Market Overview

Beige Book Full Text


Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand across most regions and sectors from early January through mid-February. Six Districts noted that the local economy expanded at a moderate pace since the prior reporting period. Activity rose modestly in Philadelphia and Cleveland, while it increased slightly in Kansas City. Dallas noted a similar pace of growth as in the previous period, while Richmond reported that activity slowed from the modest pace seen in the prior period. Boston noted that business contacts were fairly upbeat this period, notwithstanding the severe weather.

Consumer spending rose in most Districts, and contacts were generally optimistic about near-term sales. Travel and tourism also increased in the reporting Districts. Manufacturing generally posted gains across the Districts, although at varying rates. The demand for nonfinancial services also grew moderately on balance. Home sales increased in most Districts, while reports on residential construction were mixed. Commercial real estate market conditions remained stable or improved across the Districts. Banking conditions generally improved, and credit quality remained largely unchanged. Agricultural conditions generally worsened, and oil and natural gas drilling declined.

Payrolls remained stable or expanded across the Districts, and contacts noted employment gains in a broad range of sectors. Wage pressures remained moderate and were limited largely to workers in skilled occupations. Most District contacts cited only flat to slightly increasing prices.

Consumer Spending and Tourism

Most Districts reported that overall consumer spending increased during the reporting period. The Kansas City District, however, reported that retail sales had declined since the previous survey, but were unchanged from one year ago. The Minneapolis, Atlanta, Kansas City, and San Francisco Districts reported growth in restaurant sales. Among retailers, the outlook was generally optimistic in the Philadelphia, Cleveland, Atlanta, Kansas City, and San Francisco Districts. Both the New York and Boston Districts reported that harsh winter weather negatively affected retail business in their Districts; however, the Boston and Cleveland Districts also reported increased sales of winter-related items such as winter apparel, rock salt, and snow shovels. The Minneapolis District noted that some apparel stores had difficulty selling winter clothing due to a relatively mild winter in December and January.

Automobile sales rose in most Districts during the reporting period. The Richmond District reported that sales of cars and light trucks were flat. Reports from the Atlanta, Cleveland, Chicago, Kansas City, and San Francisco Districts indicated increased demand for trucks or SUVs. The New York, Cleveland, and St. Louis Districts noted higher sales of new vehicles during the reporting period. The Philadelphia, Kansas City, and Dallas Districts expressed optimistic outlooks for future automobile sales.

Travel and tourism improved in the New York, Philadelphia, Atlanta, Kansas City, and San Francisco Districts. The Richmond District reported a typical seasonal slowdown in activity. The New York District noted that tourism has remained robust in recent weeks. The Philadelphia District noted that ski season tourism has grown at a healthy pace, similar to that of last year's good season. The Minneapolis District indicated that winter tourism was mixed.

Manufacturing and Other Business Activity

Manufacturing generally increased since the previous survey, although the rate of growth varied across the Districts and sectors. The Atlanta District noted that manufacturing rebounded during the current reporting period following a modest slowdown in December. According to contacts in the Chicago and San Francisco manufacturing rose moderately, while contacts in New York noted modest gains. Contacts in Kansas City indicated slow growth, contacts in Philadelphia reported slight increases, and contacts in Dallas noted flat to positive growth. Reports from factory contacts in Cleveland District were mixed, while contacts in Richmond noted that activity weakened. Manufacturers had generally positive outlooks going forward. Firms in Atlanta expect production levels to increase over the next three to six months, some firms in Chicago expect steady growth in shipments for 2015. Manufacturers in Boston, Cleveland, and Richmond reported positive outlooks. In contrast, New York District contacts have grown less optimistic about the near-term outlook.

Automobile manufacturing output rose in the Cleveland, Chicago, and St. Louis Districts. Aerospace manufacturers in San Francisco expect 2015 to be a record year, and aerospace manufacturers in St. Louis reported plans to expand. Reports from primary and fabricated metals manufacturers were mixed. Firms in Chicago reported steady gains in new orders, firms in Dallas reported slower growth in demand, and firms in Philadelphia, St. Louis, and Kansas City reported weakness. In Cleveland, shipments for steel were softer than expected. Contacts in Cleveland, Chicago, and San Francisco cited increased competition from imports as a constraining factor for steel manufacturing. Industrial equipment manufacturing was mixed in Richmond and Dallas, while the Philadelphia, Chicago, and Minneapolis Districts reported gains in activity. Kansas City and San Francisco reported slower growth in machinery production.

Electrical equipment manufacturers in Richmond reported no change in shipments and orders from the previous report, while contacts in Kansas City noted slower growth in electronics. Contacts in Philadelphia and Dallas reported an increase in the demand for electronic devices. Healthcare device manufacturers in Richmond noted reduced sales. Chemical producers in the Dallas District noted declining export demand and decreased refinery utilization rates, while chemical manufacturers in St. Louis announced plans to hire additional employees and expand operations. Food producers in Richmond, Kansas City, and Dallas noted increases in demand.

Nonfinancial service activity increased in Philadelphia, Richmond, St. Louis, and Kansas City, and San Francisco. New York and Minneapolis noted an increase in activity at professional business firms. Demand for information technology services generally improved, with increases in activity cited in Minneapolis and Kansas City. However, firms in Boston noted that good business conditions were tempered by weakness abroad and firms in New York noted some weakening. Healthcare services utilization was mixed to slightly positive. Contacts in Boston, Cleveland, and St. Louis noted increasing demand for labor in healthcare, contacts in New York reported stable activity, and contacts in San Francisco noted mixed demand. Transportation demand generally improved. Contacts in Kansas City and New York noted increases in activity. Contacts in Atlanta and Philadelphia cited record shipping volume. Contacts in Cleveland and Richmond indicated that shipping volume has remained strong since the previous report. Contacts in Atlanta noted that disruptions at West Coast ports may be contributing to the increase in shipping volume. Drilling service firms in Minneapolis reported reduced demand due to lower oil prices, and oilfield services contacts in Dallas noted a sharp decline in demand.

Real Estate and Construction

Residential real estate conditions were mixed across the Districts. Home sales and prices increased in most Districts; construction activity was mixed, with some Districts reporting disruptions due to severe weather. Residential sales increased in Boston, Philadelphia, Richmond, St. Louis, Dallas, and San Francisco. Sales fell in Cleveland and Kansas City. Contacts in New York, Philadelphia, and Cleveland partially attributed lower construction to inclement weather conditions. Contacts in Boston noted low levels of inventory due, in part, to inclement weather. Reports noted that low levels of inventory and lack of desirable lots continue to slow the market: Contacts in Boston, Cleveland, Kansas City, and San Francisco cited a lack of available inventory, while contacts in Cleveland and Richmond noted a lack of available lots. Single-family building permits increased in St. Louis and San Francisco. Contacts in Cleveland, Atlanta, Kansas City, and Minneapolis reported flat to declining real estate construction.

Commercial real estate market conditions were stable or improving in most Districts.

Commercial vacancy rates declined in Boston, Chicago, St. Louis, and Kansas City. In Dallas, contacts reported that commercial real estate had steadied or slowed since the previous report. The apartment market remained strong in most Districts. Apartment rental rates rose in New York, Chicago, and San Francisco. Contacts in Cleveland noted an increased demand for multifamily housing. Contacts in Dallas noted that apartment demand remains strong. Commercial construction increased in most Districts. Contacts in New York, Richmond, Atlanta, St. Louis, and San Francisco noted stable to strong multifamily construction. Contacts in Chicago reported moderate growth in commercial real estate, driven mainly by industrial buildings. In Boston, contacts noted that speculative construction remains limited due to high construction costs.

Banking and Finance

Reports on banking conditions were mostly positive across the Districts. Overall loan demand increased in all reporting Districts, with the exception of Kansas City, where loan demand was mixed. Reports on the pace of increase varied from slight in Richmond and Dallas to strong in Atlanta and New York. Commercial real estate loan demand was strong in Philadelphia and Cleveland. Commercial loan demand increased in New York, was particularly strong in Cleveland and Atlanta, was steady in Kansas City, and was mixed in Richmond. Residential lending was positive at all reporting banks, with bankers in Cleveland, Richmond, Chicago, and San Francisco noting an increase in refinancing activity.

Reports across the Districts indicated that credit quality has remained largely unchanged or has improved since the prior reporting period. Bankers in most Districts reported no change in their own lending standards. However, several bankers in the Richmond and St. Louis Districts reported relaxed standards. Bankers in the Philadelphia, Richmond, and San Francisco Districts noted that competition is lowering lending standards more generally.

Agriculture and Natural Resources

Agricultural conditions worsened since the previous report across the Districts due to weak farm income, persistent drought, and declining exports. Prices for corn and soybeans fell over the reporting period in the Chicago, Kansas City, and Dallas Districts. A majority of contacts in the Minneapolis and Kansas City Districts noted that farm incomes had fallen from year-earlier levels. Kansas City noted that farmland values had leveled off after recent gains while ranchland values continued to rise due to strong demand. Input prices for the upcoming spring planting season were reported as stable in the Richmond and Chicago Districts. Contacts

in the Dallas and San Francisco Districts noted that a stronger dollar was hurting agricultural exports. Furthermore, the Chicago and San Francisco Districts noted that labor disputes at ports along the West Coast have also had a negative impact on exports. Drought conditions improved but still persisted in some areas of the Atlanta and Dallas Districts, while drought conditions in the San Francisco District hurt yields and didn't show immediate signs of improvement. Oil and natural gas drilling declined in the Cleveland, Minneapolis, Kansas City, and Dallas Districts. In contrast, the Richmond District reported that natural gas production was unchanged. The number of drilling rigs for oil and natural gas declined sharply in the Cleveland, Minneapolis, and Kansas City Districts. Oil and gas producers in the Cleveland, Kansas City, and Dallas Districts anticipate cuts in capital expenditures during 2015. Coal production was unchanged in both the Cleveland and Richmond Districts, while it increased modestly in the St. Louis District. Both the Cleveland and Richmond Districts reported lower coal prices.

Employment, Wages, and Prices

Employment levels remained stable or continued to grow in most Districts and across a variety of sectors. Contacts in several Districts noted strong labor demand and challenges filling a variety of skilled positions. Firms in the Philadelphia District reported positive employment trends in a broad range of sectors, with the majority of hires due to economic growth rather than replacement. Businesses in the New York District continued to increase employment. Contacts in the Boston and Cleveland Districts reported little change in hiring. The Cleveland, Atlanta, Richmond, and Dallas Districts reported increased hiring in manufacturing. In contrast, contacts in the gas and oil production and related industries in the Cleveland, Atlanta, Minneapolis, Kansas City, and Dallas Districts reported downsizing or layoffs.

Wage pressures were moderate across most Districts, but some contacts reported increased wages to attract skilled workers for difficult-to-fill positions. In particular, service sector firms in the New York District noted increasingly widespread reports of wage hikes. Contacts in the Cleveland, Richmond, and Kansas City Districts noted increased wage pressure due to the difficulty in attracting and retaining truck drivers. A staffing firm in the Chicago District reported some companies were also willing to raise rates for unskilled workers to reduce turnover, and contacts in the Atlanta District noted increasing entry-level wages.

Most Districts reported flat to slight increases in overall prices. Contacts in the Cleveland and San Francisco Districts noted lower fuel surcharges, but contacts in the Atlanta and San Francisco Districts also remarked that the decline in energy prices was seen mainly as an opportunity for businesses to improve margins. The Cleveland, Chicago, and San Francisco Districts indicated that prices of some construction materials rose during the reporting period. The Kansas City District cited modest increases in retail prices, and the Dallas District noted steady prices. Manufacturing firms in the Richmond and Kansas City Districts reported that their input costs climbed at a slower pace, whereas those in the Dallas District noted they were flat to lower. Transportation contacts in the Chicago District reported that shipping costs were pushed up due to delays at West Coast ports.

SOURCE: Federal Reserve Board

Posted-In: News Economics Federal Reserve


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