Beige Book
For use at 2:00 p.m., E.D.T.
Wednesday
2FWREHU , 2012
Summary of Commentary on ____________________
Current
Economic
Conditions
By Federal Reserve District
6HSWHPEHU 2012
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
September 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 indicated that economic activity
generally expanded modestly since the last report. The New York District noted a leveling
off in economic activity, and Kansas City indicated some slowing in the pace of growth. In
general, other Districts reported that growth continued at a modest pace.
Consumer spending was generally reported to be flat to up slightly since the last
report. A number of Districts characterized retail sales as expanding at a modest pace, while
reports from New York, Chicago, and Kansas City indicated flat or softening sales. Vehicle
sales were also generally characterized as stable but up from a year earlier and generally at
favorable levels. Used car sales were mixed. Most Districts described tourism as fairly
robust, though Kansas City noted some general softening, while New York and Dallas
indicated some scattered signs of weakening.
Residential real estate conditions improved since the last report. Most Districts
reported strengthening in existing home sales, while prices were described as steady to
increasing, with declining inventories noted in the Boston, Atlanta, Minneapolis, Dallas, and
San Francisco Districts. Residential construction was also described as rising in most
Districts. Commercial real estate markets were mixed since the last report. Office markets
showed signs of softening in the northeastern Districts—Boston, New York, and
Philadelphia—while most other Districts reported stable or mixed market conditions.
Industrial markets showed some strength in the New York, Philadelphia, Cleveland, and
Atlanta Districts, while softer conditions were noted in Richmond.
*
Prepared at the Federal Reserve Bank of New York and based on information collected on or before
September 28, 2012. This document summarizes comments received from businesses and other contacts outside
the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
ii
Conditions in the manufacturing sector were mixed but, on balance, somewhat
improved since the last report. The Boston, Richmond, Atlanta, St. Louis, Kansas City, and
San Francisco Districts reported some expansion in activity, whereas New York, Chicago,
and Minneapolis reported some weakening in activity. The nonfinancial services sector
showed modest improvement in the latest reporting period. Richmond, Minneapolis, Dallas,
and San Francisco reported some expansion in activity, while New York and Philadelphia
indicated steady or mixed conditions.
Overall loan demand was steady to stronger in most Districts. Credit standards were
little changed since the last report, and a number of Districts noted improvements in loan
quality or steady to declining delinquency rates. Agricultural conditions were mixed, with
drought conditions continuing to adversely affect much of the mid-section of the nation.
Activity in the energy sector remained robust.
Districts mostly reported little change in prices of both finished goods and inputs.
Prices for agricultural commodities and petroleum-based products were generally reported to
be higher, while natural gas prices were said to be low or declining. Employment conditions
were little changed since the last report. Several Districts continued to report shortages of
highly skilled workers, but otherwise wage pressures remained modest. Philadelphia,
Cleveland, and Chicago noted increases in the costs of employee medical benefits.
Consumer Spending and Tourism
Consumer spending was mixed but generally reported to be flat to up slightly over the
latest reporting period. Retail sales were said to have improved modestly in the Cleveland,
Richmond, Atlanta, Minneapolis, and San Francisco Districts, while sales were characterized
as flat to softer in the New York and Kansas City Districts. In general, retail sales were
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reported to be running only modestly ahead of a year ago. A number of reports noted various
factors affecting sales, such as rising gasoline prices, political uncertainty, concerns about the
“fiscal cliff” and weather. Atlanta and San Francisco noted that discounters have been
outperforming traditional department stores. Cleveland reported that back-to-school
merchandise sold well, while Chicago said that such sales were below expectations. Boston
noted a pickup in furniture sales, Richmond cited brisk sales at building supplies stores, and
San Francisco reported stronger demand at restaurants and food-service establishments.
Vehicle sales were mixed but generally at favorable levels. Sales of new vehicles
were steady to stronger and running ahead of comparable 2011 levels. Philadelphia, Atlanta,
Minneapolis, and San Francisco described sales as strong, while New York and Chicago
reported some moderation in sales in September, after a fairly strong August. Kansas City
and Dallas reported some softening or leveling off in sales. The Cleveland and Kansas City
Districts noted that crossover SUVs have been selling well relative to less fuel-efficient
vehicles. Sales of used vehicles were mixed, with San Francisco describing them as robust
but New York and Cleveland characterizing them as flat.
Tourism was generally described as steady at robust levels, though there have been
scattered indications of some softening. Boston, New York, Philadelphia, Richmond, Atlanta,
Minneapolis and San Francisco described tourism as strong, whereas the Kansas City and
Dallas Districts indicated some signs of weakening. Even Districts reporting strength noted
some pockets of softening: Boston reported a small drop in advance bookings, New York
indicated a dip in activity in mid-September, Richmond noted a significant drop in
government-sponsored bookings, and Atlanta mentioned disappointing cruise bookings and
on-board spending. The Dallas District noted weakening travel demand from Europe and
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Asia; Atlanta also indicated weakening traffic from Europe but added that Canadian and
Latin American visitors largely picked up the slack.
Real Estate and Construction
Residential real estate showed widespread improvement since the last report. All
twelve Districts reported that existing home sales strengthened, in some cases substantially.
Selling prices were steady or rising. Boston, Atlanta, Minneapolis, Dallas and San Francisco
noted declining or tight inventories, which have put upward pressure on prices. Modest price
increases were reported in the New York, Richmond, Chicago, and Kansas City Districts.
New York and Richmond reported relatively strong demand at the high and low ends of the
market, whereas Philadelphia and Kansas City noted relative strength for mid-range homes;
Boston indicated a shift in the mix toward lower or medium priced homes. New home
construction and sales were more mixed but still mostly improved: increased construction
and/or new home sales were reported in the Atlanta, Chicago, St. Louis, Kansas City, Dallas
and San Francisco Districts. Multi-family construction, in particular, was described as robust
in the Boston, New York, Atlanta, Chicago, and Dallas Districts. Residential rental markets
continued to be characterized as strong, even in the New York and Atlanta Districts where
rents increased somewhat less strongly than in recent months.
Commercial real estate markets were mixed since the last report. Office markets
showed signs of softening in the northeastern Districts—Boston, New York and
Philadelphia—with New York remarking on substantial new supply coming on the market in
early 2013. In contrast, Atlanta, Minneapolis and San Francisco noted some improvement,
while most other Districts reported stable or mixed market conditions. Industrial markets
showed some strength in the New York, Philadelphia, Cleveland and Atlanta Districts, while
v
conditions were described as sluggish in Richmond and mixed in St. Louis. Atlanta noted
weakness in the market for retail space. Commercial construction activity was also mixed:
Atlanta, Minneapolis and Kansas City reported some improvement in non-residential
construction activity, while Richmond and Dallas noted that activity was sluggish.
Manufacturing
Conditions in the manufacturing sector were mixed since the last report, though on
balance, more Districts reported that conditions had improved than worsened. The Boston,
Richmond, Atlanta, St. Louis, Kansas City, and San Francisco Districts reported that activity
expanded, though growth was generally seen as modest. Activity was reported as mixed in
the Dallas District, while the New York, Chicago, and Minneapolis Districts reported that
activity weakened, though declines were mild for the latter two. Significant gains in
manufacturing related to the construction, energy, and transportation sectors were reported
across several Districts, with particularly robust gains tied to the automotive industry. There
were exceptions in the Kansas City and Dallas Districts where manufacturing related to
transportation equipment was reported as mixed.
Steel production was said to be flat in the Cleveland and San Francisco Districts, and
lower in the St. Louis District. Activity related to machinery and equipment was reported as
lower in the Philadelphia, Chicago, and Kansas City Districts. Weaker sales growth in the
high tech industry was reported by Dallas, and Kansas City said that growth among high-tech
firms remained sluggish in its District. The Boston District noted some weakness in the
semiconductor industry, while the San Francisco District said that new orders from the
semiconductor industry had improved. Manufacturing contacts in the St. Louis District were
vi
tentative about the outlook for 2013, and contacts in the Dallas District noted some
uncertainty about the outlook due to the upcoming election.
Nonfinancial Services
Activity in nonfinancial services was stable to slightly stronger since the last report.
The Richmond, Minneapolis, Dallas, and San Francisco Districts reported that service-sector
activity expanded, while such activity was reported as steady in the New York District and
mixed in the Philadelphia District. Richmond noted that business activity strengthened for
professional, scientific, and technical service firms, and Dallas noted strength in energy,
accounting, and audit-related services. There was an increase in activity for a wide range of
consulting services in the Boston and Minneapolis Districts. Activity related to health care
was reported to be stable in the San Francisco District, but increased significantly in the
Boston District. San Francisco reported continued sales growth for a wide variety of
technology services, and noted that demand picked up for restaurants and other food-service
providers.
Reports on goods transportation services generally remained positive. A pick up in
such activity was noted in Cleveland, Atlanta, Richmond, and Dallas, while such activity was
said to be flat in Kansas City. Contacts in the Cleveland, Atlanta, and Dallas Districts
reported strong shipments of automotive, construction, and energy-related products. Port
activity expanded to record levels in the Atlanta and Richmond Districts. Air cargo volume
increased in the Atlanta District, but declined in the Dallas District due to weakness in the
international sector.
vii
Banking and Finance
Overall loan demand increased slightly on net since the last Beige Book report. New
York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and San Francisco reported
stronger loan demand on balance, while Kansas City and Dallas reported flat demand and
Chicago reported somewhat weaker demand. Most Districts reported an increase in mortgage
lending, especially for refinancing purposes. New York, Cleveland, St. Louis, Kansas City,
and San Francisco reported some increase in demand for commercial and industrial loans,
while demand for business loans was weak in Chicago and Dallas, and was characterized as
mixed in Richmond. Demand for consumer credit, particularly for auto loans, was said to be
strong in the Cleveland, Atlanta, St. Louis, Dallas, and San Francisco Districts, while
consumer loan demand was more limited in New York, Richmond, Chicago, and Kansas
City.
Credit standards were little changed since the last report. However, New York noted
some tightening for consumer loans and residential mortgages, while Richmond and Chicago
reported some easing for commercial and industrial loans. Still, loans remained difficult to
obtain for many small businesses in the Cleveland, Richmond, and Chicago Districts.
Banking contacts in the Philadelphia, Cleveland, Dallas, and San Francisco Districts reported
stiff competition among lenders. Philadelphia, Kansas City, and Dallas noted general
improvements in loan quality, and delinquency rates generally held steady or declined in the
New York, Cleveland, and Dallas Districts.
Agriculture and Natural Resources
Agriculture conditions were mixed since the last report. Drought conditions continued
to hurt the agriculture sector in the Chicago District, parts of the Minneapolis District, and
viii
the Kansas City and Dallas Districts. However, agriculture activity was reported as higher in
the Atlanta and St. Louis Districts, as well as in parts of the Minneapolis District, and was
reported as stable in the San Francisco District. The Chicago and Dallas Districts noted that
increased rainfall had improved crop conditions. In the Dallas District, crops were reported to
be mostly in fair to good shape, with production levels ahead of last year but below average
due to ongoing dry conditions. Producers in the St. Louis District reported that crops were
generally in better condition than at the time of the previous report, and harvest rates for corn
and rice were well ahead of their five-year averages. Contacts in the Atlanta District reported
that the rise in some crop prices related to the drought in the Midwest led to an increase in
crop production in the Southeast. Higher feed prices continued to adversely affect livestock
producers in the Atlanta, Chicago, Minneapolis, Dallas and San Francisco Districts, though
the Chicago District noted some easing in higher feed prices which provided a bit of relief.
Activity in the energy sector remained strong, with the Minneapolis, Kansas City, and
Dallas Districts reporting robust gains in activity. The Minneapolis District reported that oil
production hit a new record high in North Dakota, and the Cleveland District reported that oil
and natural gas production held steady. Natural gas exploration was reported as lower in the
Kansas City District and in parts of the Minneapolis District. Coal producers in the Cleveland
District reported declines in production.
Employment, Wages and Prices
Employment conditions were little changed since the last report. The Boston,
Cleveland, Atlanta, Minneapolis, and Dallas Districts indicated that employment levels were
flat or up slightly, with stagnant demand and uncertainty related to the upcoming presidential
election, U.S. fiscal policy, and European debt issues cited by some as restraining hiring. The
ix
New York and Chicago Districts noted weaker labor market conditions, and conditions were
described as mixed in Richmond. Firms in the St. Louis District reported an increase in
hiring plans. Several Districts continued to report that employers were having difficulty
filling highly skilled positions. In response, a few Districts noted that firms were starting to
increase training programs to meet their staffing needs.
Most Districts reported that wage pressures remained modest since the last report,
though an increase in the cost of employee medical benefits was noted in Philadelphia,
Cleveland, and Chicago. To the extent that wage increases were observed, they were
concentrated among highly skilled workers in information technology, health care,
professional services, and some of the skilled trades, according to reports from the Chicago,
Minneapolis, Kansas City, and San Francisco Districts.
Price pressures were said to be contained as most Districts reported that both finished
goods and input prices were little changed since the last report. Higher prices were cited by
some Districts for agricultural commodities and petroleum-based products, although low or
declining natural gas prices were reported in the Atlanta, Kansas City, Dallas, and San
Francisco Districts. Contacts in the Atlanta, Chicago, Kansas City, and Dallas Districts noted
that drought conditions continued to result in higher feed prices. There were scattered reports
of higher crop prices starting to show through to food prices at the consumer level. Atlanta
reported an increase in corn and soybean prices, while Chicago and Kansas City reported that
these prices declined somewhat. Slightly lower prices for some technology-related products
were reported in the San Francisco District.
I-1
FIRST DISTRICT – BOSTON
Reports from business contacts in the First District indicate the region’s economy is expanding at
a modest pace. Most retail and manufacturing contacts report sales or revenue gains from a year earlier,
although the manufacturers say growth is slower than earlier in the year and some have seen actual
declines. Consulting and advertising firms are generally upbeat, with results depending on specific client
industries. Residential real estate contacts note increases in sales and only small changes in median sale
prices. Commercial real estate leasing activity has slowed somewhat, while investment conditions remain
positive. With the exception of a consulting firm that has expanded recently and a manufacturer citing
especially strong growth, responding firms are doing only modest hiring. While contacts in most
industries mention the upcoming election, so-called fiscal cliff, and Europe as risk factors increasing
uncertainty, it is only in commercial real estate leasing that respondents say current activity levels are
measurably damped by such concerns.
Retail and Tourism
First District retailers contacted for this round indicate that sales through mid to late September
are slightly above 2011. Year-over-year sales increases in recent months range from low single-digit to
high single-digit percentage gains, although one retailer reports that its 2012 sales to date are 2 percent to
3 percent below last year’s. Furniture sales have picked up after declining during the summer, while
spending on apparel and household items remains strong. Contacts express some concern that consumer
sentiment could be negatively affected by domestic politics and the fiscal cliff, which increases their
uncertainty about how well the end-of-year 2012 holiday sales season will turn out. While such concerns
lead retailers to expect the U.S. economy will remain flat over the next 6 to 8 months, respondents are
nonetheless cautiously optimistic that their 2012 revenues will end up slightly ahead of 2011 levels.
The Boston tourism industry continues to benefit from a rebound in domestic and international
business travel, although the leisure sector has seen a small drop in advance bookings compared to six
months ago. The tourism industry has slightly downgraded its overall forecast for 2012, but this year’s
performance looks to be the industry’s best since 1999–2000. Expectations are that Boston tourism will
be strong again in 2013, with revenues rising slightly from 2012.
Manufacturing and Related Services
Discussions with manufacturing contacts in the First District paint a picture of an economy that is
growing slowly but, on net, still growing. About half the respondents report a substantial slowdown in
growth or outright fall in sales in the most recent period compared with a year earlier. Three contacts
supplying equipment to factories note weakness in the semiconductor industry, which they say reflects its
idiosyncratic cycle and not the macro economy. A contact in the toy business reports that orders for
Christmas are coming later and later in the year, partly because lead times have shrunk and firms can
order in September for November delivery.
I-2
Not all responding firms report softening. For example, a contact at a pharmaceutical firm says
the company’s growth is strong. The firm plans to hire 1,000 people over the next year, which represents
a 20 percent increase in headcount; the hires will be mostly in sales and marketing.
For the most part, firms reporting weakness indicate it has yet to affect either hiring or investment
substantially. Only about one-quarter of respondents say they are actually cutting staff; for one firm, the
layoffs are in Europe and another firm attributes them at least partly to increased productivity. Several
contacts report that their firms are re-evaluating their benefits structures as a way to conserve cash. No
contact reports making any adjustments or even projecting any adjustments to their capital spending
plans. Indeed, one contact at a semiconductor equipment maker says they are maintaining their long-term
investment plans despite quarter-on-quarter sales declines on the order of 20 percent in the third quarter
which are expected to continue in the fourth.
In general, firms remain somewhat tentative about 2013, although this is partly because they are
currently engaged in their annual “planning cycles” for 2013. One contact in the industrial distribution
business says he expects they will plan for 1 percent to 2 percent growth in 2013, in line with Q3 this
year; by contrast, their 2011 plan for 2012 assumed 5 percent to 6 percent sales growth. One contact in
the publishing business says that they will “continue to thrive on low single-digit organic growth.” Many
contacts say that slow growth is the “new normal.”
Selected Business Services
Consulting and advertising contacts in the First District report a generally positive, although not
exuberant, third quarter. Only one contact cites flat revenues, while the others note varying levels of
growth largely determined by the prospects of their respective client bases. Marketing and advertising
contacts report weaker conditions than consulting firms. They note a large degree of uncertainty in the
market as well as a shift in demand towards services focused on social media and e-commerce. Demand
for health care consulting services has skyrocketed due to “unprecedented” levels of merger and
acquisition activity among health care providers and the need for improved efficiency as a result of the
ACA. At the same time, firms focused on the pharmaceutical industry have experienced slow growth
because their clients have been hurt by blockbuster drugs losing patent protection and cost pressures from
governments. Economic consulting remains strong, reflecting high levels of complex high-stakes
litigation; management and strategy consulting contacts cite a recent upswing in business.
Contacts report little to no cost increases, with the exception of higher travel costs, and are
keeping their prices relatively unchanged. Most contacts record some hiring, mostly in the low single
digits, although one contact in government policy consulting has increased staff by 25 percent since last
year to address a large backlog and ongoing demand growth. Plans for future hiring are modest.
Most contacts expect a continuation of current growth trends for the rest of 2012 and are more
bullish about 2013. Respondents express concern about factors with the potential to slow the macro
economy, such as political uncertainty, the fiscal cliff, and Europe. Several firms rely heavily on
I-3
government spending and are thus especially concerned with the fiscal situation and upcoming election.
Nevertheless, no respondent expects another recession and the overall tone is cautiously optimistic.
Commercial Real Estate
Contacts across the First District report that commercial real estate fundamentals have been
basically flat in recent weeks. Leasing activity is said to be down in Boston as firms say political
uncertainty makes them reluctant to make leasing commitments in advance of the national election. At the
same time, the credit environment remains favorable, as interest rates on commercial real estate loans
remain very low by historical standards. One contact notes that the supply of high-quality commercial
properties for sale has declined recently, and hypothesizes that owners have nowhere better to park their
money right now. Construction activity is proceeding as expected on large commercial projects in Boston.
While the multifamily sector remains strong across the region, with numerous apartment buildings under
construction in Boston in particular, one contact surmises that additional apartment projects under
discussion may be delayed or shelved pending rent discovery once current projects come on line.
Contacts express a mix of cautious optimism and generalized uncertainty concerning the outlook;
the fiscal cliff and Europe are noted as key risks to growth. Some contacts mention a longer-run concern
regarding the consequences of an inevitable eventual increase in interest rates; the risk is that net
operating incomes will not increase enough to offset increased financing costs when loans currently being
underwritten at very low rates require refinancing.
Residential Real Estate
Year-over-year sales growth continued in August in both single-family home and condominium
markets throughout the First District. According to contacts, low interest rates and affordable prices
contributed to improving sales figures, along with increases in residential rents. Several contacts report
improving conditions for borrowers, but many contacts say that qualifying for a mortgage remains
difficult. As for prices, contacts in the region report mixed movements in median sale prices, with some
areas experiencing modest price appreciation and others moderate depreciation. In the Greater Boston
area, contacts say a slight decline in the median sale price was unexpected in light of significant demand
and dwindling inventory levels; they attribute the decline to significant increases in the sales of low to
mid-tier properties. Throughout the region, inventory continues to decline. Contacts say they fear
declining inventory will discourage buyers searching for homes as well as potential sellers who may not
be able to find another well-kept property. Increasingly, properties in “move-in condition” receive
multiple bids, sometimes above original asking prices.
Contacts expect sales to continue to grow on a year-over-year basis in the next several months.
Nonetheless, many note that the recovery remains fragile and could be derailed by deterioration in
economic conditions. Declining inventory levels also remains a concern, but several contacts expect an
influx of sellers in the spring market. Median sale prices are expected to remain flat or improve modestly
in the coming months.
II-1
SECOND DISTRICT--NEW YORK
Economic activity in the Second District has held steady since the last report. Prices of
finished goods and services have generally been stable. The labor market has shown further signs of
softening, as fewer business contacts report that they are adding workers, and a major employment
agency describes hiring activity as sluggish. Retailers, including auto dealers, note some leveling off
in sales activity following increases. Tourism activity has generally held steady at a high level,
though there were some indications of softening in mid-September. Residential real estate markets
have shown further signs of improvement. Office markets have shown some signs of slackening, but
industrial markets have picked up modestly. Finally, bankers report increased loan demand, except
on consumer loans, steady to tighter credit standards, and lower delinquency rates on commercial
loans and mortgages.
Consumer Spending
Retailers report that sales activity has remained flat in recent weeks. A major retail chain
reports that sales in the region were sluggish in August and especially in September, running well
below comparable 2011 levels. Some of the weakness is attributed to unseasonably mild weather,
which dampened sales of seasonal merchandise. A major mall in upstate New York describes sales
activity as “stagnant”, with sales flat to down slightly from a year ago in August and September. The
pricing environment is described as quite promotional, and acquisition costs of goods are
characterized as mostly stable to declining modestly. Auto dealers in upstate New York report
steady sales activity. New vehicle sales were up 6-9 percent from a year earlier in August but are
projected to be flat to up slightly in September. Sales of used cars have been mixed since the last
report, while dealers’ service departments note some slowing in business. Wholesale and retail credit
conditions remain favorable.
Tourism activity has been steady at a fairly robust level since the last report, despite hints of
weakness in mid-September. A trade association survey conducted in September indicated that 70
II-2
percent of hoteliers across New York State report that business over Labor Day weekend was at least
as good as in 2011. Similarly, occupancy rates and room rates at Buffalo hotels are reported to be
running well ahead of 2011 levels. Manhattan hotel occupancy rates were little changed at slightly
over 90 percent in August, with room rates continuing to run a modest 2 percent ahead of a year ago.
Anecdotal reports for September suggest that business remained strong in the early part of the month
but tapered off a bit at mid-month. Similarly, weekly attendance and revenues at Broadway theaters
were running ahead of comparable 2011 levels in August and early September but slipped well below
year-earlier levels for the third week of the month. Finally, consumer confidence fell in August and
was little changed at a low level in September, according to the Conference Board’s monthly survey
of residents of the Middle Atlantic states (NY, NJ, Pa).
Construction and Real Estate
Residential real estate across the District has continued to improve. Housing markets in
metropolitan Buffalo reportedly flattened out in August but picked up sharply in September.
Northern New Jersey’s housing market has shown further modest signs of improvement, and there
has been a sustained pickup in rental apartment construction, as builders appear to see a persistent
shift toward renting. Home prices across northern New Jersey appear to recovering gradually—an
industry expert notes that foreclosures and distress sales are no longer pushing down prices of other
properties, though they are dampening any increase. Manhattan’s co-op and condo market has
remained stable—both in terms of sales activity and prices. The upper end of the market has been
relatively strong, partly fueled by foreign buyers.
Market conditions are reported to have
strengthened in Brooklyn and especially Queens in the third quarter, while Long Island’s housing
market is weak but stabilizing. New York City’s apartment rental market remains robust: rents have
decelerated a bit in recent months but are still estimated to be rising at a 6-8 percent annual pace.
Commercial real estate markets showed signs of softening in the third quarter. In particular,
office vacancy rates in metropolitan Syracuse, Albany, northern New Jersey, Westchester and
II-3
Fairfield counties climbed to their highest levels in a number of years, while asking rents were flat to
down slightly. Office vacancy rates also edged up in Manhattan, after drifting down over the first
half of 2012. Sluggish leasing demand from financial and other firms is reported to be more than
offsetting strong leasing demand from tech firms. A substantial amount of office space is scheduled
to come onto the Lower Manhattan market in early 2013.
Industrial markets have strengthened: vacancy rates have declined modestly since the
beginning of the year in northern New Jersey, Westchester and Fairfield counties, and the Buffalo
and Syracuse areas; but rates have held steady in Long Island and metropolitan Rochester. Industrial
rents have begun to rise modestly across most of the District for the first time in a number of years.
Other Business Activity
Manufacturers across the District indicate some further softening in general conditions since
the last report, whereas contacts in most other sectors report that activity held steady.
Both
manufacturers and other contacts report little change in input price pressures since the last report,
though a number of manufacturing contacts say they plan to hike selling prices in the months ahead.
Labor market conditions across the District have been tepid since the last report. Business
contacts generally indicate that they have scaled back hiring activity in recent months, and almost as
many business contacts say they plan to reduce as increase employment in the months ahead. A
major New York City employment agency specializing in office jobs reports that hiring activity
remained sluggish after Labor Day—a time when recruitment activity typically picks up. Moreover,
the weakness is reported to be fairly broad-based, though most evident in the finance sector.
Financial Developments
Small to medium sized banks in the District report increased demand for all loan types except
consumer loans, where demand was unchanged.
Bankers also report increased demand for
refinancing. Bankers report some tightening in credit standards for the household sector: roughly one
in five bankers report tighter standards for consumer loans and residential mortgages, while no
II-4
respondent reports easing standard in any individual loan category. Respondents indicate a decrease
in spreads of loan rates over costs of funds for all loan categories except for consumer loans. The
decrease in spreads was most prevalent in commercial mortgages. Respondents also indicate a
decrease in the average deposit rate. Finally, bankers report some decrease in delinquency rates for
commercial and industrial loans and commercial mortgages but no change for consumer loans and
residential mortgages.
III - 1
THIRD DISTRICT – PHILADELPHIA
Aggregate business activity in the Third District has continued to improve – growing
modestly – since the previous Beige Book. A couple of sectors grew faster than the average,
while a few declined slightly. Manufacturing activity declined somewhat, although a slight
increase in new orders may presage a turnabout. Retail sales growth has continued at a modest
pace since the last Beige Book, while auto sales have continued to increase at a strong pace.
Lending volumes at Third District banks have continued to grow modestly, and credit quality has
continued to improve. Sales of new homes have slowed since the previous Beige Book period,
while brokers report strong growth in sales of existing homes (from previously low levels).
Commercial real estate contacts reported less leasing activity and continued weak demand for
new construction. Service-sector firms reported mixed results with stronger tourist visitation, a
slowing defense sector, and modest growth across most other service sectors. Price pressures
have changed little since the last Beige Book.
The overall outlook appears somewhat more optimistic relative to the views expressed in
the last Beige Book, as contacts are beginning to look beyond the pending election and looming
fiscal cliff. Expectations among manufacturers improved significantly for overall activity over
the next six months, while plans for capital spending and hiring were mixed. Auto dealers and
real estate firms are more optimistic, as their positive trends gain traction. Holiday sales
expectations are strong among many general retailers. Financial- and service-sector contacts
express a mix of views regarding the future – generally positive with varying degrees of caution.
Manufacturing. Since the last Beige Book, Third District manufacturers have continued
to report overall declines in shipments, but a slight increase in new orders. Makers of lumber and
wood products; stone, clay, and glass products; fabricated metal products; and instruments have
reported gains since the last Beige Book. Lower activity was reported by makers of primary
metals, industrial machinery, and electronic equipment. One manufacturer summarized the broad
economic climate as a summer slowdown with sequential improvement, marked by a definite
increase in August.
Optimism among Third District manufacturers that business conditions will improve
during the next six months has grown significantly since the last Beige Book and is evident
across most sectors. Plans were recently announced to restart the third of three District refineries
that were all at risk of closing one year ago; the other two were previously rescued. Firms have
III - 2
raised their overall expectations of future hiring, but plans for capital spending have softened
since the last Beige Book.
Retail. Overall, Third District retailers reported little change between the modest yearover-year sales growth in August compared with July, although one contact stated that his store
experienced the strongest Labor Day weekend in years. This year’s sunny weather certainly
helped compared with last year’s storms. One department store manager reported that back-toschool sales did well, cold-weather clothing is moving better than last year, and discretionary
“fun” items are selling well. Retail contacts are bullish for the upcoming holiday season,
speculating that people will be primed to respond to upbeat holiday advertising after the long,
negative political campaign season. An expectation of greater seasonal hiring has been widely
discussed. And the holiday calendar provides a 32-day shopping season – the longest possible.
There has also been little change in the pace of auto sales since the last Beige Book.
Pennsylvania dealers reported ongoing moderate growth in August; New Jersey dealers recorded
a third consecutive strong sales month in August and described September sales as “good.” The
outlook among dealers remains positive. One contact stated “confidence is back, credit is back,
and leasing is back.” However, dealers remain somewhat cautious through this political season
regarding consumer uncertainty.
Finance. Overall, Third District financial firms have reported continued growth since the
previous Beige Book. Loan volumes grew modestly across most categories. Contacts describe
fierce competition for small business loans from large and small banks. Despite high charge-off
rates and ongoing household deleveraging, credit card outstandings have been virtually flat since
the last Beige Book. Most contacts report that the financial health of households, businesses, and
financial institutions continues to improve. The overall outlook among lenders remains positive.
Real Estate and Construction. Residential builders reported a drop-off in traffic and
slower sales in August and early September – a disappointing conclusion to their primary sales
season. Builders lament that people are choosing to rent rather than buy even when local rents
exceed the total cost of owning a home. Residential brokers reported somewhat stronger yearover-year sales growth in August than expressed in the last Beige Book and continued strength
into September. Inventory levels of real estate listings remain at lower levels than one year ago
with no signs of a large emerging shadow inventory. Multiple bids are reported for homes priced
between $250,000 and $400,000; more very high-end listings are beginning to appear and test
the market. Builders and brokers remain cautiously optimistic.
III - 3
Nonresidential real estate contacts reported a big slowdown in August and a
disappointingly small rebound in September. However, conditions remain better than one year
ago, with more prospects, faster decision-making, and few downsizings outside of southern New
Jersey. There is very little demand for new office/commercial buildings, but the industrial market
remains strong, especially in the Lehigh Valley and central Pennsylvania markets. Center City
Philadelphia and adjacent areas in West Philadelphia and the Navy Yard are an exception, with
very busy design/build work for higher education, hotels, and multifamily apartments and
condominiums. However, many professional architects and engineers – experienced and novice
– remain out of work or underemployed. Nonresidential real estate contacts retain an outlook of
slow, steady growth.
Services. Third District service-sector firms have reported mixed growth since the last
Beige Book. Tourist areas along the Delaware and New Jersey shores, in the Poconos, around
Philadelphia, and throughout central Pennsylvania have reported strong visitation and/or lodging
numbers relative to recent years. Atlantic City casinos and some neighboring shore areas were
exceptions. Jersey shore businesses expressed considerable disappointment over cautious tourist
spending; Delaware shore business also noted some caution. However, the tourist season
concluded on a high note as the Labor Day weekend benefited by comparison to last year when
severe weather disrupted end-of-summer plans. District staffing firms reported little change in
orders, hiring mix, and wages. One firm continued to report extremely busy orders for
manufacturing workers – better than in recent years – but expects a seasonal decline beginning in
October. Demand for professional/business and health-care staff remains slower. Defense-related
firms reported that there are fewer large contracts on which to bid and that they have continued
to lower their expectations for 2013 and 2014 as sequestration or an alternative budget deal
nears. Overall, other service-sector firms report a modest but positive outlook for six months out.
Prices and Wages. Price levels have continued to show little overall change since the
previous Beige Book. Once again, cost factors have risen slightly among manufacturing firms
but the increase is less than it was during the previous Beige Book; prices received by
manufacturers fell. Homebuilders and retailers indicated few significant changes in their cost
pressures or prices they charge. One homebuilder attempted to raise prices but couldn’t make
them stick. Real estate contacts continue to report that lower-cost homes have reached a price
floor in most markets and are beginning to rise slightly in some neighborhoods. Leasing agents
have been unable to charge higher leasing rates in nearly all markets, except for industrial space
along the corridor from Carlisle, PA, to the Lehigh Valley. Contacts from all sectors report little
or no wage pressures, other than for medical benefits.
IV - 1
FOURTH DISTRICT – CLEVELAND
Business activity expanded in the Fourth District since our last report, although the rate
of growth remains modest. On balance, manufacturing output rose. In the real estate sector,
nonresidential construction picked up, while reports on single-family housing starts were mixed.
Sales of existing family homes increased. Retailers and auto dealers saw a modest improvement
in sales during August and September on a year-over-year basis. Shale gas activity continued at
a robust pace, while coal production fell below prior-year levels. The slowdown in freight
transport volume, which began in the second quarter, has abated. And the demand for business
and consumer credit moved slightly higher.
Little net hiring was reported across industry sectors. We heard a number of reports that
recruiting qualified workers for open positions remains difficult. Staffing-firm representatives
said that the number of job openings and placements has slowed during the past six weeks.
Vacancies were found primarily in healthcare and manufacturing. Wage pressures are contained.
Input prices were stable, apart from increases in some agricultural commodities and petroleumbased products.
Manufacturing. District factories reported that production levels were stable or
increased during the past six weeks, while new orders weakened. Rising production was mainly
limited to goods sold to the construction, energy, and transportation sectors. Compared to prioryear levels, output was higher for a majority of our contacts. Several producers pointed to a rise
in inventories, but said that they are manageable. The outlook by manufacturers was mixed.
Steel producers and service centers reported that shipping volume was flat or down and they
continued to reduce their inventory. A seasonal pickup that typically begins in September has
yet to materialize. Several contacts noted that competition (volume and pricing) from offshore
producers has intensified. Steel producers do not expect market conditions to change
appreciably in the upcoming months. District auto production recovered in August on a monthover-month basis, as auto plants returned to normal production schedules. Compared to a year
ago, production figures were down slightly for domestic producers, while showing a moderate
rise for foreign nameplates. The latter is attributable to the abatement of supply chain issues.
Little change in capacity utilization was reported, although a majority of our contacts said
that rates were slightly below normal levels. Capital spending remained on track, but several
producers intend to delay some projects during the upcoming months. Raw material prices were
either flat or trended lower, while finished goods prices were steady. Little change in payrolls
was noted, although attracting skilled workers remains very difficult. Wage pressures are
contained.
Real Estate. Reports from home builders on single-family housing starts were mixed.
Compared to a year ago, construction activity was described as similar. On balance, builders
IV - 2
expect a modest rise in new-home construction in the near term. Spec building remains on the
low side, due in part to difficulty in obtaining financing. List prices of new-homes held steady,
though most builders indicated that they have cut back on discounting. Sales contracts were
found across all price-point categories. Reports of higher prices for lumber, shingles, and
concrete were widespread, rising mainly in the mid-single digits. Sales of existing homes
continued to show improvement, although inventory is tight in the mid-price range.
Nonresidential contractors reported that business activity continued to improve, and most
are satisfied with their backlogs going into 2013. Project work is driven by industrial
(manufacturing and energy), education, healthcare, multi-family housing, and some public
works. Most contractors expect that the momentum built up this year will be maintained in
2013, though some commented that customers seemed hesitant about moving forward at this
time. Material price increases were mainly limited to petroleum-based products.
Residential and nonresidential builders reported little change in their payrolls. Some
seasonal layoffs are expected. A few builders said that they would like to hire more workers but
are hesitant to do so because of uncertainty surrounding the upcoming election and the fiscal
cliff. Wage pressures are contained, but sharp increases in health insurance premiums were noted
by many contacts. Subcontractors are holding their prices steady and many are finding it
difficult to recruit skilled trades.
Consumer Spending. Retailers reported a modest improvement in sales during August
and September relative to year-ago levels. Consumers have responded positively to new lines of
fall merchandise and back-to-school sales were characterized as good. Some retailers noted that
consumers in middle-income brackets have entered a holding pattern until after the elections.
Our contacts expect growth in the fourth quarter to be in the low-to-mid single digits relative to
2011. Vendor pricing has been stable, with little change in shelf prices. Grocery store chains
reported that their costs have risen due to the summer drought. Attempts at passing through
higher food prices were met with mixed results. Capital spending for the year remains on target.
Two retailers noted that they may accelerate spending before year’s end, mainly for distribution
equipment. No permanent hiring is expected other than at new stores. The number of temporary
workers expected to be hired for the upcoming holiday season is planned to be a little higher than
last year.
New-vehicle sales were stronger in August and September when compared with the
same time period a year ago. Dealers reported that sales of fuel-efficient cars and crossover
vehicles are doing particularly well. New-vehicle inventories increased since our last report and
most dealers described them as acceptable. Dealers expect little change in monthly sales for the
remainder of 2012. Used-vehicle sales were flat, which was attributed primarily to a lack of
inventory. Most dealers reported that credit is more readily available and leasing is growing in
IV - 3
popularity. Hiring for sales and service positions remains at a slow pace. Recruiting qualified
people is challenging.
Banking. Demand for business credit moved slightly higher since our last report, with
requests mainly for commercial loans and refinancings. Several small business owners told us
that it remains difficult for them to obtain credit. The interest rate environment was described as
very competitive. Consumer lending was up a little, driven by demand for auto loans and home
equity lines of credit. In the residential mortgage market, activity is fairly strong. Although a
majority of applicants are still looking to refinance, many bankers noted an increase in newpurchase requests. No changes were made to loan application standards. Delinquency rates
continued to improve across consumer loan categories; however, several bankers reported an
uptick in delinquencies from commercial customers. Core deposits grew, especially in
transaction accounts. Bankers expect little change in payrolls for the remainder of this year.
Energy. Conventional oil and natural gas production held steady during the past six
weeks, with little change projected in the upcoming months. Wellhead prices for natural gas
rose slightly. Drilling rigs are migrating from other states to Ohio to take advantage of the
higher-priced wet gas found in the Utica shale. To date, 375 permits have been issued in Ohio
for drilling horizontal shale gas wells. Thirty wells are now producing, with 50 expected to be in
production by year’s end. Coal producers reported production declines in 2012 of between 10
and 50 percent over prior-year levels due to lower demand from electric utilities and a stricter
regulatory environment. Reports of idled mines are widespread. Spot prices for export
metallurgical coal declined further, while domestic steam coal prices rose slightly due to tight
supplies. Production equipment and materials prices were flat in most categories, other than for
diesel fuel. Capital outlays remain at projected levels. Several coal operators announced layoffs.
In Ohio, a regulatory agency more than doubled its employment size over the past 12 months to
cope with expanding shale gas activity.
Freight Transportation. Reports on freight transport indicated that volume is returning
to normal trends after a second-quarter slowdown. Industries which contributed to the pickup
include automotive, construction, and shale gas. However, lower-than-expected harvests have
negatively impacted revenues for some carriers. Most of our contacts believe that their
companies’ growth objectives for 2012 will be met. Apart from fuel prices, costs associated with
truck maintenance held steady. Carriers have successfully passed through higher diesel prices
via a surcharge. Reports on capital spending were mixed. Half of our contacts said that 2012
expenditures are on track. Others reported a slowdown or postponement in purchasing new
trucks, citing a sluggish economy, uncertainty about the fiscal cliff, and difficulty obtaining
financing. Hiring is for replacement and adding capacity. Recruiting qualified personnel
remains difficult, which is contributing to wage pressures.
V-1
FIFTH DISTRICT–RICHMOND
Overview. Fifth District economic activity improved modestly since our last report. Most
manufacturing contacts reported activity firmed somewhat. Port activity continued to expand. Retailers
reported that sales grew on balance, and non-retail firms cited marginal revenue expansion. Lending
activity improved somewhat, although most applications continued to be for refinancing. Residential real
estate activity continued to strengthen; however, areas of weakness remained in the District. Tourism
contacts reported healthy bookings as the summer season ended. Commercial real estate reports were
mixed for private-sector projects and weaker for government-related projects. Labor market reports were
also mixed, with accounts of modest increases in employment along with major layoffs and hiring
freezes. Price changes were generally small in the manufacturing and services sectors in recent weeks.
Manufacturing. District manufacturing activity firmed somewhat after having softened in earlier
months. An auto supplier reported that his firm’s sales continued to exceed expectations, which required
overtime and additional hiring. A manufacturer of wallboard indicated that sales at his company rose,
with the last few weeks being the busiest this year. A manufacturer of residential door frames said that
demand in late summer was fairly flat, but he expected sales to improve over the next six months. In
contrast, a producer of electrical components cited very weak business conditions, which resulted in
layoff announcements and plans to close the factory at the end of this year. According to our latest survey,
growth slowed in prices of both raw materials and finished goods over the past month.
Activity at most District ports expanded over the last few months. Port officials reported that both
import and export activity strengthened, although one official attributed some of the gain to increased
market share. According to another contact, the shipping season peaked earlier than in past years, which
may have been due to manufacturers and retailers moving goods in advance of a threatened labor
disruption at East Coast ports. Nonetheless, imports were bolstered by continued demand for commodities
and components used by manufacturers. One contact stated that exports to China of some commodities
and bulk goods were holding up better than expected. In addition, exports of autos and heavy machinery
to Europe remained strong.
Retail. Retail sales reports from our contacts were mixed, with modest improvement on balance.
In Virginia, a grocer stated that customer counts were up, but shoppers were spending less, while another
grocery contact commented that he will be opening several new stores by early next year. A major
building supply firm reported a significant increase in the volume of wallboard sales; other inputs for
major renovation work also picked up. Several small retailers said that they were preserving margins by
reducing payrolls and cutting expenses. However, collections on customer accounts have become a bigger
problem, according to one contact. Merchants remained somewhat guarded in their outlook for spending
during the holiday season. Small retailers were conservative with inventories; they expected that their
V-2
suppliers would be flexible enough to make quick shipments if reorders should be needed. To help push
early purchases, several big-box retailers were advertising a return of their lay-away programs, and other
merchants started offering lay-away for the first time. In addition, a number of internet retailers were
offering an online lay-away program. District automobile sales varied, according to dealers. A contact at a
large dealership reported high foot traffic, observing that buyers gravitated to "the deals," such as
substantial rebates. Retail prices rose at a somewhat slower pace in recent weeks, according to our latest
survey.
Services. Non-retail services providers reported slight gains overall since our last report. Business
activity strengthened for professional, scientific, and technical services firms; a contact at a Maryland
telecommunications firm noted that demand was strong for tech-related security services. However, there
were also reports that the possibility of government spending cuts associated with sequestration caused
firms to delay business decisions. One industry executive commented, "We are hoarding cash."
Healthcare firms continued to restructure to accommodate the post-reform environment in that sector.
According to a contact at a private healthcare group, that organization had begun shifting away from low
margin, basic services. A Virginia airport executive noted that increased passenger traffic in recent weeks
had recovered from a drop earlier in the summer. Prices moved up more slowly at services firms.
Finance. Lending activity improved marginally from weak levels since our last report. One
banker reported continued strength in refinancing demand, which accounted for three out of four
commercial loan applications. A North Carolina banker noted that, while most home mortgages were for
refinancing, applications were fifty percent above normal levels and over one third were for either
purchasing or building a home. Demand for commercial loans across the District was mixed, according to
several contacts, with modest improvements coming from the medical, legal, and other services-related
segments of the market. An official at a large bank described consumer demand as remaining weak, with
the notable exception of auto loans, while business loans for capital equipment improved slightly. Several
bankers stated that credit standards remained tight for consumer loans, but some easing had occurred in
order to capture attractive commercial loan applications. A commercial banker said that uncertainty about
whether a successful SBA program would be renewed had curtailed his ability to get approval of several
viable small business loans.
Real Estate. Residential real estate activity improved since our last report. A Realtor in the
Richmond area said that closings were up double digits over last year and prices were rising slightly.
Properties below the $200,000 range, in particular, were selling more quickly. However, an agent in the
D.C. area indicated that housing sales in the $800,000-plus range were rising relatively quickly, adding
that the lowest inventory for housing in eight years was pushing up prices. A Realtor in the
Fredericksburg area reported that her agency was extremely busy for this time of year and indicated that
sales were up forty percent over last year; she expected the stronger market to continue. Moreover, a
V-3
Maryland contact mentioned that foreclosures in central Maryland had fallen thirty percent from the
previous quarter, which bolstered housing prices. In contrast, a report described the housing market in
North Carolina as mostly unchanged, with the exception of an improvement in the Research Triangle.
Also, a source stated that there had been a slowdown in housing in the Hagerstown area.
Commercial real estate and construction activity remained mixed since our last assessment. A
Realtor in North Carolina stated that both leasing and sales activity had slowed since June, with some
tenants switching to shorter leases. Another agent reported moderate increases in office leasing, especially
in suburban locations. Several contacts in Virginia and West Virginia noted increased interest from clients
but few closings. A Virginia Realtor said that retail leasing had improved, but it was “still a bumpy road”
and that leases were “taking forever to close.” Both leasing and construction-related activity in the
industrial sector was sluggish. Several contractors reported that government-related projects continued to
weaken or decline. New private sector projects also started to decline in recent weeks. A large contractor
in Maryland expected that few new projects would emerge until after the election. However, a banker
noted that small developers were joining together to buy and renovate low-priced B and C Class
properties, in anticipation of an improved real estate environment next year.
Labor Markets. We received mixed signals on labor market activity over the last few weeks. A
source from West Virginia reported that the state experienced several major layoffs related to mine
closings and bankruptcies. A contact in Hagerstown said that the local labor market continued to recover,
but at a slow pace, and that the area would lose a major manufacturer later this year. Moreover, an auto
supplier in Virginia stated that his firm had frozen hiring and would reduce staff through attrition. In
contrast, several employment agencies cited an increase in demand for workers, particularly among
goods-producing industries. At a North Carolina staffing agency specializing in finance, companies were
actively hiring staff and senior level accounting and finance professionals. In the retail sector, an industry
representative mentioned that many small retailers expected to add hours for permanent employees during
the upcoming holidays, rather than hire seasonal workers. According to our recent surveys, average wages
in both the manufacturing and services sectors were growing at a slightly quicker pace than a month ago.
Tourism. Hoteliers, restaurateurs, and other tourism contacts reported stable but solid leisure
business going into the autumn season. In addition, their outlook was upbeat for late fall and early winter.
An hotelier in western Virginia stated that business was solid, with a trend toward more last-minute
leisure bookings. A tourism contact in Washington, D.C. reported seeing "tour buses galore" and crowds
on the mall. Tourist activity on the outer banks of North Carolina was steady, and good attendance was
expected for upcoming music and food festivals. Hotel and rental rates were not being discounted,
although incentives were offered for time slots that were difficult to fill. In contrast, hotels that depend
heavily on government-sponsored bookings reported a significant drop in business.
VI-1
SIXTH DISTRICT – ATLANTA
Summary. Sixth District business contacts described economic activity as expanding
slowly in September, and most expect little change in the near term.
Most retailers cited slow sales growth while auto dealers continued to experience strong
results. Hospitality reports remained largely positive, with the exception of cruise-lines.
Residential brokers and builders signaled that housing conditions continued to improve in many
parts of the District as sales and prices of new and existing homes slightly increased compared
with a year ago. Commercial development continued to improve, led by multifamily
construction. Manufacturers indicated that new orders had softened while production levels only
mildly increased. Bankers saw improvements in demand for overall loans, particularly those for
housing purchases and refinances. Payrolls expanded modestly on net, and firms noted some
deceleration in input prices, while wages remained relatively unchanged.
Consumer Spending and Tourism. Most District merchants reported that sales growth
remained slow in September. Discount retail operations outperformed traditional department
stores. Most retailers projected continued soft growth in sales through the end of 2012. Contacts
in the auto industry reported that strong sales levels were maintained in September.
Leisure and business travel contacts continued to report strong activity and an optimistic
outlook for the remainder of the year. Occupancy and room rates as well as convention bookings
were solid. While there has been some drop in traffic from Europe, this was largely offset by
strong visitor numbers from Canada and Latin America. Cruise-line bookings and onboard
spending remained below expectations, but the industry anticipates some improvement next year.
Real Estate and Construction. District residential brokers indicated that recent existing
home sales were up slightly compared with year-earlier levels. Buyer traffic also remained
ahead of year-ago levels. Brokers again noted declining inventories, which continued to put
upward pressure on home prices in many markets. Contacts anticipate modest home price gains
over the next year; however, it is expected that neighborhoods hard hit by foreclosures will
continue to experience home price weakness for some time. The short-term outlook for home
sales remained positive overall, with the majority of contacts anticipating modest gains.
Reports from District homebuilders remained positive, as well. Builders indicated that
recent new home sales and construction activity were up slightly from year-earlier levels and
new home inventories remained below year-earlier levels. Construction remained mostly limited
to more desirable locations, such as those in highly regarded school districts. Southeastern
builders also reported that finished lot inventories varied across the region, but most anticipate a
VI-2
decline in those inventories over the next six months. Many indicated that financing terms
remain prohibitive for acquisition and development. New home prices were slightly up
compared with a year earlier. Homebuilders also witnessed stronger buyer traffic. The outlook
for construction activity and new home sales remained positive.
Commercial contractors indicated that the pace of construction continued to expand and
backlogs were slightly up from earlier in the year. Apartment development continued to
dominate the District’s commercial real estate market. Multifamily rent growth remained
positive but has slowed somewhat in recent months. Contacts indicated that the District's office
and industrial markets continued to make small improvements, while the retail sector was
described as sluggish. Many contractors reported that clients remain hesitant to move ahead on
new projects. However, most anticipate that construction activity will be flat to slightly up in
2013 compared with 2012.
Manufacturing and Transportation. While noting that new orders continued to slow,
manufacturing contacts reported mild increases in production, employment, and finished
inventory levels in September. Regional auto and auto parts producers, as well as firms that
supply materials to the energy exploration and extraction sector, continued to report strong levels
of production, but most other durables manufacturers noted a slight deceleration in output.
Nondurables output, with the exception of food and chemicals, remained soft.
A Southeast port contact reported record-setting cargo volumes in fiscal year 2012, with
increases across all categories. Despite the underlying increase in demand tied to replacement of
aging truck fleets and the benefits of increased fuel-efficiency, new orders for heavy-duty trucks
have stalled recently. Rail contacts reported that lumber shipments have increased. Air cargo
companies saw an increase in cargo volume tied to the launch of various smartphones and
computer tablets, which favor shipment by air over other modalities.
Banking and Finance. Banking contacts reported an increase in demand for mortgage
loans for both purchases and refinances, although some contacts noted fewer than half of the
applications actually were approved. The improvement in demand for purchase loans was driven
by activity in entry-level homes. Demand for auto loans remained strong. Business lending had
increased slightly; however, contacts noted most of the increase was not organic loan growth but
was primarily from customers switching from other lenders or credit cards.
Employment and Prices. Regional employment growth picked up slightly in
September, but remained muted. Reports indicated that sectors related to energy, autos, and
housing were experiencing most of the hiring activity. Reports also cited deepening ties between
VI-3
private employers, education representatives, and government officials in an effort to address
training deficiencies for in-demand positions. The majority of contacts reported that stagnant
demand is the major reason behind sluggish employment trends, although uncertainty related to
fiscal policy continued to weigh on some firms’ hiring plans.
The majority of businesses contacted reported relief for some input prices and little
change in wage plans. Firms responding to our Business Inflation Expectations survey reported
that unit costs were up 1.3 percent in September over the past year, which is 0.3 percentage
points lower than the August reading. Looking forward, businesses’ expectations for inflation
also moderated somewhat. On average, firms expected unit costs to rise 1.7 percent over the
next 12 months. Though that number was down from August, survey contacts noted that rising
materials costs could be a source of moderate upward price pressure going forward. Along those
lines, several manufacturing contacts indicated that some input prices have increased recently,
causing concern of additional margin pressure.
Surveyed firms reported that sales levels were 7.6 percent below “normal” times, though
assessments varied widely by the size of the firm. In particular, small and medium-sized
businesses reported experiencing about twice as much slack as their larger counterparts, a finding
that is consistent with anecdotal insights gathered from our business contacts.
Natural Resources and Agriculture. After brief, precautionary shut downs related to
Hurricane Isaac, regional refiners fully restored operations with very little damage from the
storm. Energy industry contacts continued to report that Gulf Coast refineries were undertaking
investments to increase production capacity following refinery closures elsewhere in the country.
Natural gas prices continued to experience downward price pressures. Contacts continued to
note that inexpensive natural gas had prompted downstream manufacturers to relocate overseas
operations to the U.S., prioritizing locations near refining operations.
Agriculture contacts said that the rise in some crop prices, resulting from the drought in
the Midwest, had led to increased crop production in the Southeast where soil conditions were
more favorable, but the overall rise in feed prices was putting pressure on livestock producers.
Compared with the same time last year, prices paid to farmers for corn, rice, soybeans, beef, and
broilers were up while cotton prices were down.
VII-1
SEVENTH DISTRICT—CHICAGO
Summary. Economic activity in the Seventh District continued to expand in late August
and early September, but again at a slow pace. However, contacts remained guardedly optimistic
that conditions would improve; noting that at least some of the uncertainty surrounding the outlook
was likely to be resolved following the November election. Growth in consumer spending was little
changed, while business spending increased at a slower rate. Manufacturing activity edged lower,
and growth in construction moderated. Credit conditions continued to improve gradually. Cost
pressures increased some, due in large part to higher food and energy prices. The drought led to an
earlier start than normal for the harvest, and corn and soybean prices moved down a bit.
Consumer spending. Growth in consumer spending was little changed in late August and
September following a slight pick-up in the previous reporting period. Sales of back-to-school items
were somewhat below retailers’ expectations despite higher store traffic volumes. Contacts noted
that the rise in gasoline prices had further deterred consumers from increasing discretionary
spending. Retailers lowered their expectations for the holiday shopping season, although they still
expect holiday sales to match last year’s pace. Auto sales increased in August before moderating
some in September. Consumers responded strongly to model year-end incentives, depleting
inventories of 2012 models, and also benefitted from easing auto credit conditions.
Business spending. Business spending continued to increase slowly in late August and
September. A number of contacts reported that firms were delaying hiring and capital expenditure
decisions until they were more certain about the outlook for federal tax and spending policies. That
said, some capital expenditures were proceeding as planned, particularly on software and
equipment. Inventories were generally indicated to be at comfortable levels. Labor market
conditions were weaker on balance. The District unemployment rate edged up and hiring remained
selective. A recruiting firm indicated that overall demand for their services was effectively flat at
last year’s levels. Demand was greater in areas such as health care, engineering, accounting,
information technology, and skilled manufacturing trades where firms are having difficulty finding
qualified candidates. Several manufacturers reported stepping up training programs and increasing
pay to meet staffing needs in a number of skilled trades.
Construction/real estate. Growth in construction moderated some from the previous
reporting period. Homebuilders indicated that new single-family construction continued to rise at a
slow but steady pace, while multi-family construction was stronger by comparison. Loan standards
VII-2
for residential development remained tight, and many homebuyers also continued to face tight
lending standards. Home prices edged higher, despite a rise in short sales. Nonresidential
construction increased at a slower rate. Contacts indicated that new projects were progressing at a
reduced pace; some also suggested that many firms were putting off investment decisions until after
the November election. Elevated vacancy rates remained a drag on new commercial construction,
and contacts noted that bank lending for investment properties continued to be limited.
Manufacturing. Manufacturing production edged lower in late August and September.
Contacts reported that new orders had slowed considerably from earlier in the year and that order
backlogs were coming down. Nonetheless, a number of contacts also indicated that quoting activity
for next year had picked up, suggesting to them that the recent slowdown may be a pause due to the
upcoming election and uncertain fiscal situation. Although the level of activity remained strong,
demand for heavy equipment softened over the reporting period, largely reflecting further declines
in the mining sector and a slower expansion of rental fleets. Exporters generally noted weaker
demand outside of North America, particularly from Europe and Asia. Capacity utilization in the
steel industry was steady, while steel service center inventories increased slightly. In contrast, the
auto industry continued to be a source of strength, and manufacturers of building materials reported
that activity had picked up with the recent improvement in the housing sector.
Banking/finance. Credit conditions continued to improve over the reporting period, with
both credit spreads and market volatility decreasing. Banking contacts reported continued weak
demand for business loans. While loan pricing was roughly unchanged, contacts cited greater
demand for more flexible structures and longer financing terms. Standards continued to ease on
C&I loans, although conventional financing remained difficult to obtain for many small businesses.
Asset quality improved further, surpassing the expectations of some contacts. An exception was
agricultural lending, particularly the livestock sector, where the impact of the drought on feed costs
is putting stress on operators’ balance sheets. Consumer loan demand was again limited with
moderate increases in auto lending and mortgage refinancing, as auto loan standards continued to
ease and mortgage rates moved lower.
Prices/costs. Cost pressures increased some in late August and September, primarily due to
a rise in food and energy prices. Contacts also reported increases in the prices for construction
materials like lumber and drywall, while most metals prices were steady. Wholesale food and
energy price pressures rose, and retail contacts noted an increase in pass-through to consumers.
VII-3
Wage pressures remained moderate, although some upward pressure on wages for high skilled
positions was cited. A few contacts also reported upward pressure on healthcare costs.
Agriculture. The corn and soybean harvest began a few weeks earlier than normal across
the District, as plants were dry due to the drought. In some areas, late rains helped produce higherthan-anticipated yields, but these made only a small dent in the large drought-related losses. Crop
quality also was an issue in parts of the District. The drop in crop volume hurt grain elevators
relatively more than crop farmers, as payments from crop insurance and sales at high prices offset
much of the loss in farm income from the drought. However, given insurers’ limited processing
capacity and the large number of claims, already existing delays in crop insurance payments are
likely to get worse. Corn and soybean prices eased down from their peaks, providing a bit of relief
for livestock producers, though most operations remained unprofitable. Milk and cattle prices
moved higher, while hog prices fell. Many hog facilities are operating below capacity, pointing to
future reductions in supplies of pork.
VIII-1
Eighth District - St. Louis
Summary
Economic activity in the Eighth District has expanded at a moderate pace since our
previous survey. Recent reports of planned activity from manufacturing and services contacts
have been positive. Residential real estate market conditions have continued to improve
moderately, while commercial and industrial real estate market conditions have continued to be
mixed. Overall lending activity at a sample of small and mid-sized District banks increased
slightly from mid-June to early September. Agricultural conditions in the District have generally
improved since our previous report.
Manufacturing and Other Business Activity
Reports of plans for manufacturing activity have been positive since our previous report.
Several manufacturers reported plans to hire new employees, open new plants, or expand
operations, while fewer manufacturers reported plans to lay off workers or close plants. Firms in
poultry processing, furniture, commercial printing, boat, conveyor equipment, HVAC
equipment, and industrial gas manufacturing plan to hire new workers, open new facilities, or
expand current operations. In contrast, firms that manufacture iron and steel products, mining
equipment, and food products plan to lay off workers or close existing facilities.
Reports of planned activity in the District’s service sector have been positive since our
previous report. Firms in business support, distribution, healthcare technology, and personal care
reported plans to hire new workers or expand operations. A transportation services firm also
announced large-scale hiring plans for seasonal employees recently. In contrast, a financial
services firm announced plans to relocate workers to a new location outside the District. Lastly,
auto dealers in certain parts of the District reported weak hybrid vehicle sales.
VIII-2
Real Estate and Construction
Home sales increased throughout most of the Eighth District on a year-over-year basis.
Compared with the same period in 2011, August 2012 year-to-date home sales were up 15
percent in Louisville, 6 percent in Little Rock, 11 percent in Memphis, and 17 percent in
St. Louis. Residential construction increased in the majority of the District. August 2012 year-todate single-family housing permits increased in the majority of the District metro areas compared
with the same period in 2011. Permits increased 41 percent in Louisville, 27 percent in Little
Rock, 39 percent in Memphis, and 17 percent in St. Louis.
Commercial and industrial real estate conditions were mixed throughout most of the
District. A contact reported that apartment occupancy rates in northwest Arkansas remained high
in Rogers, Bentonville, Fayetteville, and Springdale and strong multi-family real estate activity is
expected in the second half of 2012. A contact in Louisville reported that office leasing activity
declined in the central business district, while it remained strong in the suburban area. A contact
in Memphis reported that industrial real estate activity has improved. Commercial and industrial
construction activity improved throughout most of the District. A contact in Little Rock reported
several new office building construction projects in the Fayetteville metropolitan area. A contact
in Louisville reported that with demand for multi-family units remaining strong, plans for
apartment construction continued to increase. A contact reported new mixed-use development
plans in the Memphis metropolitan area.
Banking and Finance
Total loans outstanding at a sample of small and mid-sized District banks increased 1.4
percent from mid-June to early September. Real estate lending, which accounts for 73.3 percent
of total loans, increased 0.2 percent. Commercial and industrial loans, accounting for 15.8
VIII-3
percent of total loans, increased 1 percent. Loans to individuals, accounting for 4.7 percent of
total loans, increased 2.5 percent. All other loans, accounting for 6.2 percent of total loans,
increased 16.4 percent. During this period, total deposits at these banks increased 0.2 percent.
Agriculture and Natural Resources
The condition of pastureland in the Eighth District has improved significantly from early
August to late September. Excluding Mississippi, where 97 percent of pastureland was already
rated as fair or better, the fraction of pastureland in fair or better condition has increased by at
least 20 percentage points in all District states. The share of crops in fair or better condition has
similarly increased across the District, although the condition of the corn crop remains relatively
unchanged. Harvest completion rates have outpaced their 5-year averages for almost all crops in
all District states. In particular, harvest completion rates for corn and rice are on average 30
percentage points ahead of their 5-year averages. Total year-to-date coal production in the states
comprising the District, with the exception of eastern Kentucky, was 9 percent higher through
the end of August than it was in the first eight months of 2011. August production, however, was
6.8 percent lower than in August 2011.
IX-1
NINTH DISTRICT--MINNEAPOLIS
The Ninth District economy expanded modestly since the last report. Increased activity
was noted in construction and real estate, consumer spending, tourism, and professional
services. Energy and mining were steady at high levels, while agriculture varied widely,
with crop farmers generally in better condition than animal producers. Meanwhile, activity
slowed slightly in the manufacturing sector. Labor markets tightened somewhat. Overall
wage increases remained subdued, although stronger increases were reported in some
areas. Price increases were generally modest.
Consumer Spending and Tourism
Consumer spending increased moderately. Same-store sales at a Minnesota-based retailer
increased 4 percent in August compared with a year ago. A Minneapolis area mall
manger reported that sales over the past two months were up about 4 percent compared
with a year earlier, while another Minneapolis mall reported that while traffic was flat,
sales were up somewhat. In North Dakota, a mall manager reported that sales in August
and September were up more than 5 percent from last year. Recent sales increased at a
Minnesota-based women’s apparel store. A domestic auto dealer reported strong sales
activity near the end of September and solid commercial fleet sales. A representative of
an auto dealers association in North Dakota reported strong vehicle sales across the state.
Tourism activity was above year-ago levels. In response to an end-of-summer
survey of lodging and camping businesses by Minnesota’s tourism office, 46 percent of
businesses reported higher occupancy than last summer, while 31 percent reported that
occupancy was the same. In addition, the number of visitors to the Minnesota State Fair
fell just short of a record. Tourism officials in Montana reported strong occupancy levels
during the summer and expect this year to finish ahead of last year.
Construction and Real Estate
Commercial construction activity increased since the last report. The value of commercial
building permits issued in August more than quadrupled from the same period last year in
both the Sioux Falls, S.D., and Billings, Mont., areas. A Minneapolis area construction
contact noted interest in building a regional warehouse, while a research and
development building was also planned. Residential construction increased from a year
ago. The value of residential building permits in the Sioux Falls area in August was up 11
percent from the same period last year. The number of residential permits more than
IX-2
doubled in the Minneapolis-St. Paul area in August compared with a year ago. The value
of residential permits issued in August more than doubled in Billings.
Commercial real estate markets expanded at a slow pace. Vacancy rates for
Minneapolis office, industrial and retail properties declined slightly since the last report,
according to local real estate professionals. Residential real estate market activity was
brisk. Home sales in mid-September were up 18 percent from the same period a year ago
in the Minneapolis-St. Paul area; the inventory of homes for sale was down 30 percent. In
the Sioux Falls area, August home sales were up 44 percent, inventory was down 14
percent and the median sales price rose 5 percent relative to a year earlier.
Services
Activity at professional business services firms grew slightly since the last report.
According to an architecture firm, demand for services picked up recently. An
information technology consulting company noted a recent uptick in the number of
projects. A data center opened in northern Minnesota. An environmental consulting firm
noticed increased activity primarily due to oil and gas pipeline analysis. A logistics
consulting firm noted that recent freight volumes are about the same as last year.
Manufacturing
The manufacturing sector weakened slightly since the last report. A survey of purchasing
managers by Creighton University (Omaha, Neb.) found that manufacturing activity
decreased in Minnesota and South Dakota in August for the second month in a row,
though the rate of contraction was not as sharp as in July. Activity increased in North
Dakota, but at a slower pace than the previous month. In contrast, an agricultural
equipment maker announced that it will open operations in Minnesota, and a machining
firm expanded operations in Michigan’s Upper Peninsula.
Energy and Mining
Activity in the energy and mining sectors remained strong. Oil and gas exploration
decreased slightly in North Dakota and increased in Montana; however, North Dakota oil
production hit a new record. A large railroad increased its capacity for carrying crude oil
out of North Dakota’s Williston Basin. Several large transmission-line projects were
under way around the District. In contrast, another Minnesota ethanol plant shut down,
and a North Dakota wind-turbine producer cut production, citing reductions in demand
and uncertainty over the expiration of a federal tax credit. District iron ore mines
IX-3
continued operating at near capacity. Sand mines saw increased demand from oil and gas
producers.
Agriculture
Agriculture was mixed, as crop farmers saw strong prices but widely varying yields,
while animal producers saw tighter profit margins. Harvests were well ahead of schedule
for crops around the region, thanks to hot and dry conditions late in the summer. District
sugar beet producers were expecting a record harvest. The condition of the corn and
soybean crops remained much better in Minnesota and North Dakota than in core corn
belt states. However, portions of Wisconsin and South Dakota were hit much harder by
drought. In addition, meat and dairy producers struggled with higher feed costs. Prices
received by farmers increased for most agricultural outputs in September compared with
a year earlier; the primary exceptions were milk and hogs, which saw price decreases.
Employment, Wages and Prices
Labor markets tightened modestly. According to a survey by an employment services
firm, 20 percent of respondents in Minneapolis-St. Paul expect to increase staffing levels
during the fourth quarter, while 6 percent expect to decrease staff. A year ago, 12 percent
anticipated increases, while 11 percent expected decreases. A recent Minnesota Chamber
of Commerce survey showed that only 49 percent of companies responding said that the
state has enough skilled workers in their respective industries. In Minnesota, a foreign
information technology consulting firm plans to add 300 workers and a
telecommunications company recently announced that it will add 150 call-center
employees. In contrast, a North Dakota wind turbine manufacturer announced that it will
lay off 300 workers. A hardboard plant in Minnesota closed, affecting 140 workers, and a
medical devices company laid off 80 of its Minnesota workers as part of a reorganization
plan.
Overall wage increases remained subdued, although stronger increases were
reported in some areas. For example, a health care system recently offered substantial
bonuses to recruit registered nurses in eastern North Dakota.
Price increases were generally modest, with some exceptions noted. Late
September Minnesota gasoline prices increased almost 20 cents per gallon since late
August. Metals prices increased somewhat since the last report, as well as some lumber
prices.
X-1
TENTH DISTRICT - KANSAS CITY
The Tenth District economy expanded at slightly slower pace in late August and September
compared to earlier in the summer. Consumer spending slowed somewhat, manufacturing growth
was more subdued, and transportation firms reported flat conditions. Growth in commercial real
estate activity slowed marginally, but remained on a positive trend. Residential sales and
construction continued to grow at a solid pace. Drought conditions hurt agricultural production,
though farm incomes were generally healthy due to higher crop prices and insurance programs.
Energy activity remained solid, and bankers noted steady loan demand, better loan quality, and
increased deposits. Prices rose moderately, but wage pressures were contained outside of a few
skilled positions.
Consumer Spending. Consumer spending slowed modestly and contacts were less
optimistic about future sales in the months ahead. Retail sales declined slightly from the previous
survey, but remained above year-ago levels. Several contacts cited political uncertainty and rising
gasoline prices as key reasons for the slowdown. Expectations for future sales also eased
somewhat, while store inventories were largely unchanged. Growth in auto sales was less robust
than previous months, and expectations for future sales weakened slightly. However, several auto
dealers in Oklahoma noted higher sales due to strong energy activity in their areas. Contacts said
sales were strongest for mid-sized family sedans and crossover SUVs, while sales of full-size trucks
and SUVs remained weak. Auto inventories increased and most dealers anticipated levels to
increase further. Restaurant sales slowed markedly and expectations also fell. Some contacts noted
higher food costs, rising gasoline prices, and overall consumer uncertainty as reasons for the
decline. Tourist activity edged lower, slightly more than the usual seasonal slowing, and most
contacts expected further decreases in the months ahead.
Manufacturing and Other Business Activity. Manufacturing activity in the Tenth District
continued to expand, although at a slower pace than in previous months. Factory orders and
shipments declined, while future hiring plans generally remained positive. Machinery production
fell considerably since the last survey, with some contacts citing European weakness and political
uncertainty as key reasons for the slowdown. In contrast, metals and transportation production
remained solid. Manufacturers’ capital spending plans moderated somewhat, but firms still
X-2
indicated overall plans for expansion. Transportation activity was flat, although several firms
reported higher shipments of perishable food products and more firms reported an increase in
capital spending plans. Expectations for future transportation activity eased slightly from the
previous survey. Sales growth among high-tech firms remained somewhat sluggish, with several
firms citing political uncertainty as a contributing factor. However, expectations for future activity
were more positive, and capital spending plans were generally favorable.
Real Estate and Construction. Solid growth in residential real estate activity continued in
late August and September, while expansion of commercial real estate activity slowed somewhat.
Housing starts edged higher, and limited availability of workers was reported as an issue for some
builders in states with low unemployment rates. Expectations for future homebuilding remained
favorable, and building materials were generally available. Despite the improvement in housing
starts, sales at construction supply firms were considerably slower, and many businesses were
pessimistic about future sales. Home sales continued to grow at a solid pace, though slightly slower
than in the previous survey. Residential realtors said mid-range homes sold well, while the luxury
home market was still exceedingly slow. Several contacts noted a rise in sales to investors, as
higher rental rates have increased profit potential. Expectations for future home sales flattened
somewhat, but prices were generally rising and expected to increase further. Mortgage lending
activity eased slightly, and one contact noted continued tightening of underwriting guidelines.
Growth in commercial real estate activity slowed marginally from the previous survey, but was
generally solid overall and most contacts remained optimistic about future months. Vacancy rates
continued to fall, but absorption rates flattened out. Office prices and rents were also flat from the
previous survey, although some increases were anticipated in coming months.
Banking. In the recent survey period, bankers generally reported steady to stronger loan
demand, improved loan quality, and increased deposits. Overall loan demand was favorable as
most respondents reported stable demand for commercial real estate and consumer installment
loans, while demand for residential real estate and commercial and industrial loans edged slightly
higher. Credit standards remained largely unchanged in all major loan categories. The majority of
bankers reported improved loan quality compared to a year ago, and nearly all banks expected the
outlook for loan quality over the next six months to be the same or better. More institutions
X-3
reported stronger deposit volume than in the previous survey.
Energy. Energy activity remained solid in late August and September. Contacts continued
to report reduced activity related to natural gas exploration, but oil rig counts remained strong and
were expected to stay relatively stable. Natural gas prices remained very low, although several
contacts anticipated a slight increase in prices due to lower levels of exploration and winter supply
concerns. Crude oil prices climbed higher from the previous survey period, which several contacts
attributed to continued Middle East conflict concerns. One producer noted an increase in service
activity particularly in Wyoming and North Dakota, but contacts reported minimal shortages in
equipment and labor.
Agriculture. Drought continued to hurt agricultural conditions across the District. Dry, hot
weather accelerated crop maturity, prompting an early corn harvest with below-average yields. The
soybean crop was rated in mostly poor condition as harvest began. Winter wheat planting was
progressing normally, but low soil moisture could delay emergence. Corn and soybean prices fell
seasonally, but concerns about global production underpinned wheat prices. Despite drought
conditions, high crop prices and crop insurance payments were expected to boost farm income and
more than offset lower livestock profits due to higher feed costs. District bankers indicated ample
funds were available for qualified borrowers to meet cash flow needs and finance carry-over debt.
Demand for farm loans remained modest amidst a pull-back in capital spending. Farmland values
rose further and were expected to remain at high levels.
Wages and Prices. The majority of prices continued to rise moderately with further
increases expected, but wage pressures were mostly contained outside of a few skilled positions.
Retail prices edged higher, and were anticipated to rise further in coming months. Prices of
manufacturing materials continued to increase, although fewer firms planned on raising selling
prices. Construction materials prices also moved higher, particularly for oil-related products such
as shingles. Transportation firms reported higher input prices, and increased food costs continued
to impact profit margins and selling prices for restaurants. Many contacts noted that rising gasoline
prices have increased input costs and cut sales volumes. Wage pressures were still generally
contained in most industries, although some firms reported continued difficulties in obtaining
skilled labor, such as truck drivers, construction workers, software programmers, and engineers.
XI-1
ELEVENTH DISTRICT—DALLAS
The Eleventh District economy expanded at a moderate pace over the past six weeks. Energy
activity remained strong, and construction and real estate activity picked up as housing demand
strengthened. Demand for business services improved slightly, and transportation services activity
continued to expand. Reports on manufacturing activity were mixed. Growth in retail and auto sales
slowed over the reporting period, but Eleventh District sales continued to outperform the national
average, according to respondents. Lenders noted steady loan demand. Agricultural conditions improved
slightly. Price and wage pressures were modest over the reporting period, and employment levels
continued to edge up. Many respondents across industries said continued uncertainty about upcoming
elections was clouding outlooks.
Prices Most reporting firms said prices were steady. Several contacts in the transportation
services industry noted higher diesel prices led to higher costs. Shipping firms expect higher ground and
air prices as a result. Airline industry contacts noted that business travelers were very price sensitive and
soft demand was keeping a lid on fares. Food and cattle producers noted price increases due to continued
commodity price pressures.
The price of WTI rose during the reporting period, reaching nearly $99 per barrel. Natural gas
prices remained depressed. Retail and on-highway prices of both gasoline and diesel ended the reporting
period slightly higher. Contacts noted that Hurricane Isaac had little impact on energy pricing. The prices
of petrochemical products were flat to slightly up over the past six weeks.
Labor Market Employment held steady or increased at most firms. Shortages of truck drivers
continued to be reported in several industries. Accounting and legal firms noted increased hiring and said
compensation has risen this year. Staffing firms reported additional hiring in response to high levels of
demand, but there were no reports of pressures on wages or salaries. Skill shortages remained an issue for
energy services firms, although some large firms noted slight easing. Retailers said hiring increased since
the last report and expected holiday hiring to be stronger than last year.
Manufacturing Overall demand for construction-related products was mixed over the last six
weeks. Producers of stone, clay, glass and lumber reported steady to slightly increased demand, with
particular strength in residential activity. Fabricated metals contacts said growth in demand had slowed.
Reports from primary metals contacts were mixed, although a large electrical wire manufacturer said
demand in August was stronger than in any other month this year. Across the board, contacts noted
uncertainty in their outlooks due to the upcoming election.
High-tech manufacturers said sales growth slowed modestly over the reporting period. Most
contacts attributed the slowdown to weakened international demand and lower forecasts for world
XI-2
economic growth. Weaker demand was noted across a broad range of products, including industrial,
computers and communications infrastructure. Contacts expect demand to remain weak through year-end.
Demand for paper products increased in line with normal seasonal patterns. Food producers noted
increased business over the last thirty days due to a slight pickup in consumer demand. Reports from most
transportation equipment manufacturers were mixed; aviation manufacturing orders were down slightly
while other firms noted flat to increased activity.
Petrochemicals producers said demand remained mostly flat since the last report. Ethylene
production fell to a three-year low as plants went offline for maintenance and improvement. Ethylene and
polyethylene margins remained relatively stable and largely healthy, although exports softened. Gulf
Coast refiners said operating rates remained over 90 percent, and strong export demand was preventing a
buildup in domestic inventories. Refinery margins rose to the highest level since 2008 in August and have
since remained very healthy.
Retail Sales Retail sales growth softened over the reporting period, and sales are up slightly
year-over-year. Sales in the Eleventh District continue to outperform the nation, according to two national
retailers. Contacts noted that holiday hiring has begun or will begin soon, and hours worked are up from
the previous report. Commodity input costs are easing, but the drought has caused prices for grains and
feedstock to rise. The outlook for the rest of the retail quarter, which ends in October, is mixed but
contacts are cautiously optimistic for the fourth quarter.
Automobile sales were flat over the past six weeks but are up year-over-year. Contacts expect a
modest increase in selling prices with the 2013 models due out soon. Outlooks are generally uncertain
because of the election and consumer confidence, but fourth quarter is expected to be better year-overyear.
Services Staffing firms said demand growth slowed slightly but is expected to turn around in
coming weeks. Demand from the steel industry was very strong, with contracts extending through 2014.
Engineering and mortgage processor jobs were in high demand, while the need for oil workers has
“become less crazy.” There were fewer requests for workers in the plastics industry. Outlooks remained
fairly optimistic.
Accounting firms noted a slight increase in activity. Demand for insurance and audit services
experienced positive growth, while that for advisory and tax services was flat to slightly down. Demand
for energy-related services remained strong. Legal contacts said overall demand for services was not
much changed since the last report. However, activity related to energy, labor-services and real estate had
increased. Outlooks were cautiously optimistic.
Reports from transportation service firms were mostly positive. Railroad contacts said volumes
picked up since the last report. Motor vehicle shipments continue to be strong, and contacts noted healthy
XI-3
volumes of some construction-related products, including lumber and wood and crushed stone. Container
volumes continued to increase and shipping firms said small parcel volume growth had recently
accelerated, led by improvements in wholesale and retail trade. Air cargo volumes continued to decline
due to weakness in the international sector.
Airlines noted softer passenger demand since the last report, citing weakness in Europe and Asia.
Respondents were cautious in their outlooks, and slightly more pessimistic than six weeks ago.
Construction and Real Estate Single-family housing activity continued to increase at a good
pace over the past six weeks. Contacts said new and existing home sales outpaced expectations, and new
home construction activity increased. Inventories of both new and existing homes remained tight, leading
to price gains. Apartment construction picked up since the last report, and outlooks for the multifamily
sector remain quite optimistic. Leasing activity in the office and industrial real estate sectors remained
steady at a good pace. While commercial construction remains at low levels, contacts expect activity to
improve.
Financial Services Overall, financial firms reported flat loan demand. Auto loan demand,
particularly for new autos, was a bright spot, and energy-related lending remained strong. Business
lending and commercial real estate lending were weak. Loan pricing remained very competitive and has
squeezed profit margins. Loan quality continued to improve as delinquency rates trended down and new
loans are granted to more creditworthy customers. Deposits kept growing even as rates remained very
low. Outlooks were mixed, and contacts said fiscal worries were negatively impacting loan demand.
Energy Respondents at energy-related firms said business remained strong with long lead times,
although the District active rig count declined modestly over the reporting period. Producers concentrated
their production on oil, as the prices of both natural gas and natural gas liquids remain very low. Outlooks
were essentially flat. Activity was robust but there is little hope for further improvement through the end
of the year.
Agriculture The District remained largely in drought, although scattered rainfall improved soil
moisture conditions in several areas. Crops were mostly in fair to good shape. Production is expected to
be better than last year—when the drought was much more severe in the Eleventh District—but below
average because of ongoing dry conditions. Grain prices remained high due to the Midwest drought,
adversely affecting Texas’ large livestock sector as feed costs reached record highs.
XII - 1
TWELFTH DISTRICT–SAN FRANCISCO
Summary
Economic activity in the Twelfth District grew at a modest pace during the reporting period of
mid-August through late-September. Upward price pressures remained limited overall, and upward wage
pressures remained muted. Sales of retail items rose slightly, and demand for most business and
consumer services gained further on net. District manufacturing activity edged up. Agricultural output
was mostly steady, while activity continued to trend up for providers of energy resources. Home demand
in the District showed continued signs of improvement, and demand for commercial real estate was
mainly stable. Financial institutions reported overall loan demand was unchanged or up somewhat on
balance.
Wages and Prices
Price inflation remained quite limited for most final goods and services during the reporting
period. Prices increased overall for some energy items including electricity, crude oil, and retail gasoline.
Natural gas prices remained near historically low levels. Contacts noted high feed prices are passing
through to grocery stores and restaurants. Contacts in the tech sector reported slightly lower prices of
some technology-related products. For most products and services, vigorous competition among firms
and cost-conscious purchasing behavior by consumers continued to keep price inflation in check.
Contacts in most sectors reported very limited upward wage pressures. Moderate wage increases
in the 2 to 3 percent range were noted for employees in some manufacturing sectors, although lower
levels of staffing were also reported. Contacts continued to note wage gains for workers with specialized
skills in the information technology sector. Some upward pressure on wages of skilled construction
workers was noted, as well. For the remainder of 2012, most contacts reported limited hiring plans,
suggesting that upward wage pressures will remain subdued.
Retail Trade and Services
Retail sales rose further overall. Contacts reported sales were a bit stronger relative to the prior
reporting period. Discount chains and online retailers continued to outperform traditional department
XII - 2
stores. At grocery stores, consumer spending was soft as shoppers continued to shift their purchasing
decisions in favor of cheaper products. Contacts reported a strong pace for auto sales, significantly above
the pace from the same period last year. Demand for used vehicles also remained robust.
Demand for most business and consumer services gained on net. Sales continued to grow for a
wide variety of technology services, with expectations for further rapid growth in selected segments, such
as cloud computing services. Demand for legal services was steady. For providers of health-care
services, demand was largely stable. Demand picked up further for restaurants and other food-service
providers. Some contacts in the District’s travel and tourism sector reported improvement in conditions
overall.
Manufacturing
District manufacturing activity edged up on balance during the reporting period of mid-August
through late-September. Production activity remained at high levels for makers of commercial aircraft
and parts. Manufacturers of wood products reported stronger than expected output and sales. New orders
improved somewhat for manufacturers of semiconductors and other technology products. Demand for
steel was mostly stable, albeit at low levels, while sales of processed scrap metal fell further, largely as a
result of sustained weak demand abroad. For petroleum refiners, capacity utilization rates increased to
the highest levels in years, as growing export sales offset relatively weak domestic demand for refined
petroleum products.
Agriculture and Resource-related Industries
Agricultural activity was mostly stable, and extraction activity of natural resources used for
energy production continued to expand. Contacts noted continued efforts by agricultural businesses to
increase their productivity. Reports indicated that demand for cotton was strong. Higher grain and feed
prices prompted District livestock producers to reduce herd sizes. Favorable weather conditions in some
parts of the District helped stabilize production. Extraction activity for petroleum and natural gas
remained at high levels or expanded a bit further on net.
XII - 3
Real Estate and Construction
Home demand in the District showed continued signs of improvement, while demand for
commercial real estate was largely unchanged. Although still well below its historical average, the sales
pace for new and existing homes picked up further in many areas. Contacts noted that pent-up demand
may spur additional gains in coming months. Contacts reported a decrease in the inventory of available
homes and a noticeable increase in construction activity. On the nonresidential side, contacts observed a
reduction in commercial property vacancies in parts of the District.
Financial Institutions
District banking contacts reported that loan demand was unchanged or up somewhat compared
with the prior reporting period. Some contacts reported that business loan demand inched up, although
some of the new activity was for refinancing rather than expansion. Reports continued to highlight ample
liquidity and stiff competition among lenders to provide credit to well-qualified business loan applicants.
Contacts indicated that some borrowers received multiple offers to finance projects. Demand for
consumer credit remained relatively strong, reflected primarily in high lending activity for automobile and
home purchases.
Cite this document
Federal Reserve (2012, October 23). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20121024
@misc{wtfs_beige_book_20121024,
author = {Federal Reserve},
title = {Beige Book},
year = {2012},
month = {Oct},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20121024},
note = {Retrieved via When the Fed Speaks corpus}
}