Beige Book
For use at 2:00 p.m., E.S.T.
Wednesday
February 29, 2012
Summary of Commentary on ____________________
Current
Economic
Conditions
By Federal Reserve District
February 2012
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICT
FEBRUARY 2012
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*
Reports from the twelve Federal Reserve Districts suggest that overall economic activity
continued to increase at a modest to moderate pace in January and early February. Activity
expanded at a moderate pace in the Cleveland, Chicago, Kansas City, Dallas, and San Francisco
Districts. St. Louis noted a modest pace of growth and Minneapolis characterized the pace of
growth as firm. Economic activity rose at a somewhat faster pace in the Philadelphia and Atlanta
Districts, while the New York District noted a somewhat slower pace of expansion. The Boston
and Richmond Districts, in turn, noted that economic activity expanded or improved in most
sectors.
Manufacturing continued to expand at a steady pace across the nation, with many
Districts reporting increases in new orders, shipments, or production and several Districts
indicating gains in capital spending, especially in auto-related industries. Activity in nonfinancial
services industries remained stable or increased. Reports of consumer spending were generally
positive except for sales of seasonal items, and the sales outlook for the near future was mostly
optimistic. Tourism remained strong in some reporting Districts, but declined in the Minneapolis
and Kansas City Districts because of reduced snowfall. Residential real estate market conditions
improved somewhat in most Districts, with several reports of increased home sales and some
reports of increased construction. Commercial real estate markets also showed positive results in
some Districts. Banking conditions generally improved across the Districts. Agricultural
conditions were mixed, while extraction activity generally increased.
*
Prepared at the Federal Reserve Bank of St. Louis and based on information collected on or before February 17,
2012. This document summarizes comments received from business and other contacts outside the Federal Reserve
System and is not a commentary on the views of Federal Reserve officials.
ii
Hiring increased slightly across several Districts, and contacts in a variety of industries
faced difficulties finding skilled workers. Wage pressures were generally contained, and prices
of final goods remained stable, although contacts in some Districts anticipate passing rising input
prices through to consumer prices.
Manufacturing and Other Business Activity
Manufacturing has continued to increase across all twelve Federal Reserve Districts since
the previous report. Most Districts reported gains in new orders, shipments, or production.
Contacts reported increased capital spending in the Boston, Richmond, Chicago, Kansas City,
St. Louis, Minneapolis, and Dallas Districts; contacts in Philadelphia and Cleveland also
anticipate higher capital spending. Manufacturing contacts in San Francisco also continued to
invest in information technology equipment. Auto-related manufacturers in the Richmond,
Atlanta, St. Louis, and Minneapolis Districts reported increased activity and announced plans to
expand operations and open new plants. Primary metal manufacturing showed strong growth in
the Philadelphia, St. Louis, and Dallas Districts. Fabricated metal manufacturing increased in the
Richmond, Kansas City, and Dallas Districts but was essentially flat in the San Francisco
District. Steel producers reported that shipping volume was trending higher in the Cleveland
District and specialty metal contacts reported solid order bookings in the Chicago District. In
contrast to the many positive reports, contacts in some Districts reported plans to decrease
operations and close plants. Contacts in chemical and paper product manufacturing in the
St. Louis District reported plans to close plants and lay off workers, while manufacturers of
household goods and building materials reported soft demand on average in the Chicago District.
Manufacturing contacts in the Boston, Philadelphia, and Cleveland Districts expressed concern
about the risks posed by the situation in Europe.
iii
Nonfinancial services activity was stable or increased in the New York, Philadelphia,
Richmond, Atlanta, St. Louis, Minneapolis, Dallas, and San Francisco Districts. Transportation
services were stable or trending higher in the Cleveland, Richmond, Atlanta, and Dallas
Districts. In contrast, freight transportation contacts in the St. Louis and Kansas City Districts
reported that business had slowed. Information technology service firms in the Boston, St. Louis,
Kansas City, and San Francisco Districts have experienced increased demand since the previous
reporting period. Additionally, contacts in health care announced plans to increase capital
spending or expand operations in the Richmond and St. Louis Districts.
Consumer Spending and Tourism
Retail sales in the Philadelphia, Atlanta, St. Louis, Minneapolis, and Kansas City
Districts were higher than year-earlier sales. The Boston District reported strong same-store sales
in the last few months of 2011, but mixed results for same-store sales in January. Retail sales
increased in the Richmond and San Francisco Districts, but were mixed in the New York and
Cleveland Districts and weakened in the Kansas City District. Retail sales growth in the Dallas
District was tepid and consumer spending growth slowed in the Chicago District. The Boston,
New York, Philadelphia, Cleveland, Chicago, and Dallas Districts noted that mild winter weather
had depressed sales of seasonal items. Mark-downs on winter merchandise to clear inventory
were reported in the Boston, Chicago, and Richmond Districts. Aside from unsold seasonal
items, inventories were more broadly reported to be at satisfactory levels. All Districts reporting
sales expectations for the coming months indicated optimism among contacts that sales will
improve.
Gains in auto sales were reported in the Philadelphia, Atlanta, St. Louis, and Minneapolis
Districts. Chicago also reported sales increases in January, but noted that sales were down
iv
slightly in early February. Auto dealers in the New York, Cleveland, and Richmond Districts
reported a slowdown in recent auto sales, while auto sales held steady in the Dallas District and
contacts in the Kansas City District reported a post-holiday lull in sales. All Districts reporting
on sales outlooks conveyed optimism. Dealers in the Kansas City District expect demand for
smaller, fuel-efficient cars to spur sales in coming months, while contacts in the Cleveland
District were optimistic but uncertain that sales increases in 2011 could be repeated in 2012.
Tourism strengthened or remained strong in the New York, Richmond, Atlanta, and San
Francisco Districts. The Minneapolis and Kansas City Districts reported a decrease in tourism
largely attributed to below-average snowfall.
Real Estate and Construction
Residential real estate activity increased modestly in most Districts. Boston, Cleveland,
Richmond, Atlanta, Kansas City, and Dallas reported growth in home sales, while New York
noted steady to slightly softer home sales. Philadelphia reported strong residential real estate
activity. In contrast, home sales declined in St. Louis and San Francisco noted that home demand
persisted at low levels. Contacts’ outlooks on home sales growth were mostly optimistic.
Contacts in Boston, Philadelphia, Atlanta, and Dallas expect home sales to rise further. Home
prices declined or held steady in many areas. Cleveland and Atlanta reported little movement in
house prices, while contacts in Boston, New York, Philadelphia, Richmond, Chicago, and
Kansas City reported some declines. Single-family residential construction was weak in Chicago
and declined in St. Louis; Cleveland noted that the year-end uptick seen in construction has
abated somewhat, and Minneapolis noted increased single-family building permits. In contrast,
Boston, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco reported increased
multifamily construction activity.
v
Commercial real estate markets displayed positive results in some Districts, as leasing
showed overall improvement. Minneapolis, Richmond, Chicago, and Dallas noted increased
leasing. Boston, however, reported mostly unchanged leasing fundamentals with some modest
improvement since the previous report. Commercial vacancy rates were mixed in New York,
decreased in Chicago, increased in St. Louis, and stayed high in San Francisco. Boston and
Dallas noted limited levels of nonresidential construction, while Cleveland and Chicago noted
improved nonresidential construction.
Banking and Finance
Reports on banking conditions were generally positive across Districts. Lending
increased to varying degree in the New York, Philadelphia, Richmond, Chicago, Dallas, and San
Francisco Districts. Lending was little changed in St. Louis and Kansas City, while loan demand
was described as weak in Richmond and soft at regional banks in Atlanta. Demand for business
credit was flat to slightly higher in Cleveland and increased slightly in Richmond, San Francisco,
and at some large banks in Atlanta. Dallas reported strength in middle-market and large
corporate lending, and Chicago noted that business loan growth continued at a moderate pace.
On the consumer side, loan demand saw little change in New York and San Francisco. Cleveland
and Atlanta noted increased auto lending, while Kansas City reported slightly weaker consumer
installment lending. Consumer lending in St. Louis ranged from moderately weaker to
unchanged. Demand for residential mortgage loans increased in New York, Richmond, and
Kansas City; mortgage demand was flat to moderately stronger in St. Louis and softened in
Kansas City. Cleveland noted increases in requests for commercial real estate lending, while
contacts in Chicago and San Francisco noted improvement in the availability of credit for this
vi
sector. Meanwhile Philadelphia and Kansas City reported flat or steady commercial real estate
lending. Demand for commercial real estate loans was flat to moderately stronger in St. Louis.
Overall lending standards remained restrictive in San Francisco and Richmond and were
largely unchanged in St. Louis and Kansas City. Lending standards tightened further for
commercial borrowers in New York. Credit conditions in Chicago improved slightly, while
quality improved in Philadelphia and Kansas City. Delinquencies were steady or declined in
Cleveland. Mortgage delinquencies were steady in the New York District but delinquencies
decreased in other loan categories.
Agriculture and Natural Resource Industries
Drought conditions and warm temperatures affected agricultural conditions in some
Districts. However, recent rainfalls in parts of the Richmond, Atlanta, Kansas City, and Dallas
Districts helped ease the dry conditions. Crop yields for St. Louis were mixed, with only winter
wheat, rice, and tobacco showing positive gains for 2011. Tobacco and cotton yields in
Richmond were lower than historical averages. San Francisco reported growth in orders and final
sales for agriculture products. Farm values and incomes were stronger in Minneapolis and
Kansas City, while Richmond saw a slight drop in farmland values.
Kansas City, Dallas, and San Francisco noted higher crude oil extraction activity.
Similarly, Chicago and Minneapolis reported robust activity in energy and mining, and energyrelated service firms in Dallas reported very strong demand. Mining for various metals also
increased in the San Francisco District. Cleveland reported flat conventional oil and natural gas
drilling and production, and San Francisco observed lower demand for natural gas. The Dallas
District noted drilling cuts by a few gas-directed firms, but contacts anticipate that oil-directed
vii
activity will offset losses. Compared with a year ago, current coal production is lower in
St. Louis and higher in Kansas City.
Employment, Wages, and Prices
Of the Districts reporting on hiring, most indicated a slight increase. Boston, New York,
Cleveland, Richmond, St. Louis, and Minneapolis reported increased hiring in manufacturing,
and contacts in Philadelphia and Kansas City anticipate future hiring in the sector. Several
businesses in the Atlanta District also reported plans to increase payrolls. Philadelphia, Kansas
City, and Dallas noted increased hiring among auto dealers. Contacts in Boston, Cleveland,
Richmond, Chicago, Kansas City, and Dallas were having difficulties finding skilled or
specialized workers in a variety of industries. In contrast, Boston manufacturing contacts
reported fewer complaints about being unable to find qualified workers. Chicago noted that
hiring remains selective and long-term unemployment elevated, while San Francisco noted
limited demand for new workers. Staffing firms in Boston noted that the hiring cycle remains
“elongated” despite stronger demand. Staffing firms in Dallas also noted high demand, while a
major employment agency in New York indicated flat hiring.
Among Districts commenting on wages, upward pressures appeared limited. Boston
noted limited pay rises in retail and manufacturing. Richmond reported some upward wage
pressures in the service sector and manufacturing. Dallas and San Francisco reported minimal
wage pressures, although upward pressure for certain specialized positions was reported in both
Districts. Similarly, wage pressures remained largely subdued in Kansas City except for hightech and energy positions. Wage pressures were modest or largely contained in Cleveland and
Dallas, while Philadelphia noted flat wages and Minneapolis reported modest wage increases.
New York noted that Wall Street compensation remains under downward pressure.
viii
Prices of final goods and services were relatively stable in most Districts. Retail prices
increased at a moderate pace in the Richmond and Kansas City Districts. Contacts in the New
York District reported modest increases in selling prices and prices paid. Contacts in the
Cleveland, Richmond, Kansas City, and Dallas Districts noted rising input prices with some
expectation of pass-through to consumer prices. Cost pressures were largely unchanged in
Chicago and input prices have stabilized in the Boston District, while business contacts noted
some increase in cost pressures in the New York District. Minneapolis and San Francisco noted
increases in the costs of employee benefits. Philadelphia noted mixed price pressures among
manufacturing firms, with some firms unable to pass their higher costs along. Atlanta reported
that concerns over increased input costs eased, although several manufacturing firms noted an
increase in commodity prices since the previous report.
I-1
FIRST DISTRICT – BOSTON
Economic activity in the First District continues to expand. With the exception of real estate,
business contacts are generally upbeat about recent results, reporting similar or better growth than in the
last couple of reports. Commercial and residential real estate markets are not much changed, with
respondents citing weak but not disastrous conditions. While staffing firms note increased demand for
labor, contacts in retail and manufacturing say they are hiring only modestly and plan limited pay raises.
With a few exceptions, price pressures appear to have abated.
Retail and Tourism
First District retailers responding in this round report that business conditions in early 2012 have
continued the improvement seen in the fourth quarter. Contacts ending their fiscal year in late December
or early January say that fiscal 2011 sales ranged from down 2 percent to up 5 percent compared to 2010.
These results are generally better than they expected at the start of 2011 and reflect strong same-store
sales in the last few months of 2011 as compared to earlier in the year; indeed, December 2011 samestore sales ranged from high single-digit increases year-over-year to mid-teen increases. The range of
results was wider in January 2012: One retailer reports same-store sales were down 8 percent to 9 percent
year-over-year, which he attributes to mild weather depressing demand for winter hardware items as
compared to a particularly snowy January 2011. Another saw January comparable-store sales up 7 percent
compared to a year ago, and a third respondent enjoyed a 17 percent jump, which he credits in part to the
mild winter not keeping customers at home. All contacts note that store traffic is up.
Responding retailers report that furniture is selling very well, as is paint. As noted above, the mild
winter has depressed sales of some seasonal items, and one retailer has steeply discounted winter clothing
to get rid of inventory. Prices on furniture are generally flat, but retailers expect the cost of items made
with copper or titanium oxide (paint) to reflect price increases in these commodities. Stores are doing
light hiring for some full-time and part-time positions; they are budgeting 2012 merit pay increases
between 2 and 3 percent. Retail respondents expect the U.S. economy to improve further in 2012. While
remaining a bit cautious, they all note that economic conditions seem more favorable than last fall.
Manufacturing and Related Services
Manufacturing conditions in the First District appear to have improved since the end of last year.
All respondents in this cycle report sales growth in the fourth quarter from a year earlier. Although many
contacts express serious concerns about the situation in Europe, only two say that sales to Europe were
actually down. In contrast to the last two rounds, this time few contacts mention weakness in Asia.
Contacts among defense suppliers express concern about the budget. One had concluded that programs
his firm worked on were largely insulated from cuts but said they are “having trouble convincing our
investors of that.” Another said that budget issues are leading to delays but not to reductions in sales.
Raw material prices have stabilized overall but remain an issue. On the one hand, a plumbing
manufacturer said that copper is “on the march again.” On the other hand, low natural gas prices have
been a boon to U.S. industry. A contact in the industrial membrane industry reports that a multimillion
dollar project to switch to natural gas has already led to millions of dollars in savings. A petrochemical
contact points out that the equivalent price of natural gas in terms of oil is approximately $25 a barrel,
making the U.S. a low cost producer of petrochemicals; as he put it, we are “exporting natural gas in the
form of ethylene and polyethylene.”
All of our manufacturing contacts are increasing investment and none cites any issues finding
I-2
financing. Remarkably, almost all of our contacts say they have acquired at least one company over the
last six months. Almost all responding manufacturers report increased employment and there are fewer
complaints about difficulties finding qualified workers than in the past; at the same time, an equipment
manufacturer is spending significant sums on training expenses for new hires. A pharmaceutical firm
closed a facility in Philadelphia and offered jobs in Massachusetts to 20 employees, but reports that only
six accepted, suggesting confidence in the availability of employment.
Europe is a source of considerable concern but has not yet affected our contacts in a significant
way. Two respondents report slower sales in Europe and one, a plumbing manufacturer, says Europe is
“in a recession.” Another contact revised down their sales growth forecast for 2012 by 2 percentage
points to 4 percent to 5 percent—with the subtraction attributed to weakness in Europe—but at the same
time indicated the risks had shifted to the upside.
Software and Information Technology Services
First District software and information technology services contacts report that the upward trends
of early 2011 continued through Q4 2011 and into Q1 2012. Year-over-year revenue increases in the
fourth quarter, ranging from 10 percent to over 25 percent, were generally on par with those seen in the
third quarter. Contacts report upticks in demand across a number of sectors and geographies, with a few
noting that activity in Europe exceeds their expectations. Growing workloads have led most contacts to
continue to add to their headcounts. Indeed, one contact is on track to expand its workforce by over 20
percent in 2012; another, by contrast, reports a modest decrease, with a number of management positions
being eliminated in an ongoing realignment. Two contacts say they have increased capital and technology
spending relative to a year ago in order to build office space in Massachusetts. Prices are holding steady,
with contacts reporting little to no downward pressure. The outlook among software and IT contacts is not
appreciably different from that of three months ago; most are cautiously optimistic and expect revenue
growth in 2012 to be in the range of 10 percent to 20 percent.
Staffing Services
New England staffing firms generally experienced a better-than-usual holiday season in 2011,
with business picking up steam in early 2012. However, year-over-year revenue changes in the fourth
quarter varied widely, from flat to up more than 25 percent. Labor demand is higher than three months
ago, although a few contacts report signs of slowing in the light industrial sector. The growth in demand
for permanent and temporary-to-permanent hiring has accelerated in recent months, with one contact
noting that “clients are definitely ready to hire permanent employees.” Notwithstanding stronger demand,
the hiring cycle remains elongated, and high-end skill sets are still difficult to find. Bill rates and pay rates
have gone largely unchanged since November but remain above their year-earlier levels. Looking
forward, New England staffing contacts are generally more upbeat than they were three and six months
ago, with many expecting their rate of growth to pick up through the end of 2012.
Commercial Real Estate
Commercial real estate contacts around New England describe leasing fundamentals as largely
unchanged since the last report, although some note modest positive developments. One Boston contact
reports that some tenants are increasingly willing to pay top dollar for prime office space in Boston’s
Back Bay, but cautions that such instances do not necessarily reflect a broad-based increase in office
demand in greater Boston. Another Boston contact describes the city’s office leasing market as mostly
flat, but grants that rents may have increased marginally in recent months. A Providence contact is more
I-3
upbeat, noting a healthy increase in deal volume and significant office absorption since the last report. By
contrast, office leasing volume slowed somewhat in both Portland and Hartford relative to December. For
retail space, Hartford’s vacancy rate held up better than expected despite weak holiday sales at some large
chains, while in Portland some long-vacant retail properties have seen a rise in inquiries by potential
tenants. Greater Hartford’s industrial market also saw a modest uptick in tenant inquiries in recent weeks,
including signs of life in the area’s moribund warehousing and distribution sector.
Boston continues to experience a surge of multifamily construction activity, with several large
projects under way and more in the planning stages. Financing for such projects is available on attractive
terms, with interest rates dipping below 4 percent in some cases. While investors and lenders are bullish
on the multifamily sector and apartment rents have risen significantly in Boston in the past year, some
contacts see a risk of overbuilding. Boston’s science and technology sector is generating significant buildto-suit construction of laboratory/office space. At the same time, speculative office construction remains
non-existent across the area, and one contact estimates that office vacancy rates would have to fall below
4 percent in Boston to warrant the creation of new office structures. While office construction is limited,
the investment sales market for prime Boston office properties remains robust amid a highly liquid
financing environment. Echoing similar comments in recent reports, however, some contacts perceive that
sales prices for prime Boston office properties are too high in relation to expected fundamentals.
The outlook among contacts is tilted toward optimism. One Boston contact continues to expect
only very slow improvement in leasing fundamentals in 2012, while another sees greater upside potential.
Another contact expects Boston’s multifamily construction boom to last another two to three years, but
beyond that sees few prospects for any new construction activity. Our Providence contact expects solid
improvement in fundamentals in 2012, barring risks to growth from local fiscal troubles and a possible
spike in oil prices. The outlook in Hartford is moderately optimistic, but based more on sentiment than
recent data. Portland’s commercial market is expected to improve slowly in 2012, although prime office
properties may see more robust gains.
Residential Real Estate
Sales of single-family homes and condominiums increased in New England in January, with most
reports indicating low to moderate growth in sales compared to a year ago. Contacts say recent sales
growth reflects market activity more accurately than in previous reports, when year-over-year increases
were distorted by the expiration of the tax credit in mid-2010. Meanwhile, the median sale price of homes
in First District markets declined compared to a year ago, which contacts attribute to distressed property
sales. Concerns surrounding the impact of labor market conditions on housing demand have abated
slightly. Respondents note foreclosures and delinquencies continue to affect the housing market
significantly, but say these factors play less of a role in New England than in other parts of the country.
Contacts expect low mortgage rates and improving employment outlooks to help fuel buyer activity. In
the Greater Boston area, rent pressures coupled with low interest rates may push more buyers into the
home and condo market.
Contacts expect to see continued year-over-year growth in home sales in the region, but do not
anticipate significant improvements in the near term, with prices remaining flat at best. Contacts also note
that exceptionally mild winter weather may prompt spring sales activity to begin earlier than usual.
II-1
SECOND DISTRICT--NEW YORK
The Second District’s economy has expanded at a somewhat slower pace since the last
report. Labor market conditions have been little changed in early 2012. Prices remain relatively
stable, although business contacts in various industries indicate some increase in cost pressures.
Manufacturers report further improvement in general business conditions since the last report.
Retailers indicate mixed sales results for early 2012, though auto dealers indicate some slowing.
Tourism activity has strengthened somewhat since the last report. Home sales have been steady to
slightly softer since the start of the year, but the rental market has continued to improve. Commercial
real estate markets have been mixed but slightly improved, on balance. Finance-sector bonuses are
reported to be down considerably from last year’s levels. Finally, bankers report increased loan
demand, some further tightening in credit standards for commercial borrowers, and lower
delinquency rates across all categories of loans except home mortgages.
Consumer Spending
Retailers report mixed sales results for January and early February. One retail contact in
upstate New York reports strong sales in January, buoyed by continued strong demand from
Canadian shoppers. By contrast, another major retail contact indicates some slowdown in sales, with
mild weather hampering sales of winter gear in particular. Retailers report that prices continue to be
stable overall. Auto dealers in upstate New York report that sales activity slowed in January, despite
unseasonably mild weather. Sales of new vehicles were down 3-5 percent from a year earlier, though
the weakness was not quite as pronounced as the figures suggest because January 2011 was a
particularly strong month for comparison. Inventories and product availability have improved and
are no longer much of a factor in restraining sales. Rochester-area dealers report continued strength
in used car sales, but dealers in the Buffalo area describe such sales as sluggish. Wholesale and retail
credit conditions remain favorable.
II-2
Consumer confidence continued to rebound in January. Both the Conference Board’s survey
of residents of the Middle Atlantic states (NY, NJ, PA), and Siena College’s survey of New York
State residents show confidence rising for the third straight month and reaching its highest level since
last spring. Tourism activity has strengthened since the last report. New York City hotels report that
occupancy rates continued to run moderately ahead of a year earlier, with room rates up modestly.
After a sluggish December, Broadway theaters report that attendance and revenues surged more than
30 percent above year-earlier levels in January—apparently boosted by a combination of
unseasonably mild weather and a larger number of shows now running. Business appears to have
remained relatively robust into the first half of February.
Construction and Real Estate
The home sales market has been mixed but, on balance, slightly softer since the last report,
while the residential rental market has continued to firm. Northern New Jersey’s home sales market
has stabilized but has yet to show any significant signs of a pickup; one industry contact surmises
that underlying concern about pending foreclosures and their potential impact on the market
continues to weigh on potential buyers. Apartment rental markets in New York City and northern
New Jersey have continued to strengthen, with effective rents (factoring in the withdrawal of
concessions) up 9-10 percent in Manhattan over the past year. However, New York City’s co-op and
condo market has softened somewhat thus far in 2012: in Manhattan and Brooklyn, apartment prices
have held steady but sales volume has tapered off a bit, while in the other boroughs both home prices
and volume have edged down. On a somewhat brighter note, real estate contacts in western New
York State report continued gradual improvement in home sales activity.
Commercial real estate markets have been mixed but, on balance, somewhat improved since
the last report. Office markets in New York City and on Long Island showed some further signs of
strengthening in early 2012, with vacancy rates drifting down and asking rents increasing modestly.
In contrast, northern New Jersey’s market softened further, as vacancy rates rose to new highs, while
II-3
asking rents drifted down. In Westchester and southwestern Connecticut, asking rents rose, even as
office vacancy rates climbed to a multi-year high. Across upstate New York, office markets were
mostly steady, though vacancy rates declined in the Albany area.
Other Business Activity
A major New York City employment agency specializing in office jobs reports little change
in labor market conditions thus far in 2012; hiring activity and salaries remain flat. Uncertainty
about the economic and regulatory outlook is said to be restraining hiring in the financial sector. An
authority on New York City’s securities industry indicates that Wall Street compensation remains
under downward pressure and that bonuses are down 30 percent or more from last year’s levels.
Manufacturers across New York State report increasingly widespread improvement in business
conditions in early 2012 and report steady growth in new orders, shipments and employment. Nonmanufacturing contacts report a modest pickup in business activity and employment since the last
report; both were reported to be flat during the final months of 2011. Manufacturers continue to
report modest increases in both selling prices and prices paid. Non-manufacturing contacts also
indicate modest increases in their selling prices but more widespread hikes in prices paid for inputs.
Financial Developments
Small to medium-sized banks report an increase in demand for all loan categories except
consumer loans, for which demand was little changed. Bankers report a particularly widespread
increase in demand for residential mortgages. Respondents also indicate a continued increase in
demand for refinancing. Bankers’ responses suggest a tightening of credit standards for commercial
mortgages and commercial and industrial loans but no change for the other loan categories. No
banker reports an easing of standards in any category. Respondents indicate a decrease in spreads of
loan rates over costs of funds for all loan categories. Bankers also note decreases in average deposit
rates. Bankers’ responses point to steady delinquency rates on home mortgage loans but decreases in
delinquencies for all other loan categories.
III - 1
THIRD DISTRICT – PHILADELPHIA
Overall, business activity in the Third District has grown at a somewhat faster pace
compared with the previous Beige Book. The overall sentiment has been more positive, although
the very mild winter weather may have played a part. Since the last Beige Book, manufacturing
activity has grown further with more broad sectors contributing to the gain. Retail sales
maintained steady year-over-year increases. Motor vehicle dealers experienced unseasonably
strong sales growth overall; however, results varied by state. Third District banks have reported
slight growth in lending and continued improvement of credit quality since the last Beige Book.
New home construction started the year strong with the warm weather assist. Commercial real
estate contacts continued to report steadily improving markets for industrial, retail, and office
space. Overall, service-sector firms reported continued growth. Price pressures have remained
contained for most sectors, with little change from the last Beige Book.
Most firms have expressed a brighter outlook since the last Beige Book. Manufacturers
anticipate rising shipments and orders during the next six months. Retailers expect slightly
stronger sales, and auto dealers are increasingly confident that the current surge in sales will
carry into the spring selling season. Banking, real estate, and service-sector firms continue to
plan for slow growth in 2012. In general, contacts seemed to prefer talking about recent positive
trends rather than reiterating their uncertainty. However, their concerns continue to include the
ongoing slow housing recovery, Europe’s economic problems, and federal budget indecisions.
Manufacturing. Since the last Beige Book, Third District manufacturers have reported
further increases in new orders and shipments. Gains were widespread among the makers of food
products, lumber and wood products, primary metals, instruments, and electronic equipment. A
supplier to the broad industrial market stated that demand accelerated over the past several
months and that the production capacity of many manufacturing clients was picking up. Contacts
also reported that work was returning from overseas and that foundries were reaching capacity.
The primary metals sector reported strong demand from the automotive and heavy equipment
sectors. Among the makers of instruments and of electrical machinery, some contacts indicated
that the level of demand seen recently has been the highest since near the beginning of the
recession. Even the housing sector contributed to slight upticks in demand, according to contacts
from two firms that produce housing-related products.
III - 2
About nine out of 10 Third District manufacturers expect business conditions to improve
or stay the same during the next six months; most expect their business to increase. This
optimism permeates nearly every broad manufacturing sector. Increasingly, our contacts cite
signs of stronger economic growth, although some of the expected increase reflects seasonal
trends. Risks from Europe’s problems and constraints from a weak housing market continued to
add uncertainty to the outlook, according to some contacts. Expectations of capital spending and
future hiring have strengthened since the last Beige Book.
Retail. Third District retailers reported little drop-off from the holiday shopping season
— maintaining steady year-over-year sales increases. One industry contact reported better than
normal sales for January; another reported perceptible, gradual improvement. All contacts
conceded that the mild winter weather may have increased activity, although sales of winter
clothes and gear have suffered. Price competition remains tough and shoppers are still very
budget conscious, according to some contacts. Overall, retail contacts were a bit more optimistic
but remain cautious.
Auto sales strengthened further in January and February, especially for Pennsylvania
dealers. New Jersey dealers had a stronger December, which may have pulled sales forward from
January; this was in part due to financial-sector workers spending their year-end bonuses. The
outlook for auto sales remains very strong. Industry contacts indicated that some larger dealers
have begun hiring, mostly in sales. More hiring is expected if robust sales continue into the
spring season.
Finance. Overall, loan volumes were flat to up slightly in the Third District since the
previous Beige Book. The issuance of home equity lines and home mortgages, including
refinancing, increased the most, although some contacts were unwilling to write 30-year
mortgages at the current low rates. Commercial real estate and C&I lending remained flat.
Banking contacts reported low demand for some lines and early paydowns in others. Overall,
credit quality continued to improve. One financial contact reported that the pace of loans going
into delinquency has slowed, although the rate being resolved by foreclosure or workout
remained flat.
Real Estate and Construction. Residential builders reported strong activity and sales in
January and early February. One Pennsylvania builder said it was the strongest January in
several years. A New Jersey builder closed deals that had been initiated in November and then
III - 3
dragged through December; the builder also reports a good backlog of sales. The mild winter
weather helped with production and may have boosted traffic. Contacts cited a more active resale
market as a positive trend but expressed concern over higher gas prices and increased
compliance costs in the mortgage market. A residential broker also reported a stronger January
than last year. Builders reported hiring some sales staff. The outlook among builders and brokers
is modestly more positive. However, a broker cautioned that increased sales activity will first
spur the shadow inventory to emerge and add to the active inventory, before the active inventory
can begin to shrink.
Brokers and managers of nonresidential real estate have reported generally improving
conditions for industrial, retail, and office space since the last Beige Book. The industrial market
remains strong, and gains are spreading to the weaker South Jersey market area. High-end and
low-end retail markets are especially strong. Mid-value retail, including grocery stores, which
often locate in community shopping centers and street retail properties, is struggling, producing
higher vacancies. Office market contacts reported that signs of pent-up demand are emerging that
will lead to positive net absorption by year’s end. The overall outlook for nonresidential real
estate has improved since the last Beige Book, but growth will remain modest.
Services. Third District service-sector firms generally have reported further growth since
the last Beige Book. A logistics firm reported very strong year-over-year results through the first
six weeks of 2012. Despite some expressed concerns, the contact is hopeful that this strong pace
is maintained or improves when “freight season” begins in March. Though somewhat skeptical
of the sudden surge in confidence and market enthusiasm, one contact quipped, “I won’t fight the
tide!” Advertising dollars are expected to build through the year with the Olympics and the
presidential election. One staffing firm reported a surprising dip in new orders compared with
last year and a shift to short-term orders that are not indicative of growth. The majority of
service-sector firms anticipate growth will steadily improve in 2012.
Prices and Wages. Price levels have remained contained since the previous Beige Book.
Auto dealers and freight shippers still command favorable pricing power. Price pressures are
mixed among manufacturing firms, with some firms unable to pass their higher costs along.
Retailers and homebuilders continue to report tight margins. Wages are reported to be flat, and
some firms have substituted lower cost temporary contract workers to reduce their overall wage
bill. House prices are expected to fall further; however, nonresidential rents are stabilizing and
concessions are scarcer.
IV - 1
FOURTH DISTRICT – CLEVELAND
The economy in the Fourth District grew at a moderate pace during the past six weeks.
Manufacturers reported that business conditions have improved. Activity in residential and
nonresidential construction picked up slightly. Comments by retailers about January sales were
mixed, while auto sales dipped along seasonal trends. Activity in shale gas drilling and
production expanded. Freight transport volume trended higher. And the demand for business
and consumer credit improved slightly.
Our contacts indicated that hiring by manufacturers and energy producers has increased,
though the recruitment of high-skilled workers remains difficult. Reports from staffing-firm
representatives tended toward the negative. Two of our contacts noted a slight decline in the
number of permanent job openings, while others observed a small drop in the number of
placements. Wage pressures were largely contained. Price increases were mainly limited to
metals and to materials and equipment used by energy producers and freight carriers.
Manufacturing. New orders and production at District factories were generally stable or
moderately higher during the past six weeks. A few manufacturers told us that growth was being
tempered by lessening demand from European customers. The majority of our contacts saw a
moderate improvement in output compared to year-ago levels. Manufacturers are cautious in
their outlook and anticipate modest gains in demand. Most steel producers and service centers
reported that shipping volume was trending slightly higher. Demand is being driven by the oil
and gas, transportation, and industrial equipment industries. Steel representatives are cautiously
optimistic about shipments during the second quarter of 2012, and they expect the positive
growth trend to continue. District auto production showed a substantial rise during January on a
month-over-month and year-over-year basis. Increases were attributed, in part, to the abatement
of supply chain issues.
Capacity utilization remains below normal for the majority of our contacts, with little
change expected in the near term. A few manufacturers said that they have been building
inventories to meet approaching seasonal demand; otherwise, inventories were balanced with
orders. Nearly half of our contacts reported that their capital budgets for 2012 will be higher
than in 2011. A slight rise in raw material prices was noted—especially for metals, with
increases being passed through to customers. New hiring by manufacturers has become more
widespread, though the average number of hires per company is fairly low. Those adding to
payrolls found it difficult to recruit professional and high-skilled production workers. Wage
pressures are contained.
Construction. The uptick we saw in single-family home construction toward the end of
last year has abated somewhat. Nonetheless, builders reported that January sales were above
year-ago levels and traffic and inquiries have picked up. Sales contracts were mainly in the
IV - 2
move-up price-point categories. Builders’ outlook for single-family construction can best be
described as uncertain. In contrast, activity in multi-family construction and the conversion of
existing properties to rental units is expected to be strong. One of our contacts noted a
significant upturn in remodeling and maintenance. Little movement was seen in the list prices or
discounting of new homes. A few builders commented that they would like to increase their
spec inventory, but they are unable to obtain financing. Employment and wages were stable.
Activity in nonresidential construction for small to medium-size contractors has
improved during the past few weeks. Inquiries have shown a modest increase, and backlogs are
starting to grow. Construction contracts were primarily with industrial and retail customers.
One contact described pockets of significant activity in large commercial construction projects
across the District, noting particular strength in northeast Ohio. The outlook by small to
medium-size builders has brightened since our last report. One contractor observed that while
business is slowly returning to pre-2008 levels, profit margins are still very tight compared with
this point in past recoveries. Other than rising prices for steel and drywall, the cost of building
materials was steady. We heard two reports about project financing being easier to obtain.
Payrolls were little changed, but they are expected to rise slightly in the near future.
Consumer Spending. Reports on January retail sales were mixed. According to several
of our contacts, the warm winter weather is negatively impacting purchases of seasonal
merchandise. However, products used outdoors, such as sporting goods, are selling better than
expected. Sales for the first quarter of 2012 are generally expected to improve over prior-year
levels, mainly in the low- to mid-single digits. Looking at vendor pricing, reports were also
mixed. Retailers told us that lower costs attributable to declining cotton prices were offset by a
rise in overseas labor costs. Retailers are satisfied with their inventories except for cold-weather
apparel, which is higher than desired. Capital budgets for 2012 will be slightly greater than in
2011 for a majority of our contacts. Outlays will be used mainly for technology enhancements,
remodeling, and new store construction. Payrolls at existing stores were stable.
Auto dealers reported a slowdown in new-vehicle sales during January that followed
normal seasonal trends. On a year-over-year basis, sales were somewhat higher. A few dealers
noted that their inventories are now on the high side but are manageable; others said that
inventories are light. The outlook for 2012 was generally optimistic. However, several of our
contacts were uncertain about whether or not the sales increases seen during 2011 would be
repeated this year. Purchases of used vehicles showed a modest improvement, but inventories
were low and prices elevated. On the financing side, interest rates remain competitive, and at the
same time it is difficult to arrange financing for customers with low credit scores. Auto dealers
looking to hire reported that it is not easy to find qualified candidates, especially sales
representatives and service technicians.
IV - 3
Banking. Demand for business credit was described as either stable or slightly higher.
Any drop-off was attributed to seasonal factors. Requests are being driven by commercial real
estate, including spec building, and healthcare. On the consumer side, most of our contacts said
that installment loan activity is flat, although auto lending (direct and indirect) continued to show
strength. A few bankers reported a decline in the use of credit cards or home equity lines of
credit during January. Some stabilization in interest rates for business and consumer credit was
observed. In the residential mortgage market, real estate appraisals remain on the conservative
side, and a majority of applicants are looking to refinance. No changes were made to loan
application standards. Delinquencies were steady or declined across loan categories. Overall
core deposits grew, with continued runoff from CDs into more liquid assets. Payrolls were
stable, and little hiring is expected in the near term.
Energy. Conventional oil and natural gas drilling and production were generally flat
since our last report, with little change expected in the upcoming weeks. Our contacts attributed
these conditions to eroding natural gas prices and the regulatory environment. Well-head prices
for oil were mainly steady. We heard two reports of energy companies redeploying drilling
resources from dry gas to the wet gas areas of the Marcellus shale in Pennsylvania and West
Virginia. The Ohio Department of Natural Resources has issued 32 Utica shale drilling permits
since January 1 and 39 Utica wells are currently being drilled in Ohio. The outlook for coal
production during 2012 is similar to 2011 levels. However, output may decline due to lessening
demand from electric utility companies and offshore markets. Spot prices for metallurgical and
steam coals continued to decline. Almost all of our contacts reported upward pressure on the
cost of production equipment and materials. Energy payrolls are trending higher, especially in
shale gas. A few small oil and gas producers are experiencing wage pressures brought on by
competition from large firms engaged in shale gas exploration and production.
Transportation. Freight transport volume has been trending higher during the past few
weeks, and for the month of January it was above year-ago levels. Strong demand was seen
from automotive, food, and shale gas producers. Our contacts expect volume to grow at a
moderate pace during 2012. We continued to hear numerous reports about rising prices for parts,
diesel fuel, and other materials. Most of the cost increases were recovered via fuel surcharges
and rate adjustments when contracts came due. Capital outlays reached targeted levels for 2011.
Almost all of our contacts expect to increase their capital budgets during 2012 over prior year
amounts for fleet expansion, replacing aging equipment, and infrastructure improvements. One
executive noted that his capital budget for 2012 will be at a pre-recession level. Operators
reported hiring for driver replacement or adding capacity, although recruiting qualified drivers is
difficult. Some wage pressure exists due to a tightening of the driver pool.
V-1
FIFTH DISTRICT–RICHMOND
Overview. District economic conditions improved in most sectors since our last report.
Manufacturing activity expanded further in January and early February. Retail sales picked up and
shopper traffic moved higher. Revenue growth at services-providing firms slowed, while most tourism
businesses continued to post moderate gains. Likewise, bankers reported that lending to both residential
and commercial customers increased slightly, although the level of demand remained low. Both
residential and commercial real estate contacts cited moderate gains in sales and leasing activity during
the last six weeks, even though the overall level of demand was weak. District employment improved
somewhat, but both manufacturers and professional services firms continued to report problems finding
qualified workers. Both manufacturing and services prices received were up only moderately from our
last report, while prices paid moved significantly higher.
Manufacturing. District manufacturing activity advanced further in recent weeks. An automotive
parts manufacturer reported that sales remained strong, and the recent strength of sales had driven an
increase in his capital spending for equipment. A textile producer saw a general pick up across all sections
of his business. He added that his supply of raw materials was tight, due to the low levels of his suppliers’
inventories at the end of the year. Similarly, an electrical components manufacturer described business as
still reeling from the spillover effects of the flooding in Thailand; he stated that his backlog of orders was
large because his suppliers were unable to fill his orders. A furniture manufacturer cited improvement in
the past few months, noting that his business usually picks up with rising consumer confidence.
Moreover, a fabricated metal producer indicated that business was strong, with January orders and
shipments increasing by double-digit rates over December levels. According to our recent survey, raw
materials prices grew moderately from a month ago, while finished goods prices grew at a slightly
quicker rate than a month earlier.
Retail. Retail sales rose and shopper traffic increased in recent weeks. Big-ticket sales were
generally flat, however, according to most contacts. Auto dealers in South Carolina and Maryland
experienced a slowdown in sales since our last report. In contrast, a car dealer near Washington, D.C. said
that his establishment was hiring more sales associates to handle the increase in customer traffic and
sales. Store managers at big box department stores across the District indicated that sales were steady or
slightly stronger, and remarked that television sales blipped up just before the Super Bowl. However, the
warm winter resulted in mark-downs on a large quantity of winter apparel. A central North Carolina store
manager reported that spring and summer apparel had arrived, but the lingering stock of winter clothing
had left little room on the floor for new merchandise. According to our recent survey, home and garden
retailers reported a pick-up in sales, as did department store wholesalers. Retail prices continued to rise at
a moderate pace since our last report.
V-2
Services. Revenues grew a bit more slowly overall at services-providing firms over the last
month. Contacts at professional, scientific, and technical businesses gave us somewhat mixed reports.
However, an executive at a brokerage firm thought that account statements were “looking better.”
Recruiters in the Carolinas reported increased demand for permanent employees, particularly “technical
talent.” An executive at a nationwide trucking firm stated that freight demand increased over the last
month. Finally, a North Carolina hospital contact reported a major increase in capital spending to meet
new healthcare reform requirements. Prices at services firms moved up at a restrained pace.
Finance. Lending to both residential and commercial customers increased marginally across the
District over the last six weeks. However, the level of demand for loans was often described as weak, and
several bankers were still reporting little change since the end of last year. While most mortgage
applications continued to be for refinancing, loan officers around the District reported a slight increase for
home purchases. Also, the average size of loans increased. One banker in Richmond stated that investors,
taking advantage of low prices and interest rates, were a key source of such mortgage lending in his
market. An official for a large bank also stated that his bank remained very cautious about any consumer
loan application, especially for purchasing a home. On the commercial side, several bankers extended
more merger and acquisition loans. A loan officer for a regional bank said that his bank had increased its
lending for new equipment as well as for refinancing. A Virginia banker reported a slight uptick in
lending for inventory. However, other bankers stated that loan demand in those categories was flat. While
most construction loans other than for multi-family buildings remained limited, several bankers reported
an increase in loans for owner-occupied facilities and their furnishings (mostly to medical professionals).
Credit standards remained tight, but most bankers reported that their lending targets were increasing this
year, even though competition for quality loans was intense.
Real Estate. Residential real estate activity showed modest improvement since our last report.
Indeed, some contacts suggested that the sector had moved beyond the bottoming-out phase. For example,
lower inventory of both new and existing homes was reported in the D.C. and Richmond areas, with some
builders beginning to sell and even build again. A source from North Carolina said that a housing
development was successful due to a “rent-to-own” plan. He added that new construction activity was
also starting to occur in the Research Triangle area. While most Realtors reported that sales were either
flat or up slightly, housing prices generally continued to decline. Several agents attributed the drop in
sales prices, in part, to short or distressed sales being used as comparables. They noted, however, that
many buyers were avoiding short sales and foreclosed homes due to often a six to eight month delay in
closings. Most Realtors cited sales in the low-price range as faring better than sales in the high-price
range. An exception, however, was an agent in the D.C. area, who said that home sales over $1,250,000
were outperforming all other price ranges. He added that he was starting to receive multiple offers that
were well above listing prices, and he expected this trend to continue through the spring selling season.
V-3
Commercial real estate activity improved slightly since our last report, especially for office space.
A Realtor in the D.C. area reported that he had been very busy since the start of this year, but mostly with
inquiries that had yet to turn into closed deals. He added that so far this year government-related activity
was down. A Virginia real estate agent noted that while office building purchases remained weak, some
clients had increased their leasing in hopes of purchasing at a later time. While office rents have stabilized
in most areas of the District, many agents reported that concessions remained widespread. One Realtor
said that, in order to retain struggling tenants, he had been making repairs and upgrades that would
normally be left to the tenant. Retail leasing activity remained mixed, with one agent reporting that anchor
stores at large malls were stable, but small boutiques in the same malls were having difficulty meeting
their rent and some were closing. On the industrial side, data processing and distribution centers were a
positive source of leasing activity, according to several agents around the District. While industrial
demand generally remained weak, several contacts reported some improvement since the start of the year.
An architectural firm reported an increase in demand related to site development, suggesting that
industrial clients might be planning construction starts later this year.
Labor Markets. Assessments of labor market activity were somewhat more upbeat than in our
last report. Several employment agencies stated that demand for temporary workers had increased and
those contacts were optimistic about future demand. A Baltimore agent noted that the demand for temp
workers had definitely increased, and his company was experiencing a pickup in recruitment demand for
skilled and semi-skilled jobs in the manufacturing and distribution sectors. He added that the agency was
beginning to see some upward pressure on wages for manufacturing and distribution center skills, as
finding qualified workers remained difficult. A representative at a Richmond staffing agency reported that
employers were starting to complain that they were not getting enough qualified applicants. He noted that
even with growth in postings, matching of openings with qualified people continued to be challenging.
According to our latest survey, District manufacturing employment improved over the last month, while
wage gains were slightly lower than a month ago. Both retail and non-retail services employment picked
up in recent weeks, while the pace of average wages in the service sector overall increased moderately.
Tourism. Tourism remained generally strong, with some contacts reporting further strengthening
in recent weeks. A contact on the outer banks of North Carolina reported a good start to the year and
strong vacation house rentals, with weekend travel up as a result of good weather. Businesses in that
region expect a good tourism season ahead, supported by such scheduled events as music festivals, bike
races, and marathons. A hotel general manager in the mountains of North Carolina, where weather was
also mild this winter, noted an increase in bookings, and he expected modest growth to continue through
the summer season. Elsewhere, several ski resorts have been adversely affected by the mild Mid-Atlantic
winter, and a resort in western Virginia will cut jobs to reduce costs, according to an executive.
V-4
Agriculture. Unseasonably mild temperatures, coupled with below-normal precipitation held
back crop yields in some areas of the District. In North Carolina, tobacco and cotton yields reached only
50% of historical averages as a result of damage caused by severe weather last summer. In South
Carolina, dry weather late in the season significantly reduced what was previously expected to be an
outstanding cotton crop. Moreover, results of our recent agricultural credit survey indicated that farmland
values were slightly below the previous quarter and year-ago levels. In contrast, ample amounts of rain
throughout Virginia, combined with above-normal temperatures, resulted in above-average yields and
near-record commodity prices for most grain producers. An analyst in the Commonwealth described 2011
as a solidly profitable year for most grain producers due to increased export demand.
VI-1
SIXTH DISTRICT – ATLANTA
Summary. Sixth District business contacts described economic activity as expanding at a
somewhat stronger pace in January and early February compared with late last year. Expectations were
generally more positive, although firms continued to express caution with regard to the outlook.
Retailers noted that sales and traffic increased compared with a year ago and auto sales remained
robust. Hospitality contacts, with the exception of cruise lines, reported strong bookings for this year.
Homebuilders and brokers reported that unseasonably warm weather has helped bolster residential real
estate activity by pulling some activity forward. Nonetheless, overall home sales and construction levels
remained weak apart from the generally robust multifamily sector. Manufacturers and transportation
contacts continued to note positive activity on balance. Bankers reported a modest improvement in loan
activity at larger institutions. More firms reported increased hiring, although contacts continued to
signal they approached hiring decisions very cautiously. Concerns over increased input costs generally
eased as most firms reported that input prices leveled off. Only a few contacts reported having
significant pricing power.
Consumer Spending and Tourism. District retail contacts noted that sales and traffic in
January and early February were up from a year ago. Final holiday sales reports were generally positive
as slightly over half of our retail contacts indicated that sales were better than last year. Roughly half
noted that inventory levels were up slightly compared with last month, and most were satisfied with
current levels. Most merchants expect overall sales to improve over the next three months. Retailers also
expect overall sales to improve modestly over the course of 2012. Auto dealers noted that the warm
weather experienced in January likely boosted sales for the month, and they anticipate new vehicle sales
to continue to improve.
Hospitality contacts reported that tourism activity remained strong and most were optimistic
regarding the outlook for leisure and hospitality spending in 2012. Attendance for major conventions
increased and bookings and lead volume rose, according to business travel contacts. However, there
were concerns about higher fuel costs and the adverse impact it may have on drive-to traffic at regional
tourist destinations. Cruise line bookings have suffered in the wake of the maritime disaster in Italy.
Real Estate and Construction. The majority of District residential brokers reported that home
sales accelerated in January and early February and stand above levels from the same time period last
year. However, reports from Florida brokers were more mixed. Contacts noted that inventory levels
continued to decline on year-over-year basis and home prices were nearly even with a year ago. The
VI-2
outlook among brokers for sales growth continued to improve with most anticipating modest year-overyear gains over the next several months.
Most District homebuilders indicated that new home sales and construction activity growth,
measured year-over-year, increased slightly during January and early February; however, several
contacts noted that unseasonably warm weather in the region likely pulled some activity forward.
Builders continued to report downward pressure on home prices while new home inventories remained
below year-earlier levels. Contacts noted that multifamily construction remained robust. Over the next
several months, homebuilders anticipate new home sales and construction to be flat to slightly up
compared with a year earlier.
Most commercial real estate contacts indicated that conditions continued to improve slowly in
the region. Contractors noted a slight improvement in demand but the market remained very
competitive and activity remained at low levels. Brokers continued to report modest improvements in
demand for space in several parts of the District with some noting that rent concessions had abated. The
outlook among contacts was similar to our last report with most contractors and commercial real estate
brokers anticipating that construction activity will improve slowly during 2012.
Manufacturing and Transportation. Manufacturers across the region noted more positive
results in January and early February compared with previous reports. In particular, firms reported
increased levels of new orders along with improved expectations for future orders. Most contacts also
signaled that inventory levels have risen in line with these improved order expectations. Three major
auto manufacturers announced plans to increase production at their facilities in Alabama and Georgia,
and a foreign automaker also noted that a parts manufacturing facility will relocate to the Sixth District.
Transportation contacts reported that inventory-building trends appeared to be similar to the end
of last year. A freight forwarding company noted that orders were stable and a large railroad firm
continued to report strong increases in auto shipments. Coal inventory levels declined at the end of last
year, but in recent months have exceeded targeted levels as mild weather and low natural gas prices
dampened demand for coal-fired electricity generation. Contacts noted that both imports and exports
have leveled off since the beginning of the fourth quarter of 2011, although trade with Latin America
continued to experience modest growth.
Banking and Finance. Liquidity levels remained high at regional banks as most continued to
experience high deposit balances and soft loan demand. Several large banks noted some growth in
outstanding C&I loans; in part, a result of loan acquisitions from other institutions and continued growth
VI-3
in areas such as energy and healthcare. Bankers also reported increased consumer lending attributed
mainly to auto financing. Contacts remain cautious regarding the economic environment and most are
forecasting low loan growth in 2012, but do not expect further deterioration in capital levels.
Employment and Prices. Firms indicated that hiring expectations going into 2012 are better
than they had been going into 2011. However, many contacts noted that plans to increase profits still
revolved around further efficiency gains from improvements in internal operations. Several businesses
reported plans to increase payrolls because they expect an improvement in sales going forward. They
appeared to have regained their customer base, and these expectations seem to be transmitting into plans
for expansion. Some firms still indicated a preference for contract workers for short-term projects, but
several expressed increased willingness to consider them for permanent positions. Aside from optimism
about future sales, some contacts also reasoned that their current employees do not always possess the
necessary skills, leaving firms with no choice but to hire new workers.
Concerns over increased input costs eased further, although several manufacturing firms did note
an increase in commodity prices since the last report. Few contacts reported having significant pricing
power. According to the firms surveyed in the Atlanta Fed’s January Business Inflation Expectations
(BIE) survey, unit costs were expected to rise 1.8 percent for the year ahead, down slightly from
December expectations. Firms continue to operate in an environment of below normal sales and
depressed margins, according to the survey, though both have been slowly improving since October of
last year.
Natural Resources and Agriculture. Contacts in the energy exploration sector noted that
recent lease auctions have helped stimulate more industry optimism, contributing to an improvement in
investment conditions. Regional gasoline inventories remained above their seasonal norms for this time
of year as national and global gasoline consumption remain relatively soft, although contacts reported
ongoing concern about the impact of geopolitical uncertainty in some OPEC countries on energy prices
going forward.
Significant rains have eased drought conditions in parts of Alabama, Mississippi, and Louisiana,
while parts of Georgia and Florida have seen drought conditions worsen. Mild temperatures throughout
the region are of concern to peach and other fruit crop growers hoping for adequate conditions for the
current growing season. On a year-over-year basis, prices received by farmers were higher for many of
the region’s agricultural products. Contacts reported that some farmers in Alabama and Georgia were
reviewing their planting plans in light of their concerns of labor shortages.
VII-1
SEVENTH DISTRICT—CHICAGO
Summary. Economic activity in the Seventh District continued to expand at a moderate
pace in January and early February. Growth in consumer spending slowed, but business spending
increased. Manufacturing production increased, and construction, while still subdued, was also up.
Credit conditions improved. Price increases slowed, while wage increases remained moderate.
Prices for corn, soybeans, wheat, hogs, and cattle moved higher, while milk prices drifted lower.
Consumer spending. Growth in consumer spending slowed in January and early February.
Contacts indicated that activity was boosted by clearance sales and noted an increase in consumers
turning to discount retailers. There was also some isolated improvement in the luxury segment, with
jewelers and high-end boutiques reporting higher sales. However, the mild winter depressed sales of
apparel and other weather-related items, and contacts noted that many retailers were running heavy
promotions on unsold winter merchandise to make room for spring inventory. Auto sales were up in
January, but down slightly in early February reflecting in part a decline in incentives.
Business spending. Business spending increased in January and early February. Most
retailers indicated their inventories were at comfortable levels. However, a number of auto dealers
continued to report lower than desired levels for some models. Several manufacturers also noted
that they were tightly managing their input inventory levels to avoid being caught off-guard were
commodity prices to decline further or activity slow substantially from the pace of the fourth
quarter. Capital spending increased, with reports of capacity expansions in manufacturing and
renovations of existing facilities in the retail sector. Labor market conditions improved, although
hiring remained selective. A staffing firm reported an increase in growth in billable hours that was
largely driven by gains in industrial and office positions. Contacts indicated that many
manufacturers were increasingly moving away from contracting with temporary agencies to direct
hiring, focusing on higher skilled positions where attracting job candidates has remained difficult.
Long-term unemployment remained elevated. Labor market analysts reported that it was becoming
increasingly difficult for these workers to find a job, and several contacts indicated that they were
hesitant to hire individuals who had been out of work for an extended period of time.
Construction/real estate. Construction activity was up slightly in January and early
February. Multi-family construction continued to be an area of strength. In contrast, single-family
construction remained weak, and homebuilders indicated that it will likely continue to be until home
prices stabilize from their recent declines. Nonresidential construction continued to trend up
VII-2
moderately, although a contact noted a decline in funding for new public infrastructure. Demand for
industrial facilities increased, especially in the automotive sector as suppliers are expanding to meet
the higher pace of vehicle production. Commercial real estate conditions continued to improve with
vacancy rates edging lower from their elevated levels. The demand for office space picked up and
rents increased. In contrast, contacts continued to report excess availability of retail space.
Manufacturing. After a strong close to 2011, manufacturing production increased further
in January and early February. Contacts in the sector remained cautiously optimistic about 2012.
Exporters continued to benefit from advantageous terms of trade, and contacts noted an increase in
interest by foreign manufacturers in moving production to the U.S. as well as increasing utilization
of domestic suppliers. The auto industry continued to be a source of strength. Contacts expected that
auto sales in 2012 would hold near the pace seen in January, which, while still below pre-recession
levels, would mark another year of recovery for the industry. Demand for heavy equipment also
remained strong, led by robust activity in the energy and mining sector. An aging fleet of heavy
trucks and machinery and tightening emission standards for such equipment were noted as reasons
for the likely continued strength in demand in 2012. Manufacturers of specialty metals also reported
solid order books and robust quoting activity. Outside of these industries, however, activity was
again weaker. Manufacturers of household goods and building materials continued to experience
soft demand, although a few noted a small improvement since the beginning of the year.
Banking/finance. Credit conditions were slightly improved from the previous reporting
period. Financial market volatility declined and risk premia moved lower across a number of asset
classes. Improvements in the availability of credit were noted for both subprime auto lending and
commercial real estate, particularly for large apartment buildings. Banking contacts indicated that
loan growth continued at a moderate pace with demand from larger businesses being stronger than
that from small to mid-sized companies. Even though contacts thought the economic outlook was
more positive, they indicated that borrowers and investors remain cautious, citing uncertainty about
future tax code changes and risks abroad, in particular those emanating from Europe. That said,
concerns about Europe were reported to have become milder in recent weeks.
Prices/costs. Cost pressures were largely unchanged in January and early February, but the
volatility of commodity prices remained a concern for many contacts. Natural gas prices remained
at historic lows, while prices increased for fuel and metals such as copper and brass. Raw materials
surcharges declined and lead times shortened with a few exceptions such as carbide and some
hydraulic products. Wholesale price changes were mixed by category, but little changed on balance.
VII-3
Most of the cost increases were being passed on to consumers, but retailers reported that, overall,
pricing power remained limited. Wage pressures continued to be moderate, with most contacts
indicating that wage increases were expected to keep pace with inflation. Contacts continued to
report a shortage of skilled manufacturing workers, and noted that increased competition among
firms had led to some upward pressure on their wages.
Agriculture. Corn, soybean, wheat, hog, and cattle prices rose during January and early
February. Input costs for agriculture continued to increase, led by sharply higher rental rates for
cropland. The increases in these costs have pressured farmers’ margins. In order to offset the risks
of price declines or poor harvests, farmers have been willing to spend more on revenue insurance
policies. Estimates of corn stocks have come down and are below where they were a year ago.
Given current rates of use, the expected supply of corn in stock just before the next harvest is
around three weeks, about as tight as last year. Cattle operations are working to build herd sizes,
even though bid prices for cattle are very high. Contacts expected farmers to boost their capital
expenditures in 2012 compared with 2011.
VIII-1
Eighth District - St. Louis
Summary
Economic activity in the Eighth District has continued to expand at a modest pace since the
previous survey. Manufacturing activity has continued to increase, and activity in the services sector has
also increased. Residential real estate activity has continued to decline, while commercial real estate
market conditions have been mixed. Overall lending at a sample of large District banks saw little change
during the fourth quarter of 2011.
Consumer Spending
Contacts reported that retail sales in January and early February were up slightly, on average,
over year-earlier levels. Half of the retailers saw increases in sales, while 37 percent saw decreases and 13
percent saw no changes. Roughly 71 percent of the retailers reported that sales levels met their
expectations, 17 percent reported that sales were below expectations, and 12 percent reported that sales
were above expectations. About 21 percent of the retailers reported that their inventories were too high,
while 12 percent reported that their inventories were too low. The sales outlook for March and April was
mostly optimistic: 65 percent of the retailers expect sales to increase over 2011 levels, while 13 percent
expect sales to decrease and 22 percent expect sales to be similar to last year's sales.
Car dealers in the District reported that sales in January and early February were up slightly, on
average, compared with last year's sales. About 48 percent of the car dealers surveyed saw increases in
sales, while 32 percent saw decreases and 20 percent saw no changes. Twenty-eight percent of the car
dealers reported that used car sales had increased relative to new car sales, while 24 percent reported the
opposite. Thirty-two percent of contacts reported an increase in sales of low-end vehicles relative to highend vehicles, while 8 percent reported the opposite. Thirty-two percent of the car dealers surveyed
reported that their inventories were too low, while 24 percent reported that their inventories were too
high. The sales outlook for March and April was mostly optimistic: 76 percent of the car dealers expect
sales to increase over 2011 levels, while just 4 percent expect sales to decrease and 20 percent expect
sales to be similar to last year's sales.
VIII-2
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 or decrease operations. Firms in the furniture, automobile, food, stone
product, air conditioning component, and medical device manufacturing industries announced plans to
increase existing operations and hire new workers. Additionally, firms in the automobile parts and
primary metal manufacturing industries announced plans to open new plants and hire workers. In contrast,
firms in the faucet, chemical, paper product, and lawn mower manufacturing industries announced plans
to close plants and lay off workers.
Activity in the District's services sector has continued to increase since our previous report. Firms
in information technology services, pest control services, distribution services, health services, and leisure
services announced plans to expand operations and hire new workers. In contrast, contacts in freight
transportation services, education services, government services, and business support services announced
plans to decrease operations and lay off workers.
Real Estate and Construction
Home sales continued to decline throughout most of the Eighth District. Compared with 2010,
total 2011 home sales were down 2 percent in Memphis, 3 percent in St. Louis, 4 percent in Louisville,
and 6 percent in Little Rock. Residential construction also continued to decrease throughout the District.
Total 2011 single-family housing permits decreased in the majority of the District metro areas compared
with 2010. Permits decreased 15 percent in Louisville, 20 percent in Little Rock, and 21 percent in
St. Louis. However, permits increased 1 percent in Memphis.
Commercial and industrial real estate conditions were mixed throughout the Eighth District.
Contacts in Memphis reported weak commercial real estate loan demand but stable industrial real estate
activity. Contacts in Louisville reported that commercial real estate activity has increased since December
2011 while contacts in St. Louis noted an increase in fourth-quarter 2011 office and industrial vacancy
rates compared with the third quarter of 2011. Commercial and industrial construction also varied
VIII-3
throughout the District. Contacts in south central Kentucky noted that commercial construction is
showing improved activity with recent business additions and relocations in the region. Contacts in
western Kentucky, however, noted that construction projects are very scarce, with the exception of
Owensboro-Daviess County, which has a significant number of public and private projects underway.
Contacts in northwest Arkansas noted an increase in commercial building construction in the Bentonville
area, while contacts in Little Rock continued to report overall weak construction activity.
Banking and Finance
A survey of senior loan officers at a sample of large District banks showed little change in overall
lending activity during the fourth quarter of 2011. During this period, credit standards and demand for
commercial and industrial loans remained unchanged. Credit standards for commercial real estate loans
also remained unchanged. Demand for these loans ranged from unchanged to moderately stronger.
Meanwhile, credit standards for consumer loans remained unchanged, while demand ranged from
moderately weaker to about the same. Credit standards for prime residential mortgage loans ranged from
unchanged to somewhat eased, while demand for these loans ranged from about the same to moderately
stronger.
Agriculture and Natural Resources
Yields for corn, sorghum, hay, soybeans, and cotton were lower in 2011 compared with 2010,
while yields for winter wheat, rice, and tobacco showed positive gains. Monthly output of commercial red
meat for December 2011 decreased compared with November 2011; the District’s total live weight and
number of chickens slaughtered also decreased during the same period. The District’s coal production for
January 2012 was 1 percent lower compared with January 2011. Similarly, as of early February, year-todate coal production was 4.2 percent lower than the same period in 2011.
IX-1
NINTH DISTRICT--MINNEAPOLIS
The Ninth District economy grew at a firm pace since the last report. Strength was noted in
consumer spending, professional services firms, commercial and residential real estate and
construction, manufacturing, energy and mining, and agriculture. Lack of snowfall reduced
tourism activity. Some more firms announced plans to expand hiring, while wage increases
were modest. Overall prices were level, but some increases were noted.
Consumer Spending and Tourism
Consumer spending was solid. Same-store sales at a Minnesota-based retailer increased
about 4 percent in January compared with a year ago. A Minneapolis area mall manager
reported relatively strong traffic during January. A Minnesota-based restaurant and bar
chain reported that same-store sales were off to a good start in January and February. A
fast food chain recently announced plans to add more restaurants in Minnesota. A
representative of an auto dealers association in Montana noted that recent vehicle sales
were higher than a year ago and that availability of new and used cars has improved.
Repair shops in eastern Montana were very busy repairing oil-drilling-related vehicles.
However, due to the surprisingly mild winter, many District auto repair shops reported a
decrease in business because of fewer snow- and ice-related accidents.
Tourism was down due to low snowfall in much of the District. The lack of snow
in Minnesota and Wisconsin has stymied snowmobiling and cross-country skiing.
Snowmobile dealerships reported a sharp drop in sales from a year ago. However, a
Minnesota travel company reported strong demand for both corporate and leisure travel
in January; interest in traveling to Europe and other overseas destinations was up.
Another travel agency noted that recent corporate travel sales were up almost 25 percent
compared with a year ago.
Construction and Real Estate
The unusually warm weather aided construction activity. The value of commercial
building permits in the Sioux Falls, S.D., area was up in January from January 2011. A
major Minnesota-based commercial real estate company expects more construction of
retail and warehouse structures. Residential construction increased from a year ago. The
value of residential building permits increased significantly in the Sioux Falls area in
January. The number of single-family building permits increased in Minnesota and North
IX-2
Dakota in December 2011, compared with December 2010. Multifamily construction in
the Minneapolis area is in a “boom,” according to a major real estate firm.
Commercial real estate market activity increased. A large warehouse property
manager noted increased transaction activity over the past few months. A major
Minnesota-based broker noted increased leasing of office space. Home sales in January
were up from the same period a year ago in the Minneapolis-St. Paul area, and the
inventory of homes for sale continued at low levels. Several brokers noted that the low
end of the market appeared to shift to a “sellers’ market.” The multifamily market
continued to strengthen in the fourth quarter of 2011 as rents increased and vacancy rates
decreased in many markets, according to a real estate research firm.
Services
Activity at professional business services firms increased at a solid pace since the last
report. Of the 33 firms that responded to a mid-February ad hoc survey, 63 percent saw
revenues increase over the past three months, while only 16 percent experienced revenue
drops. Over the next three months, 59 percent expect increased revenues and only 6
percent expect sales to drop. A human resources consulting firm noted increased activity
with “more proposals and opportunities.” An architectural firm noted increased activity
and demand, but said the competition remains “fierce.”
Manufacturing
District manufacturing expanded at a firm pace. A January survey of purchasing
managers by Creighton University (Omaha, Neb.) found that manufacturing activity
increased in Minnesota and the Dakotas. An electrical equipment producer is opening a
new facility in Minnesota. An aerospace firm announced plans to locate a plant in
Montana. A producer of automotive cooling systems is expanding operations in South
Dakota.
Energy and Mining
Activity in the energy and mining sectors continued at strong levels. District oil and gas
exploration increased since the last report. In Montana, construction began on what will
be the state’s largest wind energy development. In addition, regulators in Montana
approved an $86 million wind energy project. Iron mines in northern Minnesota were
operating at near capacity. A Canadian mining company discovered large iron and
titanium deposits near Duluth, Minn., but any mining operations are several years away.
IX-3
Agriculture
Agriculture remained strong. January prices received by farmers for corn and cattle
increased. Prices declined somewhat for wheat, soybeans, hogs, dairy products, eggs and
poultry, but all prices were above their January 2011 levels. According to preliminary
results from the Minneapolis Fed’s fourth-quarter (January) survey of agricultural credit
conditions, 67 percent of District lenders reported that farm incomes increased in the
previous three months; 10 percent reported decreases. However, drought conditions
spread in Minnesota, the Dakotas and District portions of Wisconsin. Low snowfall
combined with erratic temperatures were having an uncertain effect on the District’s
winter wheat crop.
Employment, Wages and Prices
Some more firms announced plans to expand hiring. An airplane manufacturer
announced plans for a new facility in northwestern Wisconsin that will initially create
300 jobs. A marketing company plans to expand its operations in Minnesota and
eventually hire 200 more workers. Also in Minnesota, a clothing supplier will add 150
employees at a new facility, and a boat manufacturer expects to rehire former employees
laid off during the recession.
However, some employment cutbacks were announced. A Minnesota-based food
retailer will cut about 200 jobs at the company’s headquarters. A bank will lay off almost
70 employees at an auto-debt-collection unit in South Dakota.
Wage increases were modest. Workers at two food operations recently agreed to a
new contract that includes some wage increases over a five-year period. Bank directors
recently reported that business contacts expected wage increases between 2 percent and 3
percent in 2012 compared with 2011 after remaining level over the past couple of years.
Larger increases were noted in the oil-drilling area of western North Dakota and eastern
Montana, particularly for welders who were in short supply.
Overall prices were level, but some increases were noted. Minnesota gasoline
prices were up 15 cents per gallon since early January. Bank directors noted that health
insurance costs were up between 6 percent and 8 percent over a year ago, with some
reports of steeper increases.
X-1
TENTH DISTRICT - KANSAS CITY
The Tenth District economy expanded moderately in January and early February. Despite
a seasonal decline, consumer spending was stronger than expected and retailers anticipated rising
sales in coming months. District manufacturing activity rebounded with stronger expectations for
production, hiring, and capital spending. Residential and commercial real estate activity
improved, and District contacts were optimistic regarding spring sales and construction activity.
District banks reported steady loan demand and improved loan quality. Agricultural growing
conditions improved with recent precipitation, and farmland values soared with high commodity
prices. High crude oil prices fueled a rebound in District drilling activity with further gains
expected during the next three months. More contacts reported passing higher raw materials
prices through to finished goods prices. Many District contacts planned to hire additional
workers during the next quarter. Still, wage pressures remained largely subdued except for
specialized positions in high-tech and energy industries.
Consumer Spending. Consumer spending weakened in January and early February but
was expected to rebound in the months ahead. District retailers reported a slowdown in sales
after the holidays as consumers shopped for bargains. Still, store owners noted sales exceeded
expectations by rising above year-ago levels and many remained optimistic that sales would
improve in the coming months. Clearance items moved quickly, and appliance sales ticked up
while demand for furniture and electronics was weak. Auto dealers reported a post-holiday lull in
sales that boosted inventory levels, especially for SUVs and more expensive car models.
However, auto dealers expected stronger demand for smaller, fuel efficient cars would spur sales
in the coming months. Some dealerships were hiring salespeople and service technicians.
Restaurant sales were down from the previous survey but remained higher than year-ago levels
and were expected to pick up with warmer weather. Tourism activity slowed after the holidays
and below-average snowfall hurt bookings at Colorado ski resorts. District hotel owners,
however, reported an uptick in occupancy at slightly higher average room rates and expected
business to strengthen further during the next three months.
Manufacturing and Other Business Activity. Manufacturing activity rebounded, and
sales at high-tech service firms rose sharply while transportation activity edged down in the
survey period. Manufacturing activity expanded at both nondurable and durable goods factories,
X-2
particularly those producing chemicals, fabricated metals, and aircraft equipment. After falling in
late 2011, the volume of new orders and shipments rebounded in January and February and
finished goods inventories held steady with increased production. Plant managers expected
production, hiring, and capital spending to strengthen during the next six months. The high-tech
industry reported a sharp increase in sales, and some contacts were worried about losing future
business due to a shortage of specialized labor, particularly software developers. Transportation
activity slowed further but was expected to improve in the months ahead. Trucking firms
remained concerned about high fuel costs and a lack of qualified drivers.
Real Estate and Construction. Residential and commercial real estate activity picked
up in January and early February. Existing home inventories declined as lower prices spurred a
modest increase in sales, particularly for low- and mid-priced homes. Real estate contacts
expected that a seasonal upswing in sales this spring would stabilize home prices in the coming
months. Residential mortgage lenders reported an uptick in loans for home purchases and higher
average loan amounts while home loan refinancing activity was expected to slow further.
Residential lot prices fell further, and new home starts were on par with year-ago levels. Builders
planned to ramp up construction in the coming months and sales rose at building supply firms.
New commercial construction increased and was expected to rise further with more projects in
the pipeline. Commercial real estate prices and rents dipped during the survey period but were
expected to firm as vacancy rates improved. After edging up in January and early February,
commercial real estate sales were expected to strengthen further during the next few months.
Developers reported little change in access to credit.
Banking. In the recent survey period, bankers reported generally steady loan demand,
slight improvements in loan quality, and a modest increase in deposits. Most respondents
reported steady loan demand for commercial and industrial loans and commercial real estate
loans. However, loan demand was slightly weaker for consumer installment loans and residential
real estate loan demand softened with slower home mortgage refinancing activity. Bankers
reported that interest rates on commercial and industrial loans declined further. Credit standards
remained largely unchanged in all major loan categories, and most respondents reported stable or
increased deposits. The majority of bankers reported improved loan quality compared with a year
ago, and many bankers expected loan quality to improve further during the next six months.
X-3
Agriculture. Agricultural growing conditions fluctuated with precipitation levels. After
warm, dry weather in January, recent precipitation kept agricultural growing conditions from
deteriorating further. The winter wheat crop remained in fair to good condition. Soil moisture
levels were low across the District with western Oklahoma and Kansas experiencing severe
drought. Ranchers in the southern Plains continued to liquidate herds due to poor pasture
conditions and record high cattle prices. In the northern Plains, the lack of harsh winter weather
allowed cattle feedlot operators to reduce feed usage and still maintain livestock growth. District
contacts expressed concerns about 2012 profit margins due to rising feed, fuel, and fertilizer
costs. Still, a rebound in crop prices fueled additional gains to record high farmland values and
more bankers expected farmland prices to move higher in the next few months.
Energy. Energy activity rebounded in January and early February and District contacts
expected additional expansion in coming months. After slowing at the start of the year, District
drilling rig activity rebounded with higher crude oil prices. Energy contacts, however, noted that
a lack of equipment and services and qualified labor were constraints on current drilling activity.
District contacts expected crude oil and natural gas prices to hold at current levels and
anticipated further expansion in oil drilling activity. Bucking national trends, Wyoming’s coal
production rose above year-ago levels in January and early February. Ethanol profits dropped
sharply as ethanol prices declined with the year-end expiration of the federal ethanol subsidy.
Wages and Prices. Wage pressures remained low during the survey period, and more
contacts reported raising finished goods prices in light of higher raw materials costs. More
businesses planned to hire workers during the next three months, and contacts in low- and
moderate-income communities reported a slight improvement in job opportunities. However,
most firms did not plan to raise wages except for specialized positions, particularly in the hightech and energy fields. After edging up during the past survey period, more retailers expected to
raise selling prices over the next three months. Restaurateurs expected further increases in menu
prices due to soaring food costs. Hotel operators planned to increase room rates with higher
occupancy rates. Manufacturers paid higher prices for raw materials, and more manufacturers
planned to pass on higher costs to finished goods prices. Builders and construction supply
companies noted rising prices for construction materials, especially drywall and asphalt shingles.
Transportation companies paid high fuel prices, and some were raising shipping rates.
XI-1
ELEVENTH DISTRICT—DALLAS
The Eleventh District economy continued to grow at a moderate pace, and outlooks were more
positive than in the last report. Manufacturers reported increased activity. Demand for business services
was solid, and activity in transportation services rose modestly. Housing and commercial real estate
markets continued to improve. Overall building activity remained subdued, with the major exception
being robust multifamily construction activity. Contacts said retail sales growth was tepid and automobile
sales held steady. Financial services respondents said overall loan demand edged up. Energy activity was
strong, and agricultural conditions improved. Employment levels were flat to up slightly. Price and wage
pressures were modest.
Prices Contacts across most industries said prices held steady. The exceptions were some
producers of transportation equipment, fabricated metals and food who noted slight increases in selling
prices to partially offset higher input costs. Airlines reported higher fares, and shipping firms noted an
increase in express package and freight delivery rates.
The price of WTI was near $100 per barrel during the reporting period. Natural gas prices fell
from $3 per thousand cubic feet in early January to near $2.50 in mid-February. Gasoline prices rose by
about 22 cents per gallon over the past six weeks, and the price of diesel rose by 7 cents. Prices of
petrochemicals and plastics increased since the last report.
Labor Market
Employment levels were unchanged at most responding firms but some
contacts noted increases. Staffing firms continued to report high levels of demand. Oil services and
machinery firms continued hiring at a rapid pace, and slight employment increases came from some auto
dealers, airlines, and transportation, food and high-tech manufacturers. Shortages of skilled workers
continued to be reported, particularly for the energy industry. Wage pressures remained minimal,
although upward pressure for certain positions such as auto mechanics and software engineers was
reported. Several firms said annual cost-of-living adjustments took effect at the start of the year.
Manufacturing Overall demand for construction-related materials improved, and several
contacts noted that orders were up from year-ago levels. Mild winter weather, robust multifamily
construction and booming oil field activity provided a boost to some producers of lumber, stone, clay and
glass. Fabricated metals manufacturers noted a pick-up in growth since the last report, in part due to
government projects. Producers of primary metals reported a broad-based increase in orders, and one
contact said they were adding a new manufacturing plant. Construction-related outlooks were more
positive than in the last report, and several contacts expect a slight rebound in activity this year.
High-tech manufacturers said orders edged up moderately since the last report. Demand for
semiconductors and other electronic products improved, largely due to a pickup in demand for
XI-2
automobiles, mobile devices and cloud computing. In addition, one respondent noted that retailers of
electronic goods had been paring down inventories in the second half of 2011 and that orders picked up as
retailers ended the inventory reduction. Most contacts expect a gradual improvement in demand over the
next three to six months.
Emergency vehicle, automobile and aviation equipment manufacturers said demand was flat to up
since the last report, and expectations are for strong sales growth this year. Food producers noted an
uptick in orders from the prior report, largely due to stronger consumer demand. Overall conditions in the
paper products sector were mostly unchanged.
Petrochemicals producers reported several large planned and unplanned outages at ethylene and
polyethylene production facilities, which led to a sharp increase in prices. Export demand for
polyethylene and caustic soda continued to trend up, while domestic PVC demand remained weak due to
low levels of housing construction and infrastructure projects. Refiners noted weak demand for petroleum
products nationally, although refineries on the Gulf Coast were seeing slightly higher margins than some
other parts of the country. Contacts noted Gulf Coast refineries were investing heavily on repairs and
maintenance during the current spring turnaround season.
Retail Sales Retailers said overall sales growth was tepid during the reporting period, largely
due to unseasonably warm weather. However, sales of non-seasonal items like menswear and home
furnishings remained strong. Eleventh District sales trended roughly in-line with the nation over the
reporting period, according to three large retailers. Inventories were at desired levels. Contacts noted that
the retail environment had improved, and expectations are for moderate sales growth this year.
Automobile sales held steady from the prior report. The used car market remained tight. Vehicle
inventories were somewhat lighter than normal. Expectations are for moderate increases in new car sales
this year.
Services Demand for business services was solid and outlooks were generally more optimistic
than in the last report. Staffing firms continued to report high levels of demand, noting more direct hires
than temporary placements. Demand for skilled professionals, particularly IT workers was strong, while
orders from the banking sector and demand for clerical staff declined. Legal firms reported steady
demand, with an uptick in corporate activity and continued strength in intellectual property, energy and
real-estate related services. Accounting firms reported strong seasonal demand for tax related services.
Reports from transportation service firms were positive. Air cargo volumes rose, while container
shipments were flat during the reporting period. Railroads noted a broad-based increase in shipments,
with particularly strong growth in petroleum products, motor vehicles and equipment, nonmetallic
minerals, crushed stone, metals and metallic ores. Shipping service firms reported an increase in small
parcel shipments from the prior report.
XI-3
Airlines reported passenger demand improved over the past six weeks. Domestic demand and
travel to Latin America were solid, while travel to Mexico and the Pacific was weak. Contacts said
business travelers remained price sensitive and were purchasing restricted discount fares. Responding
firms expect passenger demand to remain stable over the next three months.
Construction and Real Estate Housing demand continued to firm since the last report. Sales of
existing homes increased moderately and new home sales were flat to slightly up. Some contacts noted
that in January, which is usually a slow month, buyer interest and activity was strong due to favorable
weather and record low interest rates. In addition, a fast-declining inventory of homes was reported.
Respondents expect the positive trend in sales to continue, and outlooks suggest a modest increase in new
home construction in 2012. Apartment leasing activity remained strong since the last report, and
responding firms said Texas markets were outperforming the U.S. average. Investor interest in sales and
development of multifamily complexes continued to increase. The pace of current multifamily
construction was said to be catching up with historical norms.
Nonresidential real estate activity continued to pick up, although construction remained at low
levels. Contacts said recent reports on leasing for office and industrial space suggest moderate gains,
thanks to demand from the energy and high tech sectors. Investment sales activity continued to improve,
in part, due to very attractive interest rates. Contacts were optimistic in their outlooks.
Financial Services Financial firms reported a modest uptick in loan demand. National banks
reported strength in middle-market and large corporate lending activity, and several regional banks noted
energy-related activity was robust. Outlooks were generally more optimistic than at year-end 2011.
Contacts said loan pricing remained moderately aggressive, loan quality continued to improve and
problem loans were declining. Respondents noted they were willing to make loans, and borrowers’
financial positions were reportedly better than last year.
Energy Energy-related service firms reported very strong demand over the past six weeks,
despite a small dip in the rig count due to low natural gas prices. A few gas-directed drilling firms have
announced drilling cuts, but respondents expect oil-directed activity to offset the losses. Oil service firms
expect strong orders, high investment activity and good overall prospects in 2012.
Agriculture Recent rainfall eased drought conditions in several areas, particularly in the
northeastern parts of the District. The rain helped refill stock tanks and benefitted pasture conditions.
Farmers were a little more optimistic about spring planting. Demand for agricultural products remained
strong. Contacts said cattle prices climbed to record levels, largely due to tight supplies. High commodity
prices have helped agricultural producers’ margins, but elevated input costs have erased some of those
gains.
XII - 1
TWELFTH DISTRICT–SAN FRANCISCO
Summary
Economic activity in the Twelfth District continued to grow at a moderate pace during the
reporting period of January through mid-February. Price increases for final goods and services were
limited, and upward wage pressures were minimal. Sales of retail items rose on balance, and demand
improved modestly for business and consumer services. District manufacturing was mixed but appeared
to expand overall. Demand grew further for agricultural producers but was uneven for providers of
energy resources. Activity in District housing markets remained sluggish, and demand for nonresidential
real estate stayed weak overall. Financial institutions reported a small increase in overall loan demand.
Wages and Prices
Upward price pressures remained very limited during the reporting period. While price increases
were reported for some commodities, including oil and assorted construction materials such as cement
and wallboard, declines were noted for others, such as natural gas. Price increases for most goods and
services continued to be restrained by weak final demand and stiff competition among businesses.
Upward wage pressures were quite modest, as high levels of unemployment and limited demand
for new workers kept a lid on compensation gains. However, contacts continued to point to notable
increases in the costs of employee benefits, particularly in regard to defined benefit pension plans,
although they reported slight easing in upward pressures on health benefit costs. Consistent with prior
periods, upward wage pressures remained pronounced for workers with specialized skills in the
application of information technology in assorted sectors.
Retail Trade and Services
Retail sales continued to expand. Modest improvements in sales were reported for general
merchandise such as apparel and smaller household items, with stronger gains noted for traditional
department stores than for discount chains. Demand also improved modestly for retailers of major
appliances and furniture, but it remained lackluster for electronics. Sales held relatively stable for
grocers, although upscale chains saw gains. For retailers of pet products, demand continued to show
XII - 2
robust growth.
Demand for business and consumer services rose a bit on net. Sales grew further for providers of
technology services to businesses and consumers. Similarly, demand for professional services such as
legal services and accounting ticked up on balance. For providers of health-care services, demand was
largely stable, with declines in inpatient admissions and surgeries offset by higher emergency room visits.
Sales activity was reported to be largely unchanged for restaurants and other food-service providers.
Conditions in the District’s travel and tourism industry continued to strengthen, reflecting growth in both
the business and tourism segments of the market.
Manufacturing
Manufacturing activity in the District was mixed but appeared to expand further during the
reporting period of January through mid-February. Manufacturers of semiconductors and other
technology products reported moderate sales gains; reports of ongoing investments in information
technology equipment by firms in most sectors suggest that demand growth is likely to continue for these
manufacturers. For makers of commercial aircraft and parts, strong demand for narrow-body aircraft
along with an extensive order backlog kept production rates near capacity. Activity was essentially flat
for metal fabricators, and slack demand combined with a diminishing backlog have raised concerns that
production activity may decline going forward. Capacity utilization rates for petroleum refiners held
largely stable as robust global demand for distillate products, especially from Latin America, continued to
offset weak domestic demand for gasoline. Output and sales of wood products remained extremely weak.
Agriculture and Resource-related Industries
Demand continued to improve for agricultural products and mined metals, but it was mixed for
natural resources used for energy production. Orders and final sales grew further for most crops and
livestock products, with little or no change indicated for the cost and availability of inputs. Mining
activity in parts of the District expanded further for a variety of precious metals and metallic elements
used for specialized industrial purposes. Strong foreign demand for oil prompted additional increases in
XII - 3
extraction activity. By contrast, warm weather held down demand for natural gas relative to seasonal
norms, causing further declines in recent and planned extraction activity.
Real Estate and Construction
Home demand in the District persisted at very low levels, and conditions were little changed for
commercial real estate. The sales pace for new and existing homes remained quite subdued, although
scattered reports suggested modest improvement. Inventories of available homes stayed quite high,
putting continued downward pressure on prices and construction activity. By contrast, demand for rental
space remained robust, prompting further increases in construction of multifamily units. Conditions in
commercial real estate markets were largely unchanged, and vacancy rates for office and industrial space
stayed high in most parts of the District. However, additional declines in vacancy rates were noted for
selected geographic areas such as the San Francisco Bay Area and Seattle. Contacts also noted recent
improvement in financing availability and investor activity for well-leased office buildings.
Financial Institutions
Reports from District banking and business contacts indicated that loan demand improved a bit
overall compared with the prior reporting period. The volume of new commercial and industrial loans
edged up. The reports suggested that businesses generally remained very cautious in regard to capital
spending decisions, but many continued to invest in information technology equipment aimed at
enhancing productivity. Moreover, many businesses expect to modestly increase their capital spending in
the first half of the year compared with the second half of last year, suggesting that growth in business
loan demand may continue. The reports also noted continued stiff competition among lenders to extend
credit to well-qualified small and medium-sized businesses, placing further downward pressure on loan
rates and fees. Strong recent financial performance by technology companies backed by venture capital
reportedly has spurred further investments of late. On the consumer side, the reports suggested little
change in loan demand. Contacts reported slight improvement in overall credit availability, although
lending standards remained relatively restrictive for many types of business and consumer loans.
Cite this document
Federal Reserve (2012, March 12). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20120313
@misc{wtfs_beige_book_20120313,
author = {Federal Reserve},
title = {Beige Book},
year = {2012},
month = {Mar},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20120313},
note = {Retrieved via When the Fed Speaks corpus}
}