Fed Beige Book
Federal Reserve Beige Book Summary
Overall economic activity increased at a modest to moderate pace since the
previous report across all Federal Reserve Districts except the Dallas District,
which reported strong economic growth. The manufacturing sector expanded in most
Districts since the previous Beige Book. Most Districts noted slight to moderate
gains in consumer spending and a moderate increase in vehicle sales. Tourism
showed signs of strength in several Districts. A wide variety of business
services expanded, and transportation traffic increased for producer, consumer,
and trade goods. Residential real estate and construction activity increased at
a moderate to strong pace in all Districts. Commercial real estate and
construction activity grew at a modest to moderate pace in most Districts.
Overall bank lending increased since the previous report. Credit quality and
deposits increased, while credit standards were largely unchanged. Agricultural
conditions remained mixed across Districts, as weather patterns varied. Overall
activity in the energy sector was flat, and mining was down.
Hiring increased at a measured pace in several Districts, with some contacts
noting difficulty finding qualified workers. Wage pressures remained contained
overall, although several Districts reported a modest or moderate rise for
selected occupations. Districts reported level prices to mild price increases;
some manufacturers raised prices and some increases for input prices were noted.
The manufacturing sector expanded in most Districts since the previous Beige
Book. Activity increased in the Boston, Cleveland, Atlanta, Chicago, St. Louis,
Minneapolis, Kansas City, Dallas, and San Francisco Districts. Manufacturing
contacts in the New York District reported steady business activity. In the
Philadelphia District, manufacturers reported that orders and shipments have
fallen somewhat, and in the Richmond District, manufacturing activity softened
since the previous report, although there were scattered reports of improvement.
Most firms in the Boston District are reasonably optimistic about the outlook,
and many contacts in the Cleveland District believe that business conditions
will continue to improve slowly during the second half of the year. However, the
near-term outlook has waned somewhat in the New York District.
Continuing a theme from the previous report, strength in residential
construction was a boon to manufacturers who supplied that industry. Firms in
the Philadelphia District supplying the home-building sector reported strong
orders, and the Cleveland District noted that suppliers to residential
construction were among those seeing the strongest activity, while the Richmond,
St. Louis, Dallas, and San Francisco Districts all reported increased demand for
lumber or wood products. Growth in the auto industry was noted by the
Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis Districts, although the
Chicago District reported that the auto industry grew at a more moderate pace.
Producers of inputs for the oil and gas industries saw growth in the
Philadelphia, Cleveland, and Atlanta Districts. The food processing industry
grew in the Philadelphia and Dallas Districts. Electrical equipment saw
increased activity in the Boston and San Francisco Districts but lower activity
in the Philadelphia District. Demand for fabricated metals expanded in the
Philadelphia District, while specialty metal manufacturers in the Chicago
District reported small increases in new orders, noting that their customers had
become more cautious. Fabricated metals producers in the Dallas District
reported that demand remained steady for both private and public projects.
The defense industry experienced weakening activity in the Cleveland District,
and a producer of defense equipment in the Richmond District cited government
sequestration and orders being canceled or delayed. Steel production was mixed.
Steel producers in the Cleveland District reported that shipping volume was
stable but remains below levels seen early in the first quarter, and both the
Cleveland and Chicago Districts noted an increase in imports of steel. The St.
Louis and San Francisco Districts reported an increase in demand for steel.
Lower demand for primary metals was noted in the Philadelphia and Dallas
Consumer Spending and Tourism
Most Districts noted that consumer spending increased during the reporting
period, ranging from slight to moderate gains. Retail activity in the Boston,
Philadelphia, and Dallas Districts was characterized as modest or moderate,
while the Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and
San Francisco Districts reported slight growth. Retailers in the New York
District reported that sales were tepid in April but picked up in May.
Meanwhile, the Richmond District noted that sales were flat during the reporting
period. The Boston, New York, Philadelphia, Cleveland, Richmond, Chicago, and
Minneapolis Districts reported that late winter weather slowed retail sales; the
Chicago District noted that sales picked up once warmer weather arrived. Demand
for home furnishings and furniture was strong or picked up in the Boston,
Cleveland, and Richmond Districts; however, furniture sales slowed in the
Chicago District. The Kansas City District reported that appliance purchases
were particularly strong. Inventories were generally at desired levels in the
New York and Chicago Districts. The outlook for retail spending was positive in
the Kansas City and Dallas Districts, while more cautious expectations were
noted in the Boston, Cleveland, and St. Louis Districts.
Vehicle sales generally increased moderately across Districts. The New York,
Richmond, and San Francisco Districts reported that sales remained strong or at
high levels. Meanwhile, the Minneapolis District reported modest growth in auto
sales, and contacts in the Kansas City District reported that sales declined.
Used car sales increased in the Chicago and St. Louis Districts, while the
Richmond District noted that the availability of used cars improved. Meanwhile,
the New York, Cleveland, and San Francisco Districts reported a shortage of used
cars or a decline in used car sales. Inventories increased in the Cleveland and
Kansas City Districts, while inventories were lean in the Philadelphia District.
More respondents to a St. Louis District survey indicated that inventories were
too high than too low. The Philadelphia, Cleveland, St. Louis, Kansas City, and
Dallas Districts noted that the outlook for future sales was generally positive.
Tourism showed signs of strength in several Districts. The Boston District
reported increased tourism revenues but noted that attendance at museums and
attractions was down, perhaps due to weather affecting leisure travel plans. The
New York District noted that tourism activity was mixed but fairly robust since
the previous report. The Richmond District reported that unseasonably cool
weather negatively affected some resorts. Leisure and international travel
continued to experience healthy demand in the Atlanta District. Extended winter
weather boosted skiing in parts of the Minneapolis District. The San Francisco
District reported that travel and tourism activity in Hawaii was robust, while
activity in southern California declined a bit. Hotel occupancy and room rates
were higher in the Atlanta and Kansas City Districts. Advanced bookings and the
overall outlook for summer travel were optimistic, but the San Francisco
District noted some concern that the flow of international visitors could taper
off in coming months due to potential weakness in the global economy.
Nonfinancial services activity grew at a modest to moderate pace since the
previous report. The Philadelphia District noted steady gains, while moderate
growth was reported in the Minneapolis District. The San Francisco District saw
flat demand for health care and legal services. The Boston District noted
sluggish activity in information technology services, while the Kansas City
District saw increased demand for high tech services. Information technology,
distribution, business support, health care, engineering, and hospitality firms
expanded in the St. Louis District. The Richmond District reported "renewed
vigor," especially for technology and architectural firms. The Dallas District
saw strong demand for accounting services and modest increases in legal
Transportation activity increased. The Cleveland District noted strong activity,
while both import and export traffic increased in the Richmond District. The
Atlanta District reported increased movement of petroleum products and wood
products but decreased shipments of grain products, metallic ores, military
machinery, and transportation equipment. The Dallas District saw increased cargo
and container volumes. The Kansas City District reported slower transportation
activity due to poor weather conditions. Minneapolis District contacts expected
small increases in freight traffic in the second half of the year.
Real Estate and Construction
Residential real estate and construction activity increased at a moderate to
strong pace in all Districts. Several Districts reported that higher demand and
low inventory of homes available for sale are resulting in multiple offers on
properties. Almost all Districts reported higher home sale prices. The Kansas
City District reported concerns that appraisals were not keeping pace with price
increases. Foreclosed properties available for sale have declined significantly
in the San Francisco District. The rental market remains tight with noticeable
increases in rental rates in the New York District. Residential construction
increased across all of the reporting Districts. Several Districts noted
increases in multifamily projects. The Minneapolis District reported that many
markets saw huge percentage increases in building permits from a year ago.
Builders are cutting back on discounting in the Cleveland District. The Richmond
District noted that increased construction has pushed up the price of building
lots, and the Atlanta District reported that the lack of available lots has
constrained building activity. The Philadelphia District commented that builders
are facing problems, as the long housing recession has disrupted the supply
chain for materials and the pool of skilled workers.
Commercial real estate and construction activity expanded at a modest to
moderate pace in most Districts. The New York District reported that the
Manhattan market is particularly robust. The Chicago District noted that an
increase in demand for leasing was pushing up commercial rents, with strong
demand from the health care sector. However, a market in the Boston District
indicated no change in commercial rents or vacancy rates since the previous
report. A market in the Richmond District had more hotels complete construction,
and retail space was absorbed at a faster pace. Commercial construction
continues to expand. The Philadelphia District said that most construction
activity is related to ongoing demand for industrial warehouse space, higher
education facilities, and public utility infrastructure. The Atlanta District
reported that most activity was coming from build-to-suit projects. The Dallas
District noted an increase in office building construction. The Cleveland
District said that many projects are in development, but new inquiries are weak.
The San Francisco District noted that in some regions, construction of publicly
funded commercial projects has slowed due to funding constraints from state and
Banking and Finance
Overall bank lending increased modestly since the previous report. The Cleveland
District noted that consumer demand for auto loans increased and that demand for
residential loans shifted from refinancing to new purchases. The Chicago
District indicated modest growth in business loan demand. The Dallas District
reported robust growth in residential mortgages and auto lending with continued
weakness in corporate transactions. The New York District saw an increase in
demand for all types of loans except commercial and industrial loans, where
demand was unchanged. San Francisco District banking contacts reported ample
liquidity and competition among lenders for well-qualified business borrowers
but limited credit availability for small businesses. The Philadelphia District
noted slow loan growth, and the Atlanta District reported weak loan activity.
Credit quality improved, on balance. The New York and Cleveland Districts
reported widespread decreases in delinquency rates for business and consumer
loans. Several Districts reported that credit standards have not changed much
since the previous report.
Agriculture and Natural Resources
Agricultural conditions remained mixed across Districts, as weather patterns
varied. Recent rains brought drought relief to the Atlanta, Chicago, and
Minneapolis Districts but delayed or slowed plantings in the Richmond, Atlanta,
Chicago, St. Louis, Minneapolis, and Kansas City Districts. Meanwhile, drought
conditions worsened in the Dallas District, and contacts in the San Francisco
District remained concerned that limited water availability in parts of the
District could pass through to lower seasonal hiring and reduced agricultural
output in coming months. Farm incomes increased in the Minneapolis District,
while farm income growth softened in the Kansas City District. Well over 90
percent of the St. Louis District's winter wheat crop was rated in fair or
better condition, but winter wheat crop conditions deteriorated further in the
Kansas City District, with much of the crop in relatively poor condition. Forage
crops were having a great spring in the Richmond District, and pastures and
hayfields were in good condition.
Overall activity in the energy sector was flat, and mining was down. The San
Francisco District saw decreased natural gas drilling. The Cleveland, Atlanta,
and Kansas City Districts noted that oil activity was flat and that natural gas
activity was up. The Minneapolis District reported that the energy sector
remained strong. The Dallas District said that drilling activity was up. Coal
mining was down slightly in the Cleveland and St. Louis Districts, while coal
mining in the Kansas City District was steady. Iron ore mining production was
down in the Minneapolis District.
Employment, Wages, and Prices
Hiring increased at a measured pace in several Districts, with some contacts
noting difficulty finding qualified workers. Labor markets continued to improve
in the New York District. The Boston District reported that with only a few
exceptions, businesses were not hiring much beyond replacement, while labor
markets in the Richmond District were uneven. Labor markets continued to improve
slowly in the Chicago District. The St. Louis District reported that employment
levels over the past three months have stayed the same or increased for a
majority of contacts. Labor markets tightened in the Minneapolis District,
particularly near the oil boom area in western North Dakota and eastern Montana,
although some easing in the pace of growth was noted over the past six months.
Labor markets were steady in the Dallas District. The New York, Philadelphia,
Richmond, Minneapolis, Kansas City, and Dallas Districts cited examples of
contacts reporting difficulty finding qualified people to fill vacancies. The
Richmond and Cleveland Districts noted that new hours of service regulations may
exacerbate difficulty finding truck drivers. A number of Districts reported
solid demand for workers in information technology, health care, and
engineering. The Richmond and Atlanta Districts cited employment reductions due
to cutbacks in government orders or staffing at government offices. Among
staffing services firms, billable hours increased in the Philadelphia District
but decreased in the Boston District. Meanwhile, staffing services were steady
in the Dallas District and mixed in the Cleveland District. The outlook for
hiring was generally positive in the Richmond and Minneapolis Districts.
Wage pressures remained contained overall, though several Districts reported a
modest or moderate rise for selected occupations. The Cleveland, Minneapolis,
Dallas, and San Francisco Districts indicated that overall wage pressures were
subdued. The Philadelphia and Kansas City Districts reported that wage pressures
increased slightly, while reports were mixed in the Richmond District. The New
York District noted that although qualified job candidates were said to be
increasingly hard to find, most employers were holding the line on compensation.
Exceptions included increased wages for home builders in the Philadelphia
District, and legal and financial services in the Dallas District. Contacts in
the Richmond, Chicago, and Kansas City Districts expressed concern over the
effect of health care reform on labor costs. The Philadelphia and Cleveland
Districts reported increased costs for health insurance.
Districts reported level prices to mild price increases. The Boston District
reported that aside from food, input prices were generally unchanged, although a
few manufacturers have raised their own prices. Manufacturers in the Richmond
District indicated that finished goods prices grew at a somewhat quicker pace.
The Kansas City District reported that while finished goods prices remained
fairly flat, manufacturers planned to raise finished good prices over the next
few months to partially offset higher input costs. However, most firms in the
Atlanta District continued to report having little pricing power, and the
Chicago District noted that pass-through to downstream prices remained limited.
The Philadelphia and Cleveland Districts reported higher construction materials
prices. Meanwhile, the San Francisco District noted that prices for cement,
logs, and lumber edged up, while prices for wood products, steel, and some
metals declined. Gasoline prices spiked higher in the Minneapolis District, and
several Districts noted that natural gas prices increased since the previous
report. The Dallas District reported that most contacts expect price increases
to remain modest for the remainder of the year.
The Labor Department reported on Wednesday that U.S. productivity during Q1 rose
0.5%, down from a first read of 0.7%. Rise in output was lowered to 2.1% from
original read of 2.5% and growth in hours worked was reduced to 1.6% from 1.8%.
Hourly compensation fell a sharp 3.8% for the biggest decline since the Labor
Department began keeping track of the data in 1947, with the biggest drop
occurring in the manufacturing sector. Hourly wages fell further by 5.2% when
adjusted for inflation pushing unit-labor costs lower by 4.3%. Productivity
growth in the manufacturing sector was revised down to 3.5% from 3.8%.
Automatic Data Processing Inc. reported Wednesday that private-sector employment
gained 135,000 jobs.
Institute for Supply Management index for May was higher at 53.7%. Key
sub-indexes: business activity index came in at 56.5%, new orders index came in
at 56% and employment came in at 50.1%.
The U.S. Commerce Department reported on Wednesday that in April, orders for
goods produced in U.S. factories rose 1.0%, largely because of higher demand for
autos and airplanes. Orders excluding transportation fell 0.1%. Orders for
durable goods moved higher by 3.5% in April while orders for nondurable goods
such as food and clothing fell 1.0%. For April, shipments of all factory goods
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