Beige Book
For use at 2:00 p.m., E.D.T.
Wednesday
July 28, 2010
Summary of Commentary on ____________________
Current
Economic
Conditions
By Federal Reserve District
July 2010
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
July 2010
TABLE OF CONTENTS
SUMMARY ............................................................................................................. i
First District – Boston ...........................................................................................I-1
Second District – New York ............................................................................... II-1
Third District – Philadelphia.............................................................................. III-1
Fourth District – Cleveland................................................................................IV-1
Fifth District – Richmond ................................................................................... V-1
Sixth District – Atlanta ......................................................................................VI-1
Seventh District – Chicago .............................................................................. VII-1
Eighth District – St. Louis............................................................................... VIII-1
Ninth District – Minneapolis..............................................................................IX-1
Tenth District – Kansas City ............................................................................... X-1
Eleventh District – Dallas ..................................................................................XI-1
Twelfth District – San Francisco...................................................................... XII-1
i
Summary*
Economic activity has continued to increase, on balance, since the previous survey,
although the Cleveland and Kansas City Districts reported that the level of economic activity
generally held steady. Among those Districts reporting improvements in economic activity, a
number of them noted that the increases were modest, and two Districts, Atlanta and Chicago,
said that the pace of economic activity had slowed recently.
Manufacturing activity continued to expand in most Districts, although several Districts
reported that activity had slowed or leveled off during the reporting period. Districts also noted
improved conditions in the services sector. The five Districts reporting on transportation noted
increased activity. Tourism activity also increased across the Districts, although the Atlanta
District noted concerns about decreased leisure travel to the Gulf Coast. Retail sales reports
generally indicated a continued rise in spending, and several Districts noted that necessities
continued to be strong sellers, while big-ticket items moved more slowly. However, most
Districts that reported on auto sales noted declines in recent weeks. Activity in residential real
estate markets was sluggish in most Districts after the expiration of the April 30 deadline for the
homebuyer tax credit. Commercial real estate markets, especially construction, remained weak.
Banking conditions varied across the Districts, with some Districts noting soft or decreased
overall loan demand; credit standards remained tight in most reporting Districts. Recent rains
had mixed effects on crop conditions, while activity in the natural resources sector increased.
Overall labor market conditions improved modestly across the Districts, with several reports of
temporary hiring. Consumer prices of goods and services held steady in most reporting Districts.
*
Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before July 19, 2010.
This document summarizes comments received from business and other contacts outside the Federal Reserve and is
not a commentary on the views of Federal Reserve officials.
ii
Input prices also held largely steady, with only a few reports of cost increases. Wage pressures
continued to be contained on the whole.
Manufacturing and Other Business Activity
Manufacturing activity in most Districts continued to move up since the last report,
although the pace of activity slowed or activity leveled off in the New York, Cleveland, Kansas
City, Chicago, Atlanta, and Richmond Districts. Automobile manufacturing was a bright spot
for the Cleveland, Chicago, and St. Louis Districts. Automobile parts suppliers also experienced
increased demand in both the Richmond and Chicago Districts. Fuel demand at refineries in the
San Francisco District improved, while gasoline demand was steady in the Dallas District. Firms
in the semiconductor manufacturing industry reported relatively strong sales or demand growth
in both the Boston and San Francisco Districts. Firms in aircraft and parts manufacturing saw
sales pick up in both the San Francisco and Dallas Districts. Manufacturing firms in the Boston,
Philadelphia, Kansas City, and Dallas Districts were optimistic that demand would continue to
improve in the following months. However, Cleveland’s contacts expect demand growth to
taper off, Philadelphia noted that the balance of positive over negative views had narrowed, and
Atlanta reported fewer firms planning expansions in production. Richmond, Chicago, and Dallas
reported that firms in construction-related manufacturing experienced weak demand;
construction supplies sales were flat in Kansas City, and Minneapolis reported that a firm in the
sector was increasing production. Steel production declined in both the Chicago and Cleveland
Districts. Some manufacturers in the Atlanta and San Francisco Districts reported high excess
production capacity. Capacity utilization was below pre-recession levels in Cleveland and edged
lower among steel producers in Chicago.
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Activity in the services sector improved across most Districts since the previous report.
The freight transportation industry experienced gains in the Cleveland, Atlanta, Kansas City,
Dallas, and Philadelphia Districts. Boston, Minneapolis, and Dallas reported a pickup in demand
for some consulting firms.
Tourism activity increased in the San Francisco, New York,
Minneapolis, Richmond, Kansas City, and Atlanta Districts. Atlanta reported that leisure travel
decreased in the Gulf Coast, but some of the lost tourist traffic was offset by the presence of
cleanup crews, oil company workers, and the National Guard. Information technology firms saw
increased business in the Philadelphia, Chicago, and St. Louis Districts, while activity was flat in
the Minneapolis District. Demand for healthcare services was flat in both the San Francisco and
Richmond Districts, while activity increased in the Boston District.
Consumer Spending
Reports on retail sales during the early summer months were generally positive, although
in most Districts the increases were modest.
Retail sales in the New York, Philadelphia,
Minneapolis, and Kansas City Districts were higher than year-earlier sales, and Dallas reported
solid gains. But sales in the Boston District were mixed compared with the previous year.
Recent sales increased slightly in the Cleveland, Atlanta, Chicago, and San Francisco Districts;
sales in the Richmond District weakened; and sales in the Kansas City District were flat
compared with the previous report. Several Districts cited apparel, food, and other necessities as
recent strong sellers, while big-ticket items were weak sellers. Contacts reported satisfactory
inventory levels in the New York District, mixed inventory levels in the Boston District, and low
or declining inventory levels in the Richmond, Atlanta, and Chicago Districts. The outlook for
sales was mixed: Retailers in the Philadelphia, Cleveland, Kansas City, and Dallas Districts
reported that they expect modest positive sales growth in the upcoming months; contacts in the
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Cleveland, Atlanta, and Chicago Districts reported a less optimistic outlook going forward than
in the previous report; and retailers in the Boston District reported a cautious outlook.
The Districts that reported on auto sales during the early summer months generally noted
a decrease in recent sales. Since the previous report, auto sales in the New York, Philadelphia,
Cleveland, Richmond, Chicago, and San Francisco Districts declined, while auto sales in the
Kansas City District increased and were unchanged in the Dallas District. Compared with last
year, auto sales in the Atlanta and St. Louis Districts were higher. New York, Philadelphia,
Cleveland, Chicago, Kansas City, and Dallas all reported that inventory levels were low or
declining. Auto dealers anticipate little change in sales for the rest of 2010 in the Philadelphia
District and expect sales to increase slowly in the Dallas District. Contacts in the Kansas City
District expect continued strong demand, while those in the Cleveland District do not anticipate
strong growth in the coming months.
Real Estate and Construction
Nearly all Districts reported sluggish housing markets in the months since the homebuyer
tax credit expired on April 30. While some Districts, such as Boston and St. Louis, reported an
increase in May and June home sales on a year-over-year basis, some contacts noted that these
sales may reflect closings of homes under contract by the April tax credit deadline. The Boston,
Philadelphia, Atlanta, and Kansas City Districts reported that home sales are expected to weaken
going forward. Residential construction remained limited in several Districts. In the Atlanta
District, residential construction activity softened from already weak levels. Homebuilders in the
Cleveland District do not expect a turnaround in new home construction any time this year.
Builders in the Chicago District are not introducing new inventory without a signed contract on a
v
home. Housing starts were expected to decline for the second half of the year in the Dallas
District and to increase slightly over the next three months in the Kansas City District.
Commercial and industrial real estate markets continued to struggle in all twelve
Districts. Overall, vacancy rates were flat to slightly increased and continued to exert downward
pressure on rents. Construction activity remained weak in most Districts. The New York
District noted that commercial development remained generally sluggish despite some pickup in
office and retail leasing in New York City. Atlanta, Minneapolis, and Dallas reported that
construction activity continued to be weak or to decline, and Cleveland reported that the increase
in construction from previous reports has begun to diminish. Philadelphia reported that projects
funded with federal stimulus support were near completion with no prospects for additional
major construction, while Chicago reported that public infrastructure construction picked up.
Developers reported difficult credit conditions in the Cleveland, Richmond, St. Louis, and
Kansas City Districts, while the Dallas District reported a few developers going out of business.
The outlook for commercial and industrial real estate across the Districts ranged from further
declines in activity to slow growth.
Banking and Finance
Reports on banking conditions were largely mixed across the Districts. Banking activity
in Richmond and loan demand in Kansas City increased modestly. Overall loan demand was
reported as soft or weak in Cleveland, Atlanta, and Dallas, while total outstanding loan volume
decreased in recent months in St. Louis but was steady in Philadelphia and San Francisco.
Demand for commercial loans was flat to increasing in the Philadelphia, Cleveland, Richmond,
Chicago, and Kansas City Districts; in contrast, St. Louis reported a decrease in commercial
vi
loans outstanding, while New York, Atlanta, and San Francisco reported restrained or decreasing
demand in this lending category. Demand for consumer loans was weak in Cleveland and eased
in Philadelphia; Atlanta and St. Louis indicated a decline in consumer lending; but demand for
consumer loans increased in New York and Kansas City. Demand for residential mortgage loans
eased in the Philadelphia District but increased in the New York District; Cleveland reported
residential mortgage activity below expectations at given rates; and real estate lending decreased
in St. Louis. Credit was limited for commercial real estate loans in Chicago, and demand fell for
these loans in New York and Kansas City.
Most Districts reporting on credit standards continued to note that lending standards
remain restrictive. New York reported tighter credit standards for all categories except consumer
loans, while Kansas City reported tighter commercial lending standards. Reports on credit
quality were mixed in Cleveland and Kansas City, while quality was stable in San Francisco.
Credit quality improved slightly in Philadelphia, Richmond, and Chicago. In the Dallas District,
nonperforming loans have stabilized and are not expected to worsen. Meanwhile, Philadelphia,
Cleveland, and Richmond continued to report delinquencies above historic norms. Delinquency
rates in the New York District decreased for consumer loans but experienced little or no change
in other categories.
Agriculture and Natural Resources
Recent rains improved the dry conditions in the Minneapolis and Dallas Districts and
reduced irrigation needs in the Kansas City District. In contrast, excess precipitation caused
some crop damage in the Chicago District and some delays in the winter wheat harvest in the
Kansas City District. Parts of the Atlanta District experienced some crop stress due to dryness
vii
and heat.
Contacts reported that crops were in good condition overall in the Atlanta,
Minneapolis, Kansas City, and Dallas Districts, but crop conditions worsened slightly in recent
weeks in the Chicago District and were mixed in the St. Louis District compared with last year.
Producers in the Chicago District continued to expect good yields for their corn and soybean
crops, and the outlook for cotton yields in the Dallas District has improved.
Overall, activity in the energy sector increased since the previous report. Oil production
in the Atlanta District and oil and natural gas production in the Cleveland District were relatively
unchanged, but other activity picked up throughout the Districts during the reporting period. The
number of drilling rigs increased in the Dallas District, and production continued to expand in
the Kansas City District. Additionally, oil exploration in the Minneapolis District and oil
extraction in the San Francisco District increased. Activity in the Minneapolis District’s mining
sector increased in recent weeks, as did production and demand for coal in the Cleveland
District. Kansas City reported that contacts expect to see continued growth in energy production.
Labor Markets, Wages, and Prices
Labor market conditions improved gradually in several Districts. New York, Chicago,
Minneapolis, Richmond, and Atlanta all reported that labor markets improved, albeit modestly in
some cases, while Boston and Dallas reported that employment was steady.
Philadelphia,
Atlanta, Richmond, Chicago, and Minneapolis reported that temporary employment experienced
increased demand. Contacts in the Philadelphia, Atlanta, Dallas, and San Francisco Districts
said that they continued to rely on temporary staff over permanent hires. Cleveland, Richmond,
and Chicago saw hiring in the manufacturing sector. Cleveland also reported some new job
openings in the healthcare industry. Boston and Cleveland noted that firms in some services
viii
industries were hiring mostly for replacement. Dallas reported that firms in the energy industry
experienced significant regional layoffs as a result of the deepwater drilling moratorium. San
Francisco noted continued high levels of unemployment and limited hiring.
Wage pressures remained largely contained across most Districts. Boston, Philadelphia,
Richmond, Minneapolis, and San Francisco reported little or no change in wages, while
Cleveland, Chicago, and Kansas City reported that wage pressures were small or remained
subdued. Dallas reported that wage pressures were mostly nonexistent, with the exception of the
airline industry.
Prices of final goods and services were relatively stable in most Districts. Several
Districts indicated that prices of raw materials also held steady, and only a few Districts reported
input price increases. Steel prices moved slightly higher in the San Francisco District, but
Cleveland and Chicago reported that steel prices were down. Chicago and San Francisco noted
an increase in energy prices, but Atlanta reported that energy prices were mostly stable since the
onset of the Gulf oil spill. Increased prices were noted for some metals by the Philadelphia,
Minneapolis, and San Francisco Districts. Transportation costs increased in the Atlanta, Dallas,
and San Francisco Districts, and the Richmond District noted that shipping lines were attempting
to raise rates.
I-1
FIRST DISTRICT – BOSTON
Business activity continues to expand overall in the First District, but individual firms’ gains
show some choppiness. Most contacted manufacturers and advertising and consulting firms saw revenues
rise in the most recent quarter on a year-over-year basis, while retail results were more mixed in May and
June. Residential real estate markets continue to show positive effects of the homebuyer tax credits, but
activity slowed after the April deadline. Respondents in commercial real estate were mostly downbeat
based on office job forecasts, but building sales are picking up, in some cases at distress prices. A few
firms with rising sales are increasing their headcounts, but most are holding employment steady. Input
costs for some metals, oil- and food-related products have risen, but sales prices are mostly stable.
Retail
First District retailers report mixed sales results for May and June; year-over-year same-store
sales figures range from down close to 3 percent to increases of about 3 percent. The majority of contacts
express concern over consumer confidence, and even those retailers reporting sales increases voice a
cautious outlook.
Inventory levels are mixed, with some increases due to softening sales; on the other hand,
decreased ocean freight capacity is raising concerns regarding firms’ ability to restock in a cost-effective
and timely manner. Capital spending is also mixed, with some retailers spending on new store openings,
remodels, and IT systems, while others remain cautious. Headcounts are growing modestly, with most
increases attributed to opportunistic hiring and new store growth, but a few contacts indicate that staff
cutbacks may occur in the future. Retailers note cost increases for cotton and food-related commodities.
Manufacturing and Related Services
Many manufacturing firms are still finalizing their second quarter results, but the vast majority of
those contacted report optimism about demand. The specific sales reports range from “extraordinary
demand” at a semiconductor firm to less-than-anticipated demand at two firms making life science
equipment and medical devices. In particular, the semiconductor firm reports sales in the second quarter
were 17 percent above their pre-recession peak. Other semiconductor-related firms also report relatively
strong sales. In addition, second quarter results appear to be somewhat better than expected at a business
services company as well as a company whose sales of outdoor-related products benefited from the
warmer-than-average temperatures. By contrast, among firms reporting weaker-than-expected sales
growth, one speculated that it was due to a slowdown in European demand and the other to state and local
budgetary cutbacks on medical equipment. In general, nearly all of the manufacturers surveyed feel that
demand will continue to improve gradually in the second half of the year as well as in 2011.
Most contacted manufacturing firms continue to report limited price pressure. Input costs remain
relatively stable. One manufacturer who uses many raw metals in the production process says that prices
remain higher than a year ago, but have come down somewhat since the first quarter. A couple of firms
who use oil-related products also report somewhat higher input prices. Selling prices are generally fairly
stable. One manufacturer that implemented a moderate (3 percent) price increase in the first quarter says
that the increase held. By contrast, a firm that makes both capital equipment and consumables cites
I-2
downward price pressure on the capital goods they sell (as companies remain wary about the costs of
large items), but not on the consumables; this has been the case for about a year.
Employment continues to be steady at nearly all responding manufacturing firms, and most say
they are unlikely to expand headcount substantially in the near term. A number of firms plan to hire to
support new product lines or in divisions that are experiencing robust growth. A semiconductor-related
firm, in particular, plans to increase its engineering workforce by about 150 by year-end; that firm’s
employment is already above its pre-recession peak due to strong demand.
Manufacturers once again report that their planned 2010 capital expenditures are in line with or
somewhat higher than their expenditures in 2009. Planned increases are primarily for new product
releases and/or infrastructure and IT-related improvements. Credit supply remains adequate for firm
investment, and many manufacturers also report having adequate cash on hand for investment purposes.
Overall, contacted manufacturers are generally optimistic about the second half of 2010 and
2011. The firms remain cautious, however, as uncertainty continues to surround the domestic and foreign
demand environments.
Selected Business Services
Consulting and advertising contacts in the First District generally report increased demand for
their services in the second quarter of 2010, although a few say demand is flat. Among those seeing
increases, revenue rose 8 percent to 25 percent year-over-year. Contacts cite healthcare and private equity
industries as markets in which activity increased; a consulting firm also notes a significant increase in
demand from the U.S. government regarding international development and healthcare issues. One
contact reports that the payment cycle from its clients lengthened in the second quarter, slowing revenue
growth.
Consulting and marketing firms indicate that business costs are stable and they are also generally
holding their list prices steady, although some firms have been able to remove the price concessions they
made in 2009. Several companies mention that they are replacing their laptops and purchasing new
software licenses. Employment is mostly steady, with firms simply making replacement hires or modestly
increasing the number of employees; more hires are expected in the second half of the year. Wages are
either stable or rising slightly, by 2 percent to 5 percent.
Advertising and consulting contacts are optimistic about their firms’ performance in the second
half of the year, primarily based on the increasing volume of sales and the improving economic situation.
However, many respondents see downside risks to this outlook, notably the chance of a double-dip
recession; firms that contract with the government also note that budget cuts in response to deficit
concerns would harm their businesses.
Commercial Real Estate
Commercial real estate contacts give mixed reports this round. Leasing activity is flat in Hartford,
where market sentiment remains subdued. Between the first and second quarters, Hartford’s office
vacancy rate rose by close to 2 percentage points while rents were roughly flat. Industrial vacancy in
Hartford also rose over the quarter, but by less than a percentage point, and industrial rents were flat.
Hartford’s investment sales market remains largely dormant. The word from Providence is more upbeat,
I-3
as leasing activity remained solid in recent weeks and rents have reportedly stabilized. Business sentiment
in Providence is described as more optimistic and less uncertain than it was earlier in the year. Absorption
was roughly zero across Rhode Island. Office-building sales in Rhode Island remain scarce, but the
industrial sales market saw some significant transactions. In Boston, one contact remains largely negative
about current market conditions and near-term prospects, emphasizing slow job growth and the high
office vacancy rate—currently around 20 percent in greater Boston. Leasing velocity is described as
either steady or up slightly, but tenants retain very strong bargaining power on rents and improvements.
Contacts say investors are bidding aggressively for fully leased, high-quality properties in greater Boston,
especially apartment buildings; at the same time, some investors are purchasing distressed properties
(with high vacancy rates) in the suburban corridor at steep discounts and betting on a solid recovery.
With regard to commercial real estate debt markets, one noteworthy development is that special
servicers (who manage CMBS issues) are reportedly starting to dispose of an increasing number of
securitized mortgages in default rather than continuing to extend troubled loans. This trend is expected to
accelerate over the next 6 to 12 months. At the same time, banks continue to hold large sums of distressed
commercial real estate debt and have not yet initiated large numbers of foreclosures. Contacts across the
region remain concerned about the potential impact of inevitable foreclosures, especially if a large
number occur in a compressed time period; contacts say, however, that New England is likely to fare
relatively well compared to other regions with respect to commercial foreclosures.
In Hartford, expectations for market turnaround were pushed back a quarter, out to late 2010. In
Boston, contacts expect net absorption to remain slow, and predict that office rents still have further to
fall, but were uncertain as to whether job growth (and related demand for commercial space) would
continue at current levels or become weaker in the second half of 2010. The outlook for Providence is
cautiously optimistic, but “optimistic” was defined as slow growth rather than further deterioration.
Residential Real Estate
Residential real estate markets in New England continue to experience large year-over-year sales
increases in May and into June. Median home prices also increased modestly year-over-year in May,
although median condo prices were somewhat mixed. While April 30 was the deadline to sign a “binding
sales contract” in order to be eligible for the homebuyer tax credits, buyers are allowed to close these
deals as late as September 30 (extended from June 30). The strong sales numbers of May and June thus
reflect closings on pre-April 30 contracts spurred by the tax credits. Respondents report that activity has
slowed considerably since the expiration of the tax credit. Sales numbers will soften over the next couple
of months as a result of this slowdown, although respondents are uncertain whether sales will show yearover-year declines. Pending sales of homes and condos in Massachusetts dropped 16 percent and 21
percent year-over-year in June, respectively.
A New Hampshire contact says that some types of homes are still selling well, notably those in
convenient locations near major highways. Meanwhile, prices in rural New Hampshire are “plummeting.”
In addition, high-end vacation homes are starting to move again after very low activity during 2008 and
2009. A Boston-area contact believes that pent-up demand among potential buyers (because inventory
was low) will help moderate the size of the slowdown associated with the expiration of the tax credit.
II-1
SECOND DISTRICT--NEW YORK
The Second District’s economy has shown further signs of strengthening, on balance, since the
last report. Input price pressures have receded a bit, while consumer prices appear to be steady. There
are signs of improvement in the labor market across a range of industries. Manufacturing-sector contacts
report some recent leveling off in business activity, after a strong second quarter. General merchandise
retailers report ongoing improvement in business, with sales running on or above plan and inventories
reported to be at favorable levels. Auto dealers report that sales have tapered off in recent weeks but
remain ahead of 2009 levels. Tourism activity in New York City has continued to be robust since the last
report, helped by a reported pickup in business travel. Commercial real estate markets have generally
been steady since the last report, while residential real estate markets have shown signs of softening.
Finally, bankers report a pickup in demand for both consumer and home mortgage loans but some
slippage in demand for commercial loans and mortgages; they also report declining consumer
delinquency rates and less widespread tightening in credit standards than in recent months.
Consumer Spending
Non-auto retailers report that sales have remained on or above plan since the last report, with
comparable-store gains of roughly 5 percent over a year earlier in June and 8-12 percent in early July.
Contacts report particular strength at New York City stores, whereas a major mall in upstate New York
indicates more moderate growth. Contacts generally indicate that sales of fashion items and apparel were
particularly strong, whereas sales of big-ticket appliances were relatively sluggish. Inventories are
reported to be at satisfactory levels, while selling prices are stable to down slightly; prices are expected to
remain steady during the second half of 2010 and rise modestly in 2011.
An association of auto dealers in upstate New York reports that sales of new autos, which were
up 10 percent from a year earlier in May, retreated a bit in June but were still up moderately from
comparable 2009 levels. Used auto sales have been running lower than a year ago, due largely to lean
II-2
inventories. Dealers report that retail credit conditions have remained favorable and that wholesale credit
conditions have improved. Consumer confidence weakened noticeably in June: The Conference Board
reports that confidence among residents of the Middle Atlantic states (NY, NJ, Pa) fell to its lowest level
this year, and Siena College’s latest survey of New York State residents shows confidence slipping to its
lowest level in more than a year.
Tourism activity in New York City has grown increasingly robust since the last report.
Manhattan hotels indicate that occupancy rates rose to a record high for May and remained exceptionally
high in June—even with a sizable increase in the number of hotel rooms over the past year. Room rates
are running 10 to 15 percent higher than a year earlier, and total revenues are reported to be up more than
20 percent. Much of the recent improvement is attributed to a rebound in business travel. Broadway
theaters report that attendance remained brisk in June but tapered off moderately in early July. Revenues
were up 3 percent from a year earlier in June and little changed in July.
Construction and Real Estate
Housing markets have softened somewhat, on balance, since the last report, with much of the
weakening attributed to the expiration of the home-buyer tax credit. An authority on New Jersey’s
housing industry characterizes housing demand as sluggish and lacking momentum. Activity has tapered
off, while transaction prices for both new and existing homes appear to be drifting down. Northern New
Jersey’s rental market has also slackened, with a growing number of available units on the market and
landlords offering more incentives and concessions; a number of buildings initially intended as condos
have converted to rentals. Similarly, Buffalo-area Realtors report that home sales activity weakened
substantially in May and June, reportedly due largely to the expiration of the extended homebuyers’ tax
credit, though selling prices continued to run ahead of comparable 2009 levels.
In New York City, conditions were more mixed, with co-op and condo sales activity picking up
in the second quarter but prices generally holding steady. The number of apartment sales rose by a bit
II-3
more than the seasonal norm in the first quarter. The median sales price of an apartment was down 7
percent from a year ago in Queens but up 5 percent in Brooklyn. In Manhattan, the median price rose
roughly 8 percent from a year earlier, but the price per square foot was virtually unchanged. Manhattan’s
rental market, though still well below its peak of a few years ago, appears to be on the rebound: leasing
activity picked up noticeably, rents have stabilized, landlords are giving less generous concessions, and
the inventory of available rentals has declined.
Commercial real estate markets across the District were mixed but, on balance, little changed
since the last report. Office leasing activity picked up considerably in New York City, and vacancy rates
declined modestly, but asking rents are still down more than 20 percent from a year ago. Vacancy rates
were steady in Long Island and Northern New Jersey, while asking rents were down slightly—compared
to both the first quarter and a year earlier. In Westchester and Fairfield counties, market conditions
improved slightly, as vacancy rates edged down and asking rents rose. Office markets were mixed in
upstate New York: vacancy rates edged up in most major markets but asking rents continued to run
modestly above year-ago levels. Industrial markets were mostly softer in the second quarter: industrial
vacancy rates rose across most of upstate New York and in Westchester and Fairfield counties but were
little changed in Long Island and down modestly in northern New Jersey. Industrial rents were down
moderately from a year ago in most areas. Finally, Manhattan’s retail leasing market picked up in the
second quarter, while northern New Jersey’s remained stable. Commercial development remains very
sluggish in general, though developers plan further hotel construction in New York City.
Other Business Activity
Manufacturing firms in the District report some leveling off in business activity in recent weeks,
after reporting fairly widespread improvement in the second quarter. Firms still report that they are
adding workers, on net, but to a less widespread degree than in recent months. Contacts outside the
manufacturing sector, however, report some recent improvement in general business conditions and a
II-4
pickup in employment. Contacts also remain fairly optimistic about the near term outlook and plan to
expand hiring activity and capital spending moderately in the months ahead. Both manufacturers and
other firms report moderate increases in prices paid but virtually no change in selling prices.
A major NYC employment agency, specializing in office jobs, reports that hiring activity has
picked up since the last report, as demand from the legal sector remains brisk and financial sector hiring
has picked up in recent weeks. Salaries for administrative jobs have started to edge up. There has been a
relatively light flow of 2010 college grads looking for jobs. Separately, a securities-industry contact
notes that, while there are ongoing layoffs in certain areas related to mergers and restructuring, major
firms are hiring in the areas of accounting, compliance, and systems development. Compensation at large
financial firms is reported to be holding relatively steady.
Financial Developments
Contacts at small to medium sized banks in the District report that loan demand was mixed across
the consumer and commercial loan groups: demand tended to increase for consumer loans and residential
mortgages but decrease for commercial mortgages and commercial and industrial loans. This marks the
first time since 2005 that more respondents reported rising than falling consumer loan demand. Bankers’
responses also suggest a continued increase in refinancing activity.
Respondents indicate a tightening of credit standards for all categories except consumer loans,
though the tightening across all segments is reported to be less widespread than it has been at any time in
the past three years. Spreads of loans rates over cost of funds are indicated to be steady for consumer
loans and residential mortgages but higher on commercial loans and mortgages. Banks mostly indicate
that average deposit rates have decreased. Finally, respondents reported a decrease in delinquency rates
for consumer loans but little or no change in delinquencies in other loan categories.
III - 1
THIRD DISTRICT – PHILADELPHIA
Economic activity has moved up slightly in the Third District since the last Beige Book,
overall, although several sectors of the regional economy remained soft. Manufacturers, on
balance, reported an increase in shipments but a slight decline in new orders in July. Retailers
posted year-over-year increases in sales of general merchandise for the month, but motor vehicle
dealers indicated that sales have decreased since the spring. Third District banks reported steady
loan volume outstanding. Residential real estate agents and home builders said that home sales
decreased sharply with the expiration in April of the federal tax credit for purchases and that
sales have continued to be soft since then. Contacts in the commercial real estate sector said
vacancy rates have been nearly level, but rents have been flat to down. Construction contacts
continued to report low levels of activity. Service-sector companies generally reported just slight
gains in activity. Business firms in the region indicated that prices of most goods and services
have been steady, although there were increased reports of rising prices for some metals and
construction-related products. Firms also reported increases in costs for employee health
insurance.
The outlook among Third District business contacts is guardedly positive, but the level of
optimism has waned somewhat since the last Beige Book. Manufacturers forecast a rise in
shipments and orders during the next six months, although the balance of positive over negative
views has declined since the previous report. Retailers expect sales to expand slightly but believe
consumer confidence remains fragile. Auto dealers expect the sales rate to be steady in the
months ahead, retreating from their previous view that sales would increase. Bankers expect
slow growth in lending. Contacts in both residential and commercial real estate expect mostly
flat activity during the rest of the year. Service-sector companies expect slow and uneven
improvement.
Manufacturing
Third District manufacturers reported a modest increase in shipments but a slight decline
in new orders from June to July, on balance. Order backlogs also fell, overall. Among the major
manufacturing industries in the region, producers of wood products, chemicals, and basic
III - 2
materials reported increases in orders; but orders were unchanged or declined in a majority of
manufacturing sectors. In general, manufacturers continued to describe the increase in demand
for their products as slow and uneven. One manufacturer said, “It has been very choppy. We
seem to be getting some traction, then orders dry up.”
Third District manufacturers expect business conditions to improve during the next six
months, on balance, although the margin of positive opinions over negative opinions has
declined since the previous Beige Book. Among the firms surveyed in July, about 40 percent
expect increases in new orders and shipments, and 20 percent expect decreases. Capital spending
plans among area manufacturers remain positive, on balance, but are not strong overall. About
one-third of the firms polled in July plan to increase expenditures for new plant and equipment,
but nearly one-half plan to maintain level spending, and nearly one-fourth expect to reduce
spending.
Retail
Third District retailers reported that sales in June increased slightly compared with June
of last year and that year-over-year growth continued at around the same modest pace in July.
Most retailers said warm weather boosted sales of summer apparel, and some noted increases in
sales of jewelry, but many reported that sales of home goods, especially big-ticket appliances,
remained weak. Store executives continued to caution that much of the year-over-year
improvement in sales was a consequence of last year’s poor results and that this easy comparison
will also affect the upcoming back-to-school and year-end holiday period. Most retail contacts
agreed with the evaluation of a store official who said, “The consumer is still cautious and
looking for value.”
Third District auto dealers reported a drop in sales from May to June, with continued
slowness in July. Although dealers said there continue to be shortages of popular models, they
said overall demand for cars and light trucks has not been as strong recently as it was earlier in
the year. Dealers have trimmed expectations since the last Beige Book; they now anticipate little
change in the sales rate during the rest of the year.
III - 3
Finance
Total outstanding loan volume at most of the Third District banks contacted for this
report has been flat since the last Beige Book, and commercial bank lending officers said there
has been little change in loan balances in any credit category. Some bankers reported that
demand for business loans has increased, but demand for residential real estate and consumer
credit has eased. Commercial bank officers indicated that credit quality has continued to improve
slightly, but delinquencies and defaults remain above historical norms.
Looking ahead, Third District bankers expect slow loan growth, at best. They generally
expect slight gains in business lending but continued softness in consumer and residential
mortgage lending. Bank lending officers said credit standards remain more restrictive than they
had been in the past few years. For business borrowers, one banker said this means a firm “must
have stable relationships with customers and vendors and show reasonable expectations about
cash flow” to be considered for new or renewed credit facilities.
Real Estate and Construction
Contacts in residential real estate markets reported sharp decreases in sales of new and
existing homes after the expiration of the federal income tax credit for home purchases in April.
The sales pace continued to be slow in July, according to real estate agents and builders.
Residential real estate contacts expect sales during the rest of the year to be weak. One agent,
whose remarks echoed many others’, commented that “There was a lot of front loading to take
advantage of the tax credit, and it remains to be seen how much activity there will be going
forward.” For both new and existing homes, contacts reported little change in prices, although in
some parts of the region where foreclosures and short sales have been common, real estate agents
said existing house prices continued to be under downward pressure.
Nonresidential real estate firms indicated that vacancy rates in commercial and industrial
buildings have been nearly steady or have moved up slightly in most parts of the Third District in
the past few months. Leasing activity has been flat, and effective rents have been about level for
Class A space but have moved down for Class B space. Construction activity has been weak.
Some contacts reported that projects financed by federal stimulus funds are near completion or
have been finished and that there are no immediate prospects for more major infrastructure
construction. Commercial real estate contacts expect market conditions to show little change in
III - 4
the second half of the year. One said, “We’re stabilizing, but if companies cut space needs the
market will be dragged down.”
Services
Service-sector firms generally reported slight improvement since the last Beige Book.
Transportation companies reported increases in freight volume, and some information
technology service providers have had slight recent increases in business. However, firms
providing services to the construction industry continued to report low levels of activity. Looking
ahead, most of the services firms contacted for this report expect growth to be slow and irregular
for the rest of the year. One contact noted, “Demand from customers is coming only on a project
basis.”
Prices and Wages
Reports on input costs and output prices indicate little change since the last Beige Book.
Most of the manufacturing firms polled in July reported no change from June in the costs of the
commodities they use or the products they make. However, producers of primary metals raised
prices. Home builders noted some increases in prices for lumber and drywall. Retailers generally
noted that both wholesale costs and retail prices have been mostly steady. Across industries,
firms reported increases in health-care costs as they negotiate new insurance contracts.
Business firms in the region reported little or no upward movement in wages, and most
indicated that they have had no difficulty in filling open positions. Employment agencies
reported that client companies have been cautious in adding employees or replacing those who
have left, although they have increased use of temporary workers on an as-needed basis. Labor
markets remain slack, according to employers and employment agencies, who report that they
generally get large numbers of applicants for permanent positions; however, they also noted that
they get smaller numbers of applicants for temporary positions.
IV - 1
FOURTH DISTRICT – CLEVELAND
On balance, economic activity in the Fourth District held steady during the past seven
weeks. Manufacturers reported that the rise in production which began late last year is leveling
off. Contacts in nonresidential construction cited fewer inquiries and a small drop in backlog,
while residential builders noted that new home construction has slowed. Retail sales were flat to
up slightly, whereas auto dealers reported a slight downturn in new vehicle purchases. Energy
production increased modestly, and reports indicated a continuing upturn in freight transport
volume. Demand by businesses and consumers for new loans remained weak.
A small pickup in employment was limited to the manufacturing sector. Staffing-firm
representatives reported some improvement in the number of new job openings, with
opportunities concentrated in the healthcare field. Wage pressures continue to be contained.
Apart from a downward trend in steel and lumber prices, raw materials and product pricing was
generally stable.
Manufacturing. Reports from District factories show that production levels were mainly
steady or down slightly during the past seven weeks. Manufacturers who cited increased output
attributed it to seasonal factors. Production was higher on a year-over-year basis, with many
contacts citing double-digit increases. A large majority of respondents believe that demand
growth seen earlier this year is tapering off, and they expect production will stabilize at current
levels or show a modest decline. Most steel producers and service centers reported a slight
downturn in volume, which was expected. Shipments are being driven primarily by energyrelated and metal fabrication industries. Construction volume remains very weak. Although this
time of year is traditionally slow for the steel industry, our contacts are not overly confident that
shipments will pick up in the fourth quarter. District auto production was fairly stable in June on
a month-over-month basis, while year-over-year it rose substantially for both domestic and
foreign nameplates.
Little movement was seen in inventories, although we heard a few reports that finished
durable goods inventories were beginning to rise. A majority of our contacts stated that their
capacity utilization rates are below pre-recession levels, with little change during the past few
weeks. Capital outlays continue at relatively low levels, and business owners are approaching
spending decisions with caution. Steel producers and service center representatives reported that
their prices are on the decline, reflecting a downward trend in steel production input costs. Other
IV - 2
raw material costs have been fairly stable. Companies continue to expand payrolls and extend
work hours, but at a slower pace. Wage pressures are contained.
Real Estate. In general, new home sales have slowed during the past seven weeks and
on a year-over-year basis. Most of our contacts cited tight credit as one of the primary factors
contributing to the slowdown. Homebuilders are not expecting a turnaround in new home
construction this year, with several anticipating a further decline in sales. Our contacts tell us
that entry-level homes are beginning to regain sales momentum, with lessening activity in the
move-up and third-time home-buyer categories. Little change was noted in the list prices of new
houses, and reports indicate that the rise in construction material costs is leveling off, especially
for lumber products. Skeleton crews remain the norm for general contractors and subcontractors.
Signs of a pickup in nonresidential construction cited in our past two reports are
beginning to diminish. Although building activity remains steady, several of our contacts
reported declining inquiries and a slight drop in their backlogs. Most inquiries and new projects
underway fall within the industrial and government-funded infrastructure categories. The glut in
commercial space shows no signs of lessening. Half of our contacts expressed a heightened level
of uncertainty about construction activity in the near term, though others remain cautiously
optimistic. Little change in construction material costs was reported. We heard numerous
accounts of contractors and clients struggling to obtain financing. Other than seasonal hiring,
employment rolls are steady. Many subcontractors remain underutilized and are taking on
projects at cost.
Consumer Spending. For the period from mid-May through mid-June, retail sales were
generally flat or up slightly when compared to the previous 30-day period. Purchases of apparel
and food products are doing well, while spending on discretionary items has weakened.
Retailers are somewhat less optimistic about future sales than in our last report; however, they
still expect buying to show a small improvement going into the fourth quarter. Vendor and store
pricing has been stable. Most auto dealers saw new vehicle sales slow from mid-May through
mid-June, when compared with the previous 30 days. Dealers indicated that the rising sales
trend present in the spring has leveled off, and they are not expecting a return to robust growth in
the near term. Many dealers said that their inventories are low, which was attributed to seasonal
factors. Used vehicle purchases were characterized as holding up reasonably well. Our contacts
told us that they are finding it more challenging to arrange financing for customers with less than
IV - 3
the highest credit rating. Reports show little change in staffing levels at retailers or auto dealers.
Banking. The market for business lending remains soft, with bankers characterizing the
demand for new loans as flat to improving slightly. Interest rates are stable. On the consumer
side, loan demand is generally weak. Those seeing a slight uptick attributed it to draw-downs on
home equity lines of credit. We heard a few reports of downward pressure on auto loan rates.
The residential mortgage market continues at a slow pace, with several bankers noting that
activity is below expectations, given current mortgage rates. Core deposits are steady or up at
most banks, with much of the growth occurring in transaction accounts. Reports on credit
quality were mixed. Delinquency rates declined or held stable for nearly all banks; still, several
of our contacts noted that delinquencies remain above historic norms. Employment rolls and
wages are stable.
Energy. Reports show little change in oil and natural gas output during the past seven
weeks, with output expected to remain flat in the near term. Spot prices for natural gas rose
slightly, while oil prices dropped. Reports on coal production have grown more positive. Export
producers are experiencing increased demand for both steam and metallurgical coal, while
unseasonably warm weather increased the demand for coal by electric utilities. Prices for coal
were mixed but are tending to the up side. Production equipment and materials costs were
generally flat. Staffing levels are steady, and little hiring is expected in the near future. Wage
pressures are contained.
Transportation. Freight transport executives reported continuing favorable volume
trends, with only moderate gains to their bottom lines. Although most of our contacts are
cautiously optimistic in their outlook, they expect that the rate of volume growth experienced in
the second quarter will begin to moderate. One contact noted industry-wide concern over the
strength of consumer demand. Several respondents commented that they are attempting to
negotiate rate increases, with some degree of success. Major capital purchases remain at or near
replacement rates. However, due to aging fleets and growing demand, the need to replace
equipment may grow toward year-end. Several of our contacts noted that quoted prices for
tractors and trailers are rising. Current hiring is primarily for replacement only. If volume
continues to build, freight executives expect to add capacity in the near term.
V-1
FIFTH DISTRICT–RICHMOND
Overview. District economic activity was generally described as either mixed or
modestly improving since our last report. While manufacturing remained a bright spot, the pace
of activity reported in our last assessment appears to have eased somewhat—particularly among
firms supplying the housing sector. Port authorities reported a pick-up in activity, led by recent
increases in import volumes. Bank lending to businesses improved moderately, while home
mortgage lending varied widely around the District. Tourism also strengthened. In addition, local
labor markets posted modest gains, with temp agencies reporting gains especially from the
manufacturing sector. On a weaker note, residential real estate agents and contacts at other
services firms described activity as mixed. Finally, commercial real estate agents and retailers
reported generally softer market conditions, but both sectors cited at least some pockets of
improvement.
Retail. Retail sales weakened since our last report. Several auto dealers reported that light
vehicle sales dropped, and a North Carolina medical devices supplier said payers were trying to
negotiate lower reimbursement rates on durable medical equipment. In addition, a contact at a
large home and garden chain reported that impulse buying fell, and that home remodeling
purchases had scaled back dramatically as consumers “splurged small.” Overall, according to our
District survey, big-ticket purchases and shopper traffic plummeted. Many District retailers
indicated that inventories continued to decline in recent weeks. Merchants increasingly cut jobs,
and retail prices advanced only slightly faster since our last report.
Services. Contacts and survey respondents at non-retail services firms reported mixed
activity during the past four weeks. For example, several businesses indicated that their revenues
had contracted, while others reported an uptick, with the caveat that they are not seeing
significant strengthening in their markets. Several contacts at professional, scientific, and
technical firms said their businesses experienced increased demand for services since our last
report, while a financial advisor at an investment services firm said conditions were “stable.”
Several healthcare-related businesses cited little change in demand in recent weeks, but a West
Virginia nursing home administrator said the economy and healthcare reform put downward
pressure on his business. Many respondents to our service sector survey reported that price
increases slowed at services firms.
Manufacturing. District manufacturing continued to expand in June and early July,
albeit at a slower pace than a few months ago. Most of our District survey respondents reported
V-2
that growth in their shipments and new orders had moderated, while several contacts noted that
their employment edged higher. A parts supplier reported a significant increase in demand from
auto manufacturers, with business being well ahead of expectations. In addition, a tire producer
informed us that his customers had depleted their inventories, which caused him to expect an
increase in orders soon. Moreover, a contact at a textile plant commented that his company had
built inventory in anticipation of continued price increases for synthetic fibers. He noted,
however, that his customers continued to maintain low inventory levels, with current sales higher
than replenishment rates. In contrast, a furniture manufacturer noted that his company had
reduced its workforce by half due to weak conditions in the housing market. Similarly, a
manufacturer of exterior doors for residential housing indicated that the previous uptick in
demand for building products had now vanished.
Port activity in the District picked up since our last report. One contact stated that total
shipping volume at his port was back to pre-recession levels. While exports had been improving
over much of this year, he noted that imports were now increasing as well. A contact that handles
a variety of roll-on cargo stated that about two-thirds of the recent gains in port activity were
being driven by imports. At least some of the import gains were attributed to inventory
restocking. Several port officials noted that shipping lines were attempting to raise rates.
Finance. Banking activity over the last six to eight weeks improved modestly, but gains
were uneven. For example, several bankers noted an increase in commercial lending, although
one lender stated that commercial lending had weakened. Contacts noted that increased lending
went to support high-tech and export activity, as well as auto dealer inventory. An increase in
merger and acquisition activity was also noted by several sources. One banker reported a
marginal improvement in small business lending, while an analyst for a large bank reported a
retrenchment in consumer borrowing. A small community banker stated that the bank’s own auto
loans had edged down as other banks returned to the market, increasing loan competition.
Reports on home mortgage lending varied, with some bankers reporting improvements and
others still experiencing declines. A loan officer at a community bank stated that refinancing was
a significant portion of his mortgage lending activity in recent weeks. Most contacts stated that
credit quality was slowly improving from a weak base, although one source noted that
delinquencies on both residential and commercial loans were still “off the charts.”
Real Estate. Reports from residential Realtors varied across the Fifth District. Several
contacts reported that home sales slowed since the expiration of the federal government’s tax
V-3
credit program. However, other contacts indicated that sales in the upper-middle price bracket
were still moving, at least in some areas of the District, while one agent noted that single-family
homes in suburban neighborhoods were experiencing the most activity. Another agent reported
that houses priced below $150K remained the best sellers, due to more foreclosure-related and
short sales. A Realtor in Richmond reported that the metropolitan market in recent weeks did not
meet the company’s expectations in July. An agent for a major realty chain noted that the
average number of days on the market for most homes remained high.
Commercial real estate markets continued to weaken since our last report, with at least
one contact not expecting improvements until well into the future. According to one contact in
North Carolina, vacancy rates in most metro areas remained relatively high and were still rising
in some areas. Vacancy rates were particularly high in the retail sector in both Richmond and
Baltimore, according to several agents. Retail and office leasing activity was reported to be
improving in Columbia, S.C., as well as in parts of North Carolina. Commercial rental rates in
parts of North Carolina were being driven down by property owners’ fears that things could get
worse, and an agent stated that retail rental rates remained negotiable in Richmond. One contact
stated that new construction financing was “not going at all.”
Tourism. Tourist activity increased since our last report. Along the coast, contacts
reported that bookings over the July 4th holiday weekend were much stronger than a year ago. A
hotelier from Virginia Beach noted that his hotel was filled to capacity, even though room rates
had jumped dramatically. A contact in Myrtle Beach said that visitation was up 10 to 12 percent
in recent weeks compared to a year ago, but consumer spending was still below pre-recession
levels. He attributed some of the increase in visits and spending to tourists changing vacation
plans from the Gulf to the eastern seaboard. Moreover, an analyst from the Outer Banks of North
Carolina indicated that restaurants were full and sales at gift shops were flourishing. Managers at
mountain resorts reported that holiday reservations were the best in years and that time shares
were rented for most of the summer. They noted, however, that although tourists were spending
slightly less on food, they were spending considerably more on recreational activities and
merchandise.
Labor Markets. Labor market activity picked up slightly in recent weeks, according to
most contacts. Several firms reported adding jobs for at least a third straight month. A services
firm increased its hiring due to rising demand, but several retailers reported job cuts. Temporary
employment agents reported slow, but steady increases in hiring by small or mid-sized
V-4
businesses—especially in manufacturing. For example, a contact at an automotive plant told us
that temporary employment workers had been hired to help with the increase in production. One
temp agent noted an increase in the number of employees being hired on a permanent basis by
his clients. Increased demand for temporary workers was reported for a diverse set of industries,
including warehouse and distribution centers, manufacturing plants, and pharmaceutical firms.
Most respondents to our manufacturing and service sector surveys indicated that wages were
little changed since our last report.
VI-1
SIXTH DISTRICT – ATLANTA
Summary. Reports from Sixth District business contacts indicated that the pace
of economic activity slowed somewhat in June and early July. Retailers reported a slight
increase in traffic and sales, but their outlook was less optimistic than the last report.
Tourism reports were generally positive, however, significant concerns were expressed
over the potential impact from the oil spill on the Gulf coast. Residential real estate
contacts suggested that the pace of new and existing home sales slowed, and their outlook
was pessimistic. Commercial real estate remained weak. Manufacturers saw a slight
deceleration in activity as the pace of new orders and production growth slowed. Banking
credit conditions remained tight and loan demand was subdued. Businesses continued to
increase the hours worked of existing staff and to expand their use of temporary hires.
Permanent hires were less apparent. Transportation and material costs rose slightly, but
most firms expressed no intention of passing these increases along to consumers.
Consumer Spending and Tourism. Most District merchants noticed a slight
increase in traffic and sales in June and early July. Retailers also mentioned that despite
the uptick in sales, they continued to keep inventory levels low. Although most
merchants have reported improved conditions since the beginning of the year, sales levels
remained well below pre-recession levels. The outlook among retailers was more
subdued than in previous months. Automotive dealers reported that sales improved from
a year ago.
Overall, tourism continued to show signs of improvement compared with last
year. Reports from Miami and New Orleans indicated that business-related travel and
convention bookings remained positive. Leisure travel was positive in most District
destinations except for the Gulf coast where significant concerns were reported over the
oil spill and its impact on tourism. Hospitality contacts in the area remarked that some
cancelled bookings have been substituted by the presence of clean-up crews, oil company
workers, and the National Guard. Contacts not located along the Gulf coast have stated
that there have been increased bookings as a result of deflected business from oil-affected
areas.
Real Estate and Construction. District residential real estate brokers and
homebuilders reported that home sales weakened notably in June and early July on a
VI-2
year-over-year basis. Contacts also indicated that sales fell on a month-over-month basis.
However, several brokers remarked that June sales were boosted by closings associated
with the housing stimulus. Buyer traffic continued to soften across the region. Realtors
noted that existing home inventories rose outside of Florida on a year-over-year basis,
while Florida inventories declined modestly. Similar inventory trends were seen on a
month-over-month basis. New home inventories remained below the year-earlier level,
and construction activity softened from already weak levels. Both Realtors and builders
shared concerns about the housing market going forward; the outlook weakened and sales
growth over the next several months is anticipated to be slightly negative.
Nonresidential construction activity continued to be weak. The majority of
contacts noted that the pace of commercial development was below the year-earlier level
and backlogs remained at low levels. Vacancy rates were high across the District and
contacts witnessed downward pressure on rents. The outlook for the rest of the year
remained negative.
Manufacturing and Transportation. Almost half of District manufacturers
contacted stated that new orders and production grew at a slower pace in June than in the
previous report. The number of firms experiencing higher levels of orders decreased
notably compared with the previous report, while the number of contacts planning to
expand production in the near future dropped as well. Freight activity remained above
weak year-earlier levels, led by increased shipments of motor vehicles, metals, and
chemicals.
Banking and Finance. Industry reports indicated that banking conditions
weakened across much of the District. Several bankers reported that credit remained
available to qualified customers. Consumers seemed reluctant to take on additional debt,
however. Contacts also cited declining credit card use as consumers continued to
deleverage. Business loan demand was also muted.
Employment and Prices. Private payroll employment increased slightly through
early July across the District, although many businesses maintained a strong preference
for increasing existing staff hours and using temporary staff rather than hiring full-time,
permanent employees. In addition, the outlook regarding labor market conditions along
the Gulf coast remained tempered by the impact from the oil spill.
VI-3
Despite reports of raw materials and transportation cost increases, most firms
conveyed no plans to pass the increases on to consumers. Several contacts remarked that
excess production capacity and competition continued to put downward pressure on
prices in a variety of sectors.
Natural Resources and Agriculture. Local energy prices and oil production
have remained mostly stable since the onset of the oil spill in late April. Gulf of Mexico
crude inventories continued to hover near the top of their average range for this time of
year. Nonetheless, a number of businesses expressed concern about the potential impact
on long-term energy production and employment from the deepwater drilling
moratorium. Industry reports noted recertification of deep and shallow water rigs/wells
was underway. Meanwhile, contacts indicated that Gulf ports were operating normally
and commerce along the Mississippi River remained uninterrupted.
Dry conditions and high daytime temperatures have resulted in some crop stress
in parts of the District, but conditions overall continued to be good for cotton and citrus
crops. Cotton plantings have increased on a year-over-year basis.
VII-1
SEVENTH DISTRICT—CHICAGO
Summary. Economic activity in the Seventh District continued to improve in June and
early July, but the rate of improvement slowed further. Most contacts remained cautiously
optimistic. However, increased uncertainty about the path of the economic recovery negatively
affected business and consumer confidence and spending. Growth in manufacturing production
eased and orders softened. Construction decreased apart from public infrastructure. Consumer and
business spending increased at a slower rate. Credit conditions were slightly improved, and price
and wage pressures were small on balance. Crop conditions deteriorated modestly.
Consumer spending. Consumer spending increased at a slower rate in June and early July.
Retail sales excluding autos edged up. While spending on food and other necessities rose, spending
on home-related and luxury items decreased. Retailers reported maintaining relatively low
inventories amid dampened optimism for the back-to-school shopping season. The pace of tourism
activity also slowed with hotel occupancy increasing at a reduced rate. Auto sales were lower in
June, but auto dealers reported showroom traffic picked up in early July in part supported by
increased incentives. In addition, several dealers indicated inventories were lower than desired.
Business spending. The rise in business spending moderated further in June and early July.
Inventory investment continued to slow in manufacturing, and contacts in retail trade indicated a
slower rate of inventory investment for higher priced goods. However, capital spending on
equipment and information technology continued to steadily grow. Labor market conditions
continued to gradually improve, although the pace of hiring decreased. Contacts noted more caution
in hiring primarily due to an increasingly uncertain outlook for the second half of 2010. For
example, while temporary hiring continued to increase, it did so at a slower rate. In contrast, a large
staffing firm noted billable hours from the industrial sector remained strong and had accelerated for
the information technology sector. Moreover, employment and hours worked continued to expand
in manufacturing.
Construction/real estate. Construction activity decreased from the previous reporting
period. Residential building was minimal as builders were not introducing new inventory without a
signed contract on a home. Sales decreased after the end of the homebuyer tax credit, but showroom
traffic and contracts were up slightly in recent weeks. New mortgage applications were down, but
the decline was partly offset by an increase in refinance activity as mortgage rates moved lower.
Elevated vacancy rates and downward pressure on commercial rents continued to restrain private
VII-2
nonresidential construction. In contrast, public construction increased at a faster rate as
infrastructure construction picked up.
Manufacturing. Growth in manufacturing production slowed from the previous reporting
period. Orders softened over the course of June and into early July as inventory replenishment
decreased. However, contacts remained cautiously optimistic, stressing the seasonal nature of the
slowdown. Steel production decreased, and capacity utilization edged lower. A contact indicated
that service centers were being cautious with new orders despite the low level of inventories due to
declining steel prices and a more uncertain outlook for economic activity. Manufacturers of
industrial metals also noted a retraction in activity. Housing and construction-related manufacturers
continued to report weak business conditions. Nonetheless, a contact in the household appliance
industry indicated that the need to rebuild inventories was likely to boost production in coming
months. In addition, automakers reported that sales through the first half of July were above
expectations, and automotive suppliers continued to note strength in demand for their products.
Demand for heavy equipment also increased, both domestically and abroad. Exporters, in general,
cited positive business conditions, but several contacts expressed concern about a potential
slowdown in China and European markets.
Banking/finance. Credit conditions were slightly improved in June and early July. Credit
spreads narrowed for a number of District firms, and overall borrowing costs decreased. Business
loan demand continued to gradually increase, driven mostly by refinancing and acquisition activity.
Several banking contacts noted that fierce competition for high quality borrowers was leading to
greater flexibility in pricing and terms on business loans. Consumer lending conditions were largely
unchanged. However, a contact noted that the gradual reemergence of private mortgage insurance
companies was beginning to improve the availability of mortgage credit. In contrast, credit
remained limited for commercial real estate. Bank loan quality continued to improve gradually,
although a contact indicated that the pace of improvement had slowed in recent weeks.
Prices/costs. Price and wage pressures, on balance, continued to be small in June and early
July. Contacts noted increases in the price of energy, paper, plastics, and resins, while prices for
industrial metals like steel, aluminum, nickel, and zinc declined. Similar to the previous reporting
period, wage pressures increased only modestly. Pass-through of cost pressures to downstream
prices remained minimal, with pricing power in most industries continuing to be weak.
Agriculture. Crop conditions varied across the District, deteriorating modestly in June and
early July. Excess precipitation in some areas reduced hay output, damaged corn and soybean
VII-3
plants, and forced replanting. However, contacts continued to expect good corn and soybean yields
this fall. In the recent period, smaller than expected stocks of corn and soybeans led to crop price
increases amidst concerns about how much rationing will occur before the harvest. Hog and cattle
prices remained above year ago levels, although they declined during the reporting period. In
addition, milk prices increased, aiding the struggling dairy sector. Problems with disease and the
need for extra fertilizer pushed up input costs, but crop farmers should be able to cover their
production costs for this year. The cost of refinancing debt also put pressure on margins for many
livestock operations.
VIII-1
Eighth District - St. Louis
Summary
Economic conditions in the Eighth District have continued to improve since our previous
report. Manufacturing activity increased, on balance, as did activity in the services sector. Auto
sales increased over a year ago. Residential real estate market conditions continued to improve
across the District’s largest metropolitan areas, while commercial and industrial real estate
markets remained weak, especially construction. Overall lending activity at a sample of small
and mid-sized banks in the District decreased from early April to late June.
Manufacturing and Other Business Activity
Manufacturing activity has continued to increase since our previous report. Several
manufacturers reported plans to open plants and expand operations in the near future, while a
smaller number of contacts reported plans to close plants and reduce operations. Firms in the
furniture, plastics product, metal pipe, and plastics resin manufacturing industries announced
plans to expand operations and hire new employees.
Additionally, a major firm in the
automobile manufacturing industry announced the opening of a new production facility. In
contrast, firms in the motor and generator, furniture, and polystyrene foam product
manufacturing industries announced that they will close plants in the District and lay off
workers.
Activity in the District's services sector has also increased since our previous report. A
major software publishing firm has announced plans to open a new facility in the District and
hire new workers. Additionally, a firm in nursing care services announced plans to relocate their
headquarters to the District. In contrast, contacts in education services, air transportation support
services, and the casino industry announced plans to decrease operations and lay off workers.
VIII-2
Sales of new and used automobiles in recent weeks were reported as higher than a year ago and
slightly above expectations.
Real Estate and Construction
Home sales continued to improve throughout the Eighth District. Compared with the
same period in 2009, May 2010 year-to-date home sales were up 3 percent in Memphis, 12
percent in St. Louis, 19 percent in Little Rock, and 30 percent in Louisville.
Residential
construction also continued to improve throughout the District. May 2010 year-to-date singlefamily housing permits were up in most District metro areas compared with the same period in
2009. Permits increased 27 percent in Louisville, 31 percent in Little Rock, 36 percent in
St. Louis, and 52 percent in Memphis.
Commercial and industrial real estate market activity remained slow throughout most of
the District. Contacts noted that financing requirements for new construction remained stringent
and lease rates remained low. A contact in St. Louis reported that commercial leasing was up in
some areas, but new commercial construction projects are not expected before mid-2011.
Industrial real estate and construction contacts throughout the District continued to report a flat
environment. A contact in Louisville reported that demand for industrial real estate continued to
be weak. A contact in the Memphis area reported that while industrial leasing has improved
somewhat, no new industrial construction is likely before the end of the year.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks decreased 2.0
percent from early April to late June. Real estate lending, which accounts for 73.6 percent of
total loans, decreased 1.9 percent. Commercial and industrial loans, accounting for 16.0 percent
of total loans, decreased 2.5 percent. Loans to individuals, accounting for 5.3 percent of total
VIII-3
loans, decreased 6.5 percent. All other loans, roughly 5.1 percent of total loans, increased 4.1
percent. During this period, total deposits at these banks decreased 1.2 percent.
Agriculture and Natural Resources
Generally, development of the District's major crops remained ahead of its 5-year average
pace. In mid-July, the overall condition of rice and cotton was rated as slightly better than last
year, while the condition of corn, sorghum, and soybeans was rated as slightly worse. Farmers in
the District states planned to harvest more acres of corn for grain and rice in 2010 than in 2009
but fewer acres of soybeans and sorghum for grain. The winter wheat harvest was complete or
nearly complete in all District states. Based on July estimates, total winter wheat production in
the District states was expected to be down 48 percent from last year. Since our previous report,
pasture conditions deteriorated in most District states.
IX-1
NINTH DISTRICT--MINNEAPOLIS
The Ninth District economy grew slightly since the last report. Consumer spending,
tourism, manufacturing, energy, mining and agriculture saw increases. Residential
construction and the services sectors experienced mixed activity, while commercial
construction remained weak. Commercial and residential real estate activity decreased.
Labor markets continued to strengthen somewhat. Wages were generally level with a year
ago, and price increases remained restrained.
Consumer Spending and Tourism
Consumer spending increased modestly. A major Minneapolis-based retailer reported that
same-store sales in June were up almost 2 percent compared with a year earlier. A mall
manager in North Dakota noted that recent sales were up 4 percent over last year and
were running a little ahead of 2008, when activity was relatively strong. In South Dakota,
a mall manager noted that recent sales were mixed; consumers remained cautious as
traffic continued to be driven by promotions. A Montana auto dealer noted that June sales
were behind a year ago, but July sales have picked up substantially.
Summer tourism was up slightly from a year ago. Representatives of South
Dakota tourism businesses and attractions noted that the early part of the summer season
was going well. In western Montana, hotel bookings were about the same as a year ago,
while Glacier National Park is expected to have a record year due to its 100th anniversary
celebration. Tourism activity in the Upper Peninsula of Michigan was about the same as
last year. Meanwhile, a Minnesota travel agency noted that corporate sales were up about
20 percent during June and early July compared with 2009.
Construction and Real Estate
Commercial construction remained weak. A commercial contractor in Montana said that
the number of projects up for bidding decreased; existing projects were smaller and had
more bidders. In contrast, a heavy infrastructure contractor in Minnesota and Wisconsin
saw improvement in its market segment. In addition, the value of June commercial
permits in Sioux Falls, S.D., nearly doubled from the previous June. Residential
construction was mixed. June residential permits increased slightly in value for the
Minneapolis-St. Paul area and for Fargo, N.D., compared with the same month a year
earlier. However, residential permits decreased substantially in value in Sioux Falls and
Rochester, Minn.
IX-2
Weakness remained in the commercial real estate sector. Office vacancy
increased in Minneapolis-St. Paul. A commercial real estate broker in western Montana
characterized the market as level with last year’s slow activity. Residential real estate
activity softened slightly. The number of closed sales in Minneapolis-St. Paul decreased
in June from a year earlier. A real estate agent in Fargo said activity was steady, but not
as active as usual for this time of year. Meanwhile, a Realtor in northeastern Minnesota
recently noticed an increase in inquiries for properties.
Services
Activity in the professional business services sector was mixed since the last report. An
engineering firm that supports the mining and energy sector noted an increase in activity.
A human resources consulting firm noted a slight uptick in new business. Architectural
firms reported slow demand. Information technology consultants reported that business
was flat with a lot of maintenance projects rather than new software development. A firm
that assists nonprofits noted a slight decrease in activity. A Minnesota energy
management consultant noted an increase in orders.
Manufacturing
Manufacturing output was up since the last report. A June survey of purchasing managers
by Creighton University (Omaha, Neb.) showed that manufacturing activity increased
significantly in Minnesota and the Dakotas. A construction equipment manufacturer in
North Dakota was increasing production. A South Dakota wind energy equipment
producer increased production significantly due to increased demand.
Energy and Mining
Activity in the energy and mining sectors increased since the last report. Mid-July oil
exploration increased from early June. Wind energy projects have come online, and more
are planned in the western portion of the District. In Montana, a company applied for
permits to develop an underground gold mine. A Montana copper mine was “doing
excellent,” according to an official, due to strong production and prices. However, iron ore
production in Minnesota decreased in June compared with May because of maintenance at
one of the mines.
Agriculture
Agricultural activity increased. The U.S. Department of Agriculture raised the price
estimates for corn, soybeans and wheat. The vast majority of the District corn and soybean
IX-3
crops were rated as either good or excellent. Meanwhile, drought conditions eased across
most of the District, but some areas were experiencing excess moisture.
Employment, Wages and Prices
Labor markets continued to strengthen somewhat. According to respondents to a recent
St. Cloud (Minn.) Area Business Outlook Survey, 28 percent expect to increase staffing
levels at their companies over the next six months, while 9 percent expect to decrease
staff. In last year’s survey, 19 percent expected to boost hiring, while 12 percent
anticipated decreases. A recent survey of businesses conducted by the North Dakota
Chamber of Commerce showed that 39 percent expect to increase staffing in the next six
months; the majority of respondents expect to keep payrolls level.
Increases in temporary employment were noted. A representative of an
employment services firm in Minneapolis-St. Paul reported that demand for temporary
workers has continued to grow during the past two months. In the Dakotas, demand for
seasonal construction employment was up; however, temporary construction and
manufacturing employment was slow in the Duluth, Minn., area, according to bank
directors. In northwestern Montana, two employment offices reported that postings for
temporary and part-time listings were up; however, overall job orders by employers were
down 50 percent compared with a year ago. Signs of continued weakness also include an
announcement that a bank will lay off about 80 employees in Minnesota.
Wages were generally level with a year earlier. Over 70 percent of respondents to
the St. Cloud survey expected no changes in employee compensation over the next six
months. A nurses union and 14 hospitals in the Minneapolis-St. Paul area agreed on a
contract that averted an open-ended strike; pension and health benefits were not changed.
Price increases remained restrained. Minnesota gasoline prices at the beginning of
July were about the same as prices a month earlier. Bank directors noted that prices have
remained generally level for area businesses with some exceptions. Significant increases
included copper and brass products in electrical wiring, steel fencing materials and
unemployment taxes. Scrap metal prices were above year-ago levels, but dropped during
the past month.
X-1
TENTH DISTRICT - KANSAS CITY
The Tenth District economy generally held steady in June and early July, despite weak
real estate conditions. Consumer spending remained higher than year-ago levels and was
expected to rise over the next three months. Manufacturing activity expanded slightly, but at a
slower pace than in previous months. Transportation and high-tech firms reported increased
activity. As expected, residential real estate activity contracted sharply in response to the
expiration of tax credits. Commercial real estate conditions weakened, and activity was expected
to slow in the months ahead. Bankers reported slightly increased loan demand and did not
anticipate a change in loan quality over the next six months. Energy production expanded,
raising expectations of increased employment and capital spending over the coming months.
Agriculture conditions remained positive, and farmland values stayed above year-ago levels.
Wage and retail price pressures remained subdued.
Consumer Spending. Consumer spending remained higher than a year ago, and contacts
anticipated gains over the next three months. District retailers reported that sales in June and July
were flat relative to the previous survey period but remained above year-ago levels. Retailers
expected sales to rise over the next three months and a continued downward trend in prices. Auto
sales increased in response to higher discounts, and dealers expected strong demand to persist in
the coming months. Auto dealers reported continued declines in inventories. Restaurant sales
were flat compared to the previous survey, but the average check amount fell. Tourism activity
rose over the past month and was expected to remain strong during the summer months. Hotel
occupancy rates increased more than anticipated, but contacts expected to give up some of these
gains in the coming months.
Manufacturing and Other Business Activity. Growth in manufacturing activity eased
slightly in June, while transportation and high-tech firms reported solid growth in sales and
activity. Production at manufacturing firms continued to rise, but the pace of growth slowed for
the second consecutive month. The volume of new orders, shipments, and finished goods
inventories were flat compared to May, but the backlog of orders at manufacturing firms
X-2
declined. Manufacturing activity continued to improve compared to a year ago, and firms
remained optimistic about production and employment over the next six months. Capital
spending continued to decrease compared to year-ago levels, and firms expected slightly less
investment over the next six months. Transportation firms saw an increase in activity when
compared to both the previous period and a year ago. Some firms continued to have difficulty
finding qualified drivers. Most transportation firms planned to increase their capital spending the
next six to twelve months. The high-tech industry reported an increase in activity over the
previous survey period and expected strong growth during the next three months.
Real Estate and Construction. Residential and commercial real estate activity declined
since the last survey period. With the expiration of tax credits, residential sales dropped sharply
resulting in higher inventories of unsold homes. Residential real estate contacts continued to
report that lower-priced homes sold better than higher-priced homes. Over the next three months,
real estate agents anticipated slower sales. However, builders reported higher traffic from
potential buyers and expected starts to rise slightly the next three months. Despite flat
construction supply sales since the previous survey, construction supply contacts also expected
sales to increase during the coming months. Refinancing activity increased amid declining
interest rates. Commercial real estate contacts reported that conditions weakened after improving
slightly in the previous survey, including higher vacancy rates and declining sales, construction,
prices and rents. Commercial real estate conditions were expected to worsen over the next three
months. Developers reported increasing difficulty accessing credit.
Banking. Bankers reported slightly increased loan demand, stable deposits, and an
unchanged outlook for loan quality. Overall, loan demand edged up after holding steady in the
previous survey. Demand for consumer installment loans increased. However, demand fell for
commercial real estate loans and was little changed for commercial and industrial loans and
residential real estate loans. Credit standards on residential real estate loans and consumer
installment loans were unchanged, but a few banks tightened standards on their commercial and
industrial loans and commercial real estate loans. About the same number of bankers reported an
improvement in loan quality, compared to one year ago, as reported a deterioration. Also, for the
X-3
second straight survey, respondents expected no change in loan quality over the next six months.
Deposits were unchanged, consistent with their overall stability since late last year.
Energy. Energy production continued to expand, and firms expected activity to grow
further in the coming months. Growth in the number of active drilling rigs slowed relative to
strong gains earlier in the year. Crude oil prices were expected to remain unchanged due to a
steadying of supply and demand conditions. Firms reported that they planned to increase the
workforce the next three months, but some contacts noted difficulty finding qualified workers.
However, they did not anticipate having to raise wages in order to attract workers. Capital
spending was expected to increase over the next six to twelve months, and several firms
mentioned the potential of developing the Niobrara oil shale in northeastern Colorado and
eastern Wyoming.
Agriculture. Agricultural conditions remained positive since the last survey period.
Ample moisture reduced the need for irrigation, and the corn and soybean crops were reported in
generally good or better condition. Wet weather, however, delayed the winter wheat harvest.
While many areas expected an abundant wheat crop, there were some reports of hail damage and
poor quality yields, especially in Oklahoma. Corn and soybean prices held steady while wheat
prices rallied slightly, mainly due to expectations of a smaller global wheat harvest. Livestock
operations continued to be profitable with recovering demand for beef and pork. Farmland values
remained above year-ago levels. Farm loan demand held steady, and ample funds were available
at low interest rates for qualified borrowers.
Wages and Prices. Wage and retail price pressures remained low in June and July.
District firms reported a slight uptick in the shortage of qualified labor, but wage pressures
stayed at low levels. Retail prices continued to decline compared to both the last survey period
and a year ago. Builders and construction supply firms expected prices to remain at current levels
over the next three months. Raw material prices at District manufacturers grew during the survey
period, but the pace of growth slowed considerably. Meanwhile, transportation companies
continued to experience higher input prices. Overall, District contacts planned to keep prices at
their current level the next three months.
XI-1
ELEVENTH DISTRICT—DALLAS
Overview The Eleventh District economy expanded at a moderate pace over the past six weeks,
although business outlooks were slightly more cautious. Respondents in most sectors said activity
improved or held steady since the last report. The notable exception came from homebuilders and
construction-related manufactures who said demand dropped off following the expiration of the first-time
homebuyer tax credit. The majority of Eleventh District respondents expect economic conditions to
remain positive, but many expressed uncertainty about the pace of future growth. Numerous contacts said
uncertainty regarding fiscal and financial reforms was restraining business activity.
Prices Selling prices held steady for most responding firms. There were scattered reports that
rising input costs were squeezing margins. Notably, paper producers said linerboard prices continued to
rise, and high-tech firms said supply-chain problems had increased costs for producers. Some
transportation service firms had raised fees but reduced fuel surcharges. Lumber producers said prices had
come down since the spring run-up, and staffing firms continued to note pressure to reduce fees. Contacts
in residential construction said industry consolidation has led to fewer concessions in pricing.
Crude oil prices traded in a range of about $70 to $75 per barrel from late May through early July,
down from the previous report. On-highway prices of both gasoline and diesel fell about 5 percent during
the reporting period. Natural gas prices mostly ranged between $4.50 and $5.00 per Mcf—moving up
briefly over $5.00 per Mcf in June. The increase in petrochemical prices seen earlier in the year due to
capacity outages has reversed course.
Labor Market The majority of respondents noted steady employment levels, although there
were scattered reports of hiring activity. Staffing firms said demand continued to increase for their
services, and some contacts in residential construction, construction-related manufacturing, aircraft
manufacturing and auto sales had added workers. On a less positive note, contacts in the energy industry
said the moratorium on deepwater drilling resulted in significant regional layoffs, although energy service
companies were shifting Gulf Coast workers to land or shallow water projects when possible. Wage
pressures were mostly nonexistent, with the exception of the airline industry. Although the overall labor
market remains slack one transportation service provider was offering signing bonuses to truck operators,
and a few firms noted difficulty finding skilled workers.
Manufacturing Most construction-related manufacturers reported a slowdown in activity, and
outlooks were less optimistic than in the previous report. Producers that sell to the homebuilding industry
said orders dropped off more than expected following the expiration of the first-time homebuyer tax
credit. Contacts also reported declines in private nonresidential construction. Fabricated metals producers
XI-2
said sales growth flattened since the last report, while primary metals firms said activity picked up
slightly, but was bouncing along the bottom.
Production and new orders for high-tech manufacturing continue to grow at a strong pace. Capital
expenditures that were postponed during the recession are driving purchasing, according to respondents.
Inventories were in good shape, having built up from extremely low levels early in the year. Respondents
expect demand to continue to grow at a strong pace for the next three to six months, but there is increased
uncertainty about the outlook for 2011.
Manufacturers of aircraft and parts said sales had improved, with orders coming mostly from the
commercial and general aviation industries. Budget cutbacks have curbed governmental and military
sales. An aircraft repair contact said growth in demand had softened slightly, and the backlog of orders
had dropped. Orders for emergency vehicles remained flat and backlogs edged down, but not as much as
contacts had expected given budget strains among municipalities.
Reports on demand for paper products were mixed, but most contacts said sales are about even
with or slightly higher than a year ago. Food producers noted increased demand, and outlooks were
positive.
Producers of petrochemicals used in housing and commercial construction (PVC) said orders fell
since the last report, and expectations are for no near-term improvement. Other than PVC, there were no
signs of weakness in chemicals. Demand was strong for petrochemicals used in manufacturing, pulp and
paper and alumina. In addition, contacts said domestic demand for ethylene/polyethylene products
remained solid, and that export demand has returned slowly as capacity was restored and prices declined.
Refiners said gasoline demand was steady in recent weeks while diesel demand has improved. Refinery
utilization rates improved to near 90 percent, as refiner margins remain relatively strong.
Retail Reports from retail contacts point to solid growth. Department store sales were slightly
stronger than anticipated, but the pace is expected to moderate in the second half. Consumers continue to
deleverage and correspondingly remain price sensitive. Sales growth in the Eleventh District tracked
slightly below the nation. Expectations are for continued gradual improvement through year-end.
Automobile sales were unchanged over the reporting period, and contacts said inventories were
lean. The outlook is cautiously optimistic, with sales expected to rise slowly.
Services Most staffing firms report strong demand across a wide range of industries. The
majority of placement activity continues to be conversions of temporary workers to hires. Direct
placement remains reduced as businesses are hesitant to add to permanent payrolls. While near-term
outlooks remain optimistic, respondents are still cautious about the longer term. Demand for accounting
services was sluggish, but above year-ago levels. Tax-related services slowed seasonally, but
transactional and consulting activity picked up slightly. Demand for legal services held steady at low
XI-3
levels, but most contacts were slightly more optimistic in their outlooks. Accounting and legal contacts
said uncertainty about fiscal and financial reform was holding back business activity.
Demand for transportation services strengthened. Several contacts said cargo volumes were up
considerably, with the increases being broad-based across industry sectors. Railroad respondents noted
cargo volumes rose strongly across the board, with a particularly large increase in metals that was likely
due to an improved auto industry and stronger demand for home appliances. Shipping firms said retail
trade was boosting volumes for small package shipping. Airline traffic was down slightly since the last
report, but up strongly compared to a year ago. Outlooks for the transportation services industry were
generally positive but cautious.
Construction and Real Estate Builders of low-to-moderate priced homes reported a significant
drop off in housing sales in May and June following the expiration of the first time-homebuyer tax credit.
The pace of decline slowed in early July, and some contacts are hopeful the tax-credit “hangover” may be
over. New home starts overall are expected to come down in the second half of the year, and outlooks for
the homebuilding industry remain guarded. Existing home sales softened slightly in recent weeks,
according to contacts, but activity for the year is up from the same period in 2009. Apartment demand
continues to improve.
Commercial real estate markets remain weak. While a few lease deals have taken place, demand
for space overall remains subdued and rents are edging down. As such, nonresidential construction
activity continues to decline, and there were a few reports of developers going out of business. On a
positive note, contacts said improvement in debt markets had spurred some property sales, and prices
were up from the trough. One contact noted an increase in lender sales as banks work through
nonperforming loans.
Financial Services Loan demand remained soft with weakness across all categories.
Nonperforming loans have stabilized and are not expected to worsen, although contacts said it will be a
while before they come down noticeably. Deposits were mostly steady, but responding institutions said
fewer loans pushed down the loan-to-deposit ratio. An over-riding theme among financial industry
respondents is uncertainty over fiscal and financial reform legislation that has created a wait-and-see
mentality. The uncertainty is delaying transactions, depressing loan activity and causing some institutions
to look for alternative ways to grow loan portfolios and earnings.
Energy The U.S. and District rig counts increased during the reporting period, despite a drop of
39 rigs in the Gulf of Mexico. As the share of oil-directed drilling continues to rise, natural-gas directed
drilling was surprisingly steady despite high inventories and low prices. Some contacts noted that shale
activity is stronger than prices justify due to urgency to secure leases in new basins and an influx of
foreign capital attracted by new shale technology.
XI-4
Agriculture Tropical storms brought widespread rains to Texas, particularly benefitting parts of
the state that had been getting dry. Favorable crop conditions and robust forage production on pastures
have increased optimism among agricultural producers. Cattle prices have declined, though ranchers still
anticipate strong prices compared to last year. The recent rainfall will boost yields for Texas cotton,
potentially pushing down prices.
XII - 1
TWELFTH DISTRICT–SAN FRANCISCO
Summary
Economic activity in the Twelfth District appeared to pick up slightly during the reporting period
of June through mid-July. Upward price pressures remained quite modest, and upward wage pressures
were largely absent. Sales of retail items and services firmed a bit further. Reports from District
manufacturers indicated continued expansion, although excess capacity remained high in some sectors.
Sales were strong for agricultural producers, and demand for energy resources strengthened. Activity in
housing markets was mixed but appeared to decline on net, while demand for commercial real estate was
largely unchanged at very low levels. Contacts from financial institutions reported largely stable lending
activity and credit quality.
Wages and Prices
Upward price pressures remained very modest on net during the reporting period. While energy
prices edged up and prices also rose modestly for selected industrial commodities such as steel and
copper, final prices for most retail items and services continued to be held down by weak demand and
excess capacity. Contacts in a few industries pointed to recent increases in shipping costs that they
anticipate will be passed on to final prices later this year or in 2011.
Contacts in most sectors characterized wages as largely flat, although some pointed to significant
increases in the costs of employee benefits, especially for health insurance. Upward wage pressures were
negligible in most sectors and regions, held down by continued high levels of unemployment and limited
hiring. Reports throughout the District indicated that most businesses expect to remain cautious in hiring
for the foreseeable future. Contacts noted that their reliance on temporary workers over permanent hires
will continue above historical norms.
Retail Trade and Services
Sales of retail items were mixed but showed further modest improvement on net. While
consumers remained focused on necessities and lower-priced options, reports indicated expanding
consumer appetite for discretionary spending. Discount retail chains and traditional department stores
XII - 2
both reported higher levels of sales, and a few contacts noted declines in promotional activity. By
contrast, sales were characterized as largely flat for grocers, as well as furniture and household appliance
retailers. Sales of new domestic and imported automobiles weakened slightly during the reporting period,
although contacts noted that activity rebounded somewhat in recent weeks. Demand for gasoline
strengthened but remained below historical averages for the season.
Demand for services remained somewhat weak but exhibited further signs of improvement on
balance. Contacts in the restaurant and food services industry reported modest increases in demand. For
professional and media services providers, sales were largely stable at low levels. Contacts noted that
potential clients increased their requests for bids, but the added interest produced only limited numbers of
new commitments. Demand for hospital services was relatively flat, especially for discretionary services.
Energy utilities reported further increases in demand from selected industries, such as technology, metal,
and wood products. Conditions in the District’s travel and tourism sector continued to improve. Business
travel and convention activity picked up further, and visitor volumes and hotel occupancy rates rose in
several of the District’s major markets, particularly Hawaii.
Manufacturing
District manufacturing activity was mixed but appeared to strengthen a bit further on net during
the reporting period of June through mid-July. Manufacturers of semiconductors and other information
technology products reported further demand growth, with balanced inventories and continued strength in
new orders. Production rates and deliveries picked up modestly for makers of commercial aircraft and
parts. However, new orders remained limited and contacts expressed uncertainty about the strength of the
airline industry recovery and prospects for future orders. While capacity utilization remained at low
levels for companies in the metal fabrication sector, further demand improvements were noted, especially
for items used to maintain or upgrade existing capital equipment. By contrast, apparel makers
characterized conditions as “flat.” Despite improved demand, high inventory levels for gasoline and
distillates prompted refineries to slow production.
XII - 3
Agriculture and Resource-related Industries
Demand was strong for agricultural products and improved for natural resources used for energy
production. Orders and final sales remained robust for assorted crop and livestock products. Growing
and grazing conditions have been favorable in recent months, and contacts noted that input costs have
been largely stable. Strong global demand supported an increase in oil extraction activity during the
reporting period, and extraction activity for natural gas continued at a solid pace.
Real Estate and Construction
Demand for housing in the District appeared to deteriorate somewhat from the previous period,
while demand for commercial real estate was largely unchanged at very low levels. The pace of home
sales remained mixed across areas but appeared to decline on net, even as home prices edged up further in
some parts of the District. Several contacts noted again that limited availability of nonconforming
“jumbo” loans is holding down sales of higher-priced homes in some areas. Conditions in commercial
real estate markets remained depressed, as vacancy rates for office and industrial space stayed at very
elevated levels in many parts of the District. One California contact noted that although only a few large
commercial properties have sold in recent months, the prices received were surprisingly high.
Financial Institutions
District banking contacts reported that loan demand was largely stable compared with the prior
reporting period. Demand for commercial and industrial loans continued to be restrained by business
uncertainty about the economic environment. For most contacts, their current assessment of growth
prospects for their firm and industry are the same or weaker than was their assessment in early 2010, with
corresponding restraint evident in their planned capital expenditures. Demand for consumer loans was
characterized as largely unchanged at low levels. Lending standards remained relatively restrictive for
business and consumer lending, although reports pointed to signs of stabilization in overall credit quality.
Cite this document
Federal Reserve (2010, August 9). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20100810
@misc{wtfs_beige_book_20100810,
author = {Federal Reserve},
title = {Beige Book},
year = {2010},
month = {Aug},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20100810},
note = {Retrieved via When the Fed Speaks corpus}
}