Eight times a year, the
Federal Reserve issued the Beige Book, with a formal title “Summary of
Commentary on Current Economic Conditions by Federal Reserve District”, a
snapshot of business conditions in each of the Federal Reserve, 12 regional
The idea is to detect trends
in consumer spending, manufacturing and real estate, among other areas.
November has been quite a
business month with the election, the military actions in the Middle East, the
economic climate in Europe, the aftermath of
Hurricane Sandy; the latest Beige Book was released on Wednesday, November 28th,
based on information collected before November 14, 2012.
Economic activity expanded
at a measured pace in recent weeks, according to reports from contacts in the
twelve Federal Reserve Districts. Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco
grew at a modest pace, while St. Louis and Minneapolis indicated a
somewhat stronger increase in activity. In contrast, Boston reported a slower rate of growth. Weaker conditions in New
York were attributed to widespread disruptions at the end of
October and into November caused by Hurricane Sandy. Philadelphia reported general weakness that
was exacerbated by the hurricane. Contacts in a number of Districts expressed
concern and uncertainty about the federal budget, especially the fiscal cliff.
Among key sectors, consumer spending grew at
a moderate pace in most Districts, while manufacturing weakened, on balance.
Several Districts reported slight gains in
residential and commercial real estate.
Travel and tourism varied by District.
Non-financial services also differed among Districts, in transportation;
reports were, again, mixed. In addition, hurricane disruptions slowed freight
shipments in some Districts, while simultaneously boosting demand for shipments
of emergency supplies. In banking and financial services, higher demand for
home mortgage loans and auto loans increased consumer lending in some
Districts, although small business loan demand was generally described as
weaker to only moderately higher. Credit quality improved on net.
Consumer Spending and Tourism
Consumer spending increased at a
moderate pace in most Districts in recent weeks, with mixed reports from Dallas. In New York, sales were
ahead of plan prior to Hurricane Sandy, and merchants expect to recoup sales
lost during the storm as residents replace destroyed or damaged property.
Automobile sales varied by District. New York contacts said
sales had flattened. Used car sales remained robust in New York
Looking to the holiday sales season, the
Districts whose contacts gave an outlook noted mostly upbeat expectations. New York retailers anticipated recovering lost sales
during the holiday season, Contacts in Boston, Cleveland, and Chicago
remarked on their uncertain sales expectations because of the potential for tax
changes in 2013, as the national budget outlook remained uncertain.
Tourism slowed in some Districts while
strengthening in others. New York District tourism was mixed prior to Hurricane
Sandy; hotel bookings initially dropped off following the storm, but business
bounced back the next week. In addition, late cancellation of the New York marathon likely
brought large numbers of visitors to the city in early November. Hurricane Sandy affected areas of the Philadelphia District along
the coastlines of Delaware and southern New Jersey, in some
cases demolishing houses and devastating businesses. New
Jersey also suffered losses in revenue from the closure of Atlantic City casinos and the cancellation or delay of
conventions there; expectations were that most areas along the Jersey shore would be rebuilt and ready for the summer
Reports from nonfinancial services
providers differed among Districts. Boston
reports were generally weaker than expected for tech services, while New York businesses
indicated that the effects of Hurricane Sandy had negatively impacted both
workers and customers. In the New York District, prolonged power and
communications outages and extreme flooding hurt firms and residents,
particularly on Long Island and in northern New Jersey.
Conditions in the manufacturing
sector were mixed, though on balance, most Districts reported that conditions
had weakened since the previous report. The Boston,
New York, Philadelphia,
Kansas City Districts reported that activity had either slowed or declined
somewhat, with most reports leaning toward the latter.
contacts from five of the twelve Districts expressed concern about the outlook
for 2013, in part, due to the uncertainty regarding the outcome of the fiscal
Real Estate and Construction
Overall, markets for single-family
homes continued to improve across most Districts with the exception of Boston and Philadelphia.
Residential real estate markets in the New York District were mixed but
generally firm prior to the storm. Selling prices were steady or rising. Boston, New York, Richmond, Atlanta, Kansas City, and Dallas
noted declining or tight inventories.
Construction and commercial real estate
activity generally improved across Districts since the last report.
Several Districts noted segments of little
change in commercial real estate activity. Commercial and industrial conditions
were mixed throughout most of New
York prior to the hurricane. New
York added that, while office markets across upstate New York were unaffected
by the storm, there were some signs of recent softening.
Banking and Financial Services
Loan demand generally was either
mixed or slightly stronger across most Districts in recent weeks. Among those
noting mixed results, New York
reported that demand for consumer and especially commercial and industrial
loans weakened, but commercial and residential mortgage demand was steady.
Used car loan demand was weak in the Dallas
District, although first mortgage and energy-related lending increased. San Francisco cited weak-to-moderate business loan demand,
but consumer lending expanded further with the help of auto loans and home
mortgage refinancing; however, San
Francisco noted that lending activity as a whole was
unchanged. Most remaining Districts, including Philadelphia,
and Kansas City
reported moderate increases in total loan demand. In the Philadelphia District,
banks reported widespread bank and ATM closings due to Hurricane Sandy.
respect to loan quality, New York
reported that delinquency rates increased in the consumer and commercial and
industrial segments but held steady in the residential and commercial mortgage
Employment, Wages, and Prices
Modest improvements in hiring
activity were reported by most Districts. Labor markets were generally described
as improving modestly by Boston, Atlanta, Chicago, Minneapolis, and Dallas.
Staffing firms, according to Boston and Cleveland, experienced
improved business conditions
Finally, contacts in a number of Districts
reported difficulties finding qualified workers in some specialized
Wage pressures were generally characterized
as "subdued" or "contained" throughout much of the nation,
according to the latest District reports. Virtually every District described
wage growth as modest at best.
As with wages, price pressures changed
little from the modest pace that was reported in the last assessment. Almost
every District described price growth as modest, although examples of higher
price growth were occasionally cited.
for the Second District: New York
The Beige Book for the
Second District which includes New York, reported that economic activity in the
district has weakened since the last report, (which was issued in early
October), largely reflecting widespread disruptions from Hurricane Sandy.
Prices of finished goods and
services have generally been stable. The labor market is difficult to gauge at
this point--while hiring activity tapered off noticeably due to the storm,
relatively few business contacts indicate that they plan to reduce headcounts
in the months ahead.
Retailers report fairly
strong sales for October but indicate that business in the last two weeks has
been severely hampered by storm disruptions; auto dealers in upstate New York
report some softening in auto sales in October.
Tourism activity in New York
City was fairly strong prior to the storm; hotel business tapered off only
modestly in early November, as the adverse effects of travel cancellations were
partly offset by increased demand from local residents without power or access
to their homes.
Residential real estate markets were generally
firm through the latter part of October, though the storm has caused a
substantial slowing in sales activity in and around New York City. Finally, bankers report some
weakening in loan demand and increased delinquency rates in the consumer and
commercial & industrial loan segments; for residential and commercial
mortgages, both loan demand and delinquency rates are little changed.
Retail sales are reported to have been ahead of plan in October but
exceptionally weak in early November in the New York City area, mainly due to widespread
power outages, store closings and accessibility problems for both customers and
workers. With the holiday sales season coming up--and with many residents
in the region needing to replace destroyed or damaged property--all the lost
sales are expected to be made up in the weeks ahead. One major chain reports
that it is hiring more holiday-season staff than in 2011. The pricing environment
is described as stable.
Auto dealers reported that used car sales
reportedly remain fairly robust. There has also been some softening in business
at dealers' service departments. Wholesale and retail credit conditions remain
Tourism activity in New York City was mixed in October but
dropped off noticeably following the late-October storm. Hotels across much of
lost business in late October and early November, when they were without power
for a number of days. Overall revenue for Manhattan
hotels slumped nearly 10 percent below 2011 levels during the week of the storm
but bounced back in the subsequent week.
York City marathon, although cancelled at the last minute,
likely brought large numbers of visitors to the city during the first weekend
in November. Attendance and revenues at Broadway theaters, which had already
weakened modestly in October, fell sharply during the week of the storm;
attendance rebounded modestly in the second week of November but remained
roughly 15 percent below last year's level. In my discussion with a principal
at one of the theater companies, attendance has returned with near record
attendance during the Thanksgiving holiday.
Finally, consumer confidence in the region
climbed to its highest level in well over a year in October (prior to the
storm), based on both the Conference Board's survey of residents of the Middle
Atlantic states (NY, NJ, Pa) and Siena College's survey of New York State
Construction and Real Estate
Residential real estate markets in the District were mixed but generally firm
prior to the storm, and its effects on the market remain unclear at this point.
Manhattan's rental market
remained on a positive trajectory in October, with rents up roughly 5 percent
from a year earlier and vacancy rates continuing to decrease. Contacts in the
metro market report rents continue to rise and industry leaders expect rents to
rise by as much as ten percent in 2013.
Sales markets in both Manhattan and the outer boroughs were fairly
active in October, with prices steady and the inventory of available homes
characterized as low.
An expert on New Jersey's
housing sector notes that conditions were improving gradually prior to Sandy and expects that
post-storm rebuilding will boost multi-family construction.
The storm caused a noticeable slowdown in
sales activity throughout the New York
City metropolitan region, but this is expected to be
temporary. With many homes along the New York City,
Long Island and New Jersey
shorelines severely damaged or destroyed, the lean housing inventory is a
concern, as displaced residents seek short-term rentals.
There is some concern as to how much of the
shore communities will be rebuilt and how quickly, but one industry expert
anticipates that residents in the severely-damaged areas will be strongly
motivated to return and rebuild. Some of the biggest potential challenges are
likely to be shortages of construction equipment and materials, and steeper
prices for insurance.
Commercial real estate markets were mixed
prior to the storm. A number of large office buildings in lower Manhattan remain out of
commission due to extensive flooding; however, a major brokerage contact
indicates that displaced businesses do not seem to have had much trouble
finding temporary quarters.
Overall market conditions are not reported
to have changed much, thus far, since the storm--between the end of September
and mid-November, asking rents have risen modestly in Manhattan
but declined modestly in northern New
Other Business Activity
Manufacturers across the District indicate continued weakness in general
conditions since the last report; virtually all contacts in the New York City area report
some loss in business due to storm-related disruptions. Manufacturers in upstate
New York, which was not significantly affected
directly, reported only scattered and indirect effects from the storm, though
these contacts also report some further weakening in business conditions.
Business contacts throughout the southern
part of the District--in both manufacturing and other sectors--report
widespread effects of the storm, particularly in northern New
Jersey and on Long Island. In
these parts of the District, many businesses indicate that the impact has been
both severe and protracted, due to prolonged power and communications outages,
as well as transportation disruptions that have prevented both workers and
customers from accessing the business.
trucking industry expert notes that many terminals and warehouses sustained
severe flooding, which has disrupted business; at least one firm has gone out
of business as a result. Business contacts in both manufacturing and other
sectors report steady input price pressures and little change in selling
Labor market conditions have weakened,
probably temporarily, in the aftermath of Sandy.
A major New York City
employment agency specializing in office jobs reports a sharp drop-off in
business after the storm, because many firms either shut down or operated
without key personnel.
Separately, a growing number of manufacturing
contacts--not only in the New York City area but
also in upstate New York--report
declines in employment at their firms.
However, businesses in other sectors report
little or no change in employment. Contacts in both manufacturing and other
sectors expect headcounts to remain steady, on net, over the next six months.
Small- to medium-sized banks across the District report weaker demand for
consumer and especially commercial & industrial loans but steady demand for
commercial and residential mortgages.
Bankers report increased demand for
refinancing. In my discussion with lenders, demand for refinancing is expected
to be greater in the final two months of 2012 as compared to the prior year.
CMBS financing has returned with highly competitive pricing by Wall Street.
Respondents do not report any change in credit
standards in any loan category. Bankers indicate a decrease in spreads of loan
rates over costs of funds for all loan categories--particularly commercial
Respondents also indicate decreases in
average deposit interest rates: nearly two in five bankers report a decrease
while none reports an increase. Bankers note increased delinquency rates for
consumer loans and commercial & industrial loans but no change in
delinquency rates for residential or commercial mortgages.
When asked what effects Sandy had on their business, almost half of
the bankers report no noticeable effect so far; however, many of these
respondents expect that effects of the storm could become evident in the
future, especially for commercial businesses and as damage to collateral is
On the other hand, more than 40 percent of
those surveyed were affected directly by the storm, with widespread branch
closings and power outages reported. Banks in the most severely affected
areas--largely New Jersey, as well as lower Manhattan and Queens--have
received a high volume of calls from customers with home damage, and banks are
physically inspecting buildings for damage before making new loans.