districts reported that conditions had improved than worsened.

Activity was reported as mixed in the Dallas District, while the New York, Chicago, and Minneapolis Districts reported that activity weakened, though declines were mild for the latter two. Significant gains in manufacturing related to the construction, energy, and transportation sectors were reported across several Districts, with particularly robust gains tied to the automotive industry.

Nonfinancial Services


Activity in nonfinancial services was stable to slightly stronger since the last report.

The Richmond, Minneapolis, Dallas, and San Francisco Districts reported that service-sector activity expanded, while such activity was reported as steady in the New York District and mixed in the Philadelphia District.

Reports on goods transportation services generally remained positive.

Banking and Finance


Overall loan demand increased slightly on net since the last Beige Book report. New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and San Francisco reported stronger loan demand on balance, while Kansas City and Dallas reported flat demand and Chicago reported somewhat weaker demand.

Most Districts reported an increase in mortgage lending, especially for refinancing purposes. New York, Cleveland, St. Louis, Kansas City, and San Francisco reported some increase in demand for commercial and industrial loans, while demand for business loans was weak in Chicago and Dallas, and was characterized as mixed in Richmond.

Demand for consumer credit, particularly for auto loans, was said to be strong in the Cleveland, Atlanta, St. Louis, Dallas, and San Francisco Districts, while consumer loan demand was more limited in New York, Richmond, Chicago, and Kansas City.

Credit standards were little changed since the last report. However, New York noted some tightening for consumer loans and residential mortgages, while Richmond and Chicago reported some easing for commercial and industrial loans. Still, loans remained difficult to obtain for many small businesses in the Cleveland, Richmond, and Chicago Districts. Banking contacts in the Philadelphia, Cleveland, Dallas, and San Francisco Districts reported stiff competition among lenders. Philadelphia, Kansas City, and Dallas noted general improvements in loan quality, and delinquency rates generally held steady or declined in the New York, Cleveland, and Dallas Districts.

Agriculture and Natural Resources


Agriculture conditions were mixed since the last report.

Activity in the energy sector remained strong, with the Minneapolis, Kansas City, and Dallas Districts reporting robust gains in activity.

Employment, Wages, and Prices


Employment conditions were little changed since the last report. The Boston, Cleveland, Atlanta, Minneapolis, and Dallas Districts indicated that employment levels were flat or up slightly, with stagnant demand and uncertainty related to the upcoming presidential election, U.S. fiscal policy, and European debt issues cited by some as restraining hiring.

The New York and Chicago Districts noted weaker labor market conditions, and conditions were described as mixed in Richmond. Firms in the St. Louis District reported an increase in hiring plans.

Most Districts reported that wage pressures remained modest since the last report, though an increase in the cost of employee medical benefits was noted in Philadelphia, Cleveland, and Chicago.

To the extent that wage increases were observed, they were concentrated among highly skilled workers in information technology, health care, professional services, and some of the skilled trades, according to reports from the Chicago, Minneapolis, Kansas City, and San Francisco Districts.

Price pressures were said to be contained as most Districts reported that both finished goods and input prices were little changed since the last report.

Higher prices were cited by some Districts for agricultural commodities and petroleum-based products,

New York-The Second District for the Federal Reserve

New York City is in the Second District for the Federal Reserve where economic activity in the District has held steady since the last report. Prices of finished goods and services have generally been stable.

The labor market has shown further signs of softening, as fewer business contacts report that they are adding workers, and a major employment agency describes hiring activity as sluggish.

Retailers, including auto dealers, note some leveling off in sales activity following increases.

Tourism activity has generally held steady at a high level, though there were some indications of softening in mid-September.

Residential real estate markets have shown further signs of improvement.

Office markets have shown some signs of slackening, but industrial markets have picked up modestly.

Finally, bankers report increased loan demand, except on consumer loans, steady to tighter credit standards, and lower delinquency rates on commercial loans and mortgages.

Consumer Spending


Retailers report that sales activity has remained flat in recent weeks. A major retail chain reports that sales in the region were sluggish in August and especially in September, running well below comparable 2011 levels. Some of the weakness is attributed to unseasonably mild weather, which dampened sales of seasonal merchandise.

The pricing environment is described as quite promotional, and acquisition costs of goods are characterized as mostly stable to declining modestly.

New vehicle sales were up 6-9 percent from a year earlier in August but are projected to be flat to up slightly in September. Sales of used cars have been mixed since the last report, while dealers' service departments note some slowing in business. Wholesale and retail credit conditions remain favorable.

Tourism activity has been steady at a fairly robust level since the last report, despite hints of weakness in mid-September.

A trade association survey conducted in September indicated that 70 percent of hoteliers across New York State report that business over Labor Day weekend was at least as good as in 2011. Similarly, occupancy rates and room rates at Buffalo hotels are reported to be running well ahead of 2011 levels.

Manhattan hotel occupancy rates were little changed at slightly over 90 percent in August, with room rates continuing to run a modest 2 percent ahead of a year ago. Anecdotal reports for September suggest that business remained strong in the early part of the month but tapered off a bit at mid-month.

Similarly, weekly attendance and revenues at Broadway theaters were running ahead of comparable 2011 levels in August and early September but slipped well below year-earlier levels for the third week of the month. Finally, consumer confidence fell in August and was little changed at a low level in September, according to the Conference Board's monthly survey of residents of the Middle Atlantic States (NY, NJ, and Pa).

Construction and Real Estate


Residential real estate across the District has continued to improve.

Northern New Jersey's housing market has shown further modest signs of improvement, and there has been a sustained pickup in rental apartment construction, as builders appear to see a persistent shift toward renting. Home prices across northern New Jersey appear to recovering gradually--an industry expert notes that foreclosures and distress sales are no longer pushing down prices of other properties, though they are dampening any increase.

Manhattan's co-op and condo market has remained stable--both in terms of sales activity and prices. The upper end of the market has been relatively strong, partly fueled by foreign buyers.

Market conditions are reported to have strengthened in Brooklyn and especially Queens in the third quarter, while Long Island's housing market is weak but stabilizing.

New York City's apartment rental market remains robust: rents have decelerated a bit in recent months but are still estimated to be rising at a 6-8 percent annual pace.

Commercial real estate markets showed signs of softening in the third quarter.

In particular, office vacancy rates in northern New Jersey, Westchester and Fairfield counties climbed to their highest levels in a number of years, while asking rents were flat to down slightly.

Office vacancy rates also edged up in Manhattan, after drifting down over the first half of 2012. Sluggish leasing demand from financial and other firms is reported to be more than offsetting strong leasing demand from tech firms. A substantial amount of office space is scheduled to come onto the Lower Manhattan market in early 2013.

Industrial markets have strengthened: vacancy rates have declined modestly since the beginning of the year in northern New Jersey, Westchester and Fairfield counties but rates have held steady in Long Island.

Industrial rents have begun to rise modestly across most of the District for the first time in a number of years.

Other Business Activity


Manufacturers across the District indicate some further softening in general conditions since the last report, whereas contacts in most other sectors report that activity held steady.

. Both manufacturers and other contacts report little change in input price pressures since the last report, though a number of manufacturing contacts say they plan to hike selling prices in the months ahead.

Labor market conditions across the District have been tepid since the last report.

Business contacts generally indicate that they have scaled back hiring activity in recent months, and almost as many business contacts say they plan to reduce as increase employment in the months ahead.

A major New York City employment agency specializing in office jobs reports that hiring activity remained sluggish after Labor Day--a time when recruitment activity typically picks up. Moreover, the weakness is reported to be fairly broad-based, though most evident in the finance sector.

Financial Developments


Small to medium sized banks in the District report increased demand for all loan types except consumer loans, where demand was unchanged.

Bankers also report increased demand for refinancing. Bankers report some tightening in credit standards for the household sector: roughly one in five bankers report tighter standards for consumer loans and residential mortgages, while no respondent reports easing standard in any individual loan category. Respondents indicate a decrease in spreads of loan rates over costs of funds for all loan categories except for consumer loans. The decrease in spreads was most prevalent in commercial mortgages. Respondents also indicate a decrease in the average deposit rate. Finally, bankers report some decrease in delinquency rates for commercial and industrial loans and commercial mortgages but no change for consumer loans and residential mortgages.

Posted on October 23, 2012 .