Beige Book
For use at 2:00 p.m., E.D.T.
Wednesday
September 4, 2013
Summary of Commentary on ____________________
Current
Economic
Conditions
By Federal Reserve District
August 2013
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICT
August 2013
TABLE OF CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
First District - Boston . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Second District - New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1
Third District - Philadelphia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Fourth District - Cleveland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
Fifth District - Richmond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
Sixth District - Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1
Seventh District - Chicago . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
Eighth District - St. Louis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
Ninth District - Minneapolis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
Tenth District - Kansas City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X-1
Eleventh District - Dallas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XI-1
Twelfth District - San Francisco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XII-1
i
Summary*
Reports from the twelve Federal Reserve Districts suggest that national economic activity
continued to expand at a modest to moderate pace during the reporting period of early July through late
August. Eight Districts characterized growth as moderate; of the remaining four, Boston, Atlanta, and
San Francisco reported modest growth, and Chicago indicated activity had improved. Consumer
spending rose in most Districts, reflecting, in part, strong demand for automobiles and housing-related
goods. Activity in the travel and tourism sector expanded in most areas. Demand for nonfinancial
services, including professional and transportation services, increased slightly on net. Manufacturing
activity expanded modestly. Residential real estate activity increased moderately in most Districts, and
demand for nonresidential real estate gained overall. Lending activity was mixed. Lending standards
were largely unchanged, while credit quality improved. Demand for agricultural products was strong
during the reporting period, but growing conditions and production in some areas were somewhat weak as
a consequence of extreme weather. Demand for natural resource products was stable or up slightly, and
extraction increased in anticipation of further demand growth.
For most occupations and industries, hiring held steady or increased modestly relative to the prior
reporting period. Upward price pressures remained subdued, and prices increased slightly during the
reporting period. Wage pressures continued to be modest overall.
Consumer Spending and Tourism
Reports indicated that consumer spending rose in most Districts. A few Districts mentioned that
back-to-school sales contributed to overall consumer spending growth. Districts reported retail sales
generally grew moderately in Boston, Kansas City, and Dallas; sales were mixed in New York; and sales
grew more modestly in Philadelphia, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco.
Cleveland noted that sales came in below many retailers’ expectations, and Richmond indicated that sales
revenues weakened. Boston noted that consumer confidence improved, while New York reported that it
retreated a bit. According to reports from Boston, some retailers experienced robust demand gains, with
“year-over-year comparable store sales increases between 4 and 5 percent.” Many Districts noted strong
demand for home furnishing and home improvement items. However, reports from several Districts
indicated that consumers remained cautious in their purchases and highly price-sensitive. For example,
* Prepared at the Federal Reserve Bank of San Francisco and based on information collected on or before
August 26, 2013. This document summarizes comments received from business and other contacts
outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.
ii
Philadelphia observed that consumers engaged in “price-shopping,” as “sales of children’s apparel were
stronger at outlets than at traditional malls.”
Attractive financing conditions and pent-up demand supported a robust pace of automobile sales
in most Districts. New York noted that sales of high-end brands were especially robust. Richmond
reported that one dealership had its best sales month ever, and sales at another dealership doubled relative
to twelve months earlier. Used vehicle sales were strong in Chicago, Kansas City, and San Francisco but
a bit soft in New York. New car inventories rose or remained high in Cleveland and San Francisco, but
dealers were generally satisfied with their inventory positions; by contrast, Minneapolis reported sales
were constrained at some dealerships due to a lack of inventory. Reports from dealerships across the
nation were optimistic about demand growth for new and used automobiles for the remainder of the year.
Many Districts pointed to solid gains or high levels of travel and tourist activity, with pickups
evident in both the business and leisure segments. Travel and tourism activity expanded overall in the
Boston, Philadelphia, Richmond, Atlanta, Minneapolis, and San Francisco Districts. Relative to the same
period a year earlier, Richmond and Minneapolis reported that the number of camping permits and
visitors at state and national parks in their Districts increased substantially. New York reported that
business at Broadway theaters picked up since the previous reporting period, but Boston highlighted low
attendance at some museums. New York and Kansas City both reported that some hotels experienced
slightly lower occupancy rates, which may be a result of cutbacks in government travel. A few Districts
indicated that business travel activity had also expanded.
Nonfinancial Services
Demand for nonfinancial services improved modestly overall since the previous Beige Book.
Adjusting for seasonal fluctuations, providers of various professional and business services such as
accounting, consulting, information, transportation, and legal services generally expanded their activities
according to reports from Philadelphia, Richmond, St. Louis, Minneapolis, and Dallas. Providers of
staffing services in the Boston and New York Districts reported improved business conditions. Several
Districts noted increased demand at restaurants, although San Francisco was an exception, with reports
from parts of the District indicating that demand had eased. Health-care organizations in the Richmond,
St. Louis, and San Francisco Districts reported soft demand for various health-care services. Boston
noted that sales of technology services to businesses and consumers were a bit weaker than expected, and
reports from St. Louis indicated that some information technology firms may downsize their workforces.
Cleveland indicated that ground cargo volumes were strong; Dallas reported an increase in railroad
volumes but a decline in small parcel volumes; and Atlanta observed a decrease in overall trucking
iii
volumes. Both Cleveland and Atlanta noted a short supply of truck drivers as a consequence of new
hours-of-service regulations. Air freight tonnage ran slightly above year-ago levels for the Atlanta
District but was unchanged over the past six weeks for Dallas.
Manufacturing
Manufacturing activity expanded modestly during the reporting period. Kansas City noted a
slight contraction in the previous reporting period but indicated that manufacturing activity had expanded
moderately in recent weeks. Cleveland and Minneapolis also reported a moderate expansion, although
Minneapolis specified that the pace of growth was uneven across District states. Atlanta noted a decrease
in the pace of growth as indicated by modest decreases in new orders and production. Several Districts,
including Philadelphia, Richmond, Atlanta, Chicago, Kansas City, and San Francisco, expressed that
demand for inputs related to autos, housing, and infrastructure were strong. Chicago highlighted the auto
industry as a main source of strength for that District’s overall manufacturing sector, and contacts there
expect demand for heavy and medium trucks to ratchet up further and to support growth in overall
manufacturing for the remainder of the year. By contrast, Cleveland was the only District to report that
auto production activity declined, although reports specified that it was a normal seasonal pattern and
sales were up relative to twelve months earlier. In the Richmond District, a lumber company purchased
new equipment to expand its production; and in Chicago, demand for construction equipment and
materials continued to strengthen. Philadelphia reported some increased demand related to ongoing
repairs of infrastructure damaged during Superstorm Sandy last year. Reports from San Francisco
indicated that shipments of steel products used in nonresidential construction continued to increase, and
reports from Chicago indicated that steel output grew at a moderate pace. Boston and San Francisco
noted increased demand for semiconductors. High-tech manufacturing firms in the Dallas District noted
that demand was stable, and, while Kansas City District firms reported that sales dipped, contacts there
expect sales to bounce back in the next three months. In general, contacts in most Districts expressed
optimism about a near-term pickup in overall manufacturing activity. Production in the defense industry
was mixed across Districts. Contacts in the Boston District reported minimal direct effects of the federal
sequestration, although they were concerned about the prospect of larger effects in the fourth quarter. On
the other hand, defense firms in the Kansas City and San Francisco Districts reported that the effects of
the sequestration have already been passed through to actual reductions in production.
iv
Real Estate and Construction
Activity in residential real estate markets increased moderately. The pace of sales of existing
single-family homes continued to increase moderately in most Districts. Sales activity in New York
City’s co-op and condominium market was described as unusually strong in July and August, and the
Cleveland District reported that year-to-date sales of existing single-family homes were up substantially
relative to the same period last year. Reports from several Districts suggested that rising home prices and
mortgage interest rates may have spurred a pickup in recent market activity, as many “fence sitters” were
prompted to commit to purchases. Sales of new single-family homes stabilized during the past few
months in the Cleveland District after accelerating earlier in the year. New home sales declined slightly
in parts of the Philadelphia and Richmond Districts in July. Philadelphia conveyed that some borrowers
apparently preferred to lock in a mortgage rate for an existing home rather than wait for a new home to be
completed and chance higher mortgage rates. Home prices climbed in most Districts. Richmond and
Boston reported that houses in some areas were staying on the market fewer days and increasingly
receiving multiple offers. New York noted that bidding wars were common in the Buffalo area. Many
Districts reported that limited inventories of desirable properties contributed to upward price pressures.
Single-family home construction was strong in the Minneapolis and Dallas Districts, and Chicago
reported that a number of builders are planning new developments to begin later this year. However,
several Districts noted constraints on the construction of single-family homes. San Francisco pointed to
shortages of construction workers. In the Kansas City District, some building materials, such as drywall
and roofing shingles, were in short supply.
Demand for nonresidential real estate increased. Office vacancy rates and other indicators in
markets for office space improved modestly in the major metropolitan markets in the New York,
Richmond, and St. Louis and Districts. Rents for Class B office space in Manhattan have risen more than
10 percent over the past twelve months. Demand for commercial real estate showed strong growth in the
Dallas District and moderate growth in the Minneapolis District. Both Districts reported new plans for
construction of industrial space. Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and
San Francisco reported modest growth in demand for commercial real estate. Philadelphia highlighted a
shift in recent leasing activity toward larger commercial spaces. The Boston, Philadelphia, Cleveland,
Atlanta, Dallas, and San Francisco Districts all reported increases in construction of multifamily
residential properties.
v
Banking and Finance
Lending activity weakened a bit, and several Districts reported less-favorable conditions than in
the preceding reporting period. Most Districts indicated no better than modest growth. Loan growth in
the Atlanta, Chicago, St. Louis, and San Francisco Districts was slower than in the previous reporting
period. Kansas City reported a decline in lending, reversing slight growth earlier in the summer. Several
Districts characterized business lending as largely flat. Chicago reported that recent interest rate increases
likely were depressing commercial investment. However, Kansas City noted that expectations for better
economic conditions and stronger profit growth had offset any effects of rate increases on business loan
demand. Demand for mortgage refinance loans declined in the New York, Philadelphia, Cleveland, and
Richmond Districts. By contrast, purchase mortgage lending continued to grow moderately in most
Districts, although San Francisco noted that applications have dropped a bit in some areas of that District.
In the Atlanta District, increases in home values generated a surge in second mortgages, and Philadelphia
and Cleveland reported modest increases in demand for home equity lines of credit.
Lending standards were largely unchanged, while credit quality improved. Reports indicated
little change in standards across all lending categories. However, a few Districts commented that stiff
competition for high-quality commercial borrowers was eroding loan volumes at banks that maintained
prudent interest rates and terms. New York reported widespread declines in delinquency rates, especially
for consumer loans and home mortgages, while Philadelphia, Cleveland, Richmond, and Kansas City all
reported general improvement in loan quality.
Agriculture and Natural Resources
Demand for agricultural products expanded during the reporting period, although production
activity was limited by extreme weather in some areas. Droughts or dry weather in the Chicago, Kansas
City, and Dallas Districts constrained farming activity, but some growing areas within the Chicago and
Dallas Districts were relieved by much-needed rainfall. By contrast, extremely wet conditions led to
delayed planting and reduced yields for some crops in the Richmond and Atlanta Districts. Kansas City
noted that wheat production was below average and corn crops were threatened by disease, and Atlanta
and Dallas indicated that the cotton crop was smaller than anticipated. Chicago noted that, despite the dry
weather, corn and soybean crops were in better condition than they were during the drought last year.
Meanwhile, the St. Louis District anticipates robust production activity, with corn crop yields expected to
increase substantially over last year. San Francisco noted that demand was generally strong for most crop
and livestock products, and Atlanta found that poultry farming and fruit production were robust.
vi
For producers of natural resource products, demand was mostly steady, while production and
extraction activity rose. San Francisco reported a modest decline in demand for some oil products, and
Dallas reported stable drilling activity at a high level. Contacts in San Francisco and Dallas expect nearto medium-term oil-related sales and production activity to pick up; contacts in Dallas and Atlanta expect
drilling activity in the Gulf of Mexico to increase as demand continued to grow. Richmond and Kansas
City reported that the number of natural gas rigs increased, but coal production in the Cleveland,
Richmond, St. Louis, and Kansas City Districts was below year-ago levels. Minneapolis reported
upgrades to a nuclear power plant and development of oil sands production facilities, and Cleveland noted
that unconventional drilling activity increased. Mining activity was flat in the Minneapolis and
Richmond Districts.
Employment, Wages, and Prices
For most industries and occupations, hiring held steady or increased somewhat in most Districts.
Hiring in manufacturing rose modestly. St. Louis reported increases in employment at a variety of
manufacturing firms connected to the auto industry or the home construction industry. Boston,
Richmond, and Minneapolis reported shortages of some types of skilled manufacturing workers. Hiring
increased for selected services occupations. Increases in demand for information technology workers
were widespread. Hiring increased for workers in accounting and health services occupations in several
Districts. Retail employment gains were limited. Atlanta reported slight employment increases in
Georgia and Florida, and Dallas reported gains in oil and gas producing areas. Cleveland noted that retail
employment increases were limited to new stores. Boston and Richmond reported that temporary
workers are increasingly being offered permanent employment. A health-care staffing firm in the Boston
District reported a 30 percent increase in permanent placements this year. Similarly, a staffing firm in the
Dallas District reported “near-record” levels of direct hiring by health-care and engineering clients.
Wage pressures remained modest overall. The Boston, Philadelphia, Cleveland, Atlanta, Dallas,
and San Francisco Districts reported that wage pressures were largely subdued. Cleveland and Dallas
highlighted that, overall, wage pressures at homebuilding and other construction-related firms were
contained. New York reported that some firms have become increasingly willing to negotiate salaries,
although pay rates have not escalated significantly. Reports from a few Districts highlighted significant
labor supply constraints and, in some cases, large compensation increases for workers with specialized
skills in selected sectors, including the construction and high-technology sectors in Atlanta and Kansas
City and the engineering sector in Dallas. Kansas City also reported that some firms in the retail, leisure,
and hospitality industries were beginning to raise wages to attract salespeople, housekeepers, maintenance
vii
staff, and clerical staff. Increases in the costs of employee health benefits continued to put upward
pressure on overall compensation costs, although Minneapolis indicated that growth in the price of healthcare has slowed.
Upward price pressures were subdued, and price increases were limited during the reporting
period. Reports from many Districts indicated modest growth, no change, or slight decreases in overall
commodity and input prices. In a few Districts, prices of some construction inputs in short supply
increased, including lumber, drywall, concrete, and roofing shingles. However, Cleveland noted that the
rate of increase for construction input prices slowed, and lumber prices in the Chicago District declined.
Dallas reported that law firms had reduced their billing rates slightly. Atlanta and Chicago reported that
firms have limited pricing power in general. Similarly, food costs continued to increase in the Kansas
City District, but most restaurant owners did not increase menu prices. However, Richmond reported that
several construction-related businesses said that they were able to pass along rising input prices.
I-1
FIRST DISTRICT – BOSTON
Economic activity in the First District continued to expand at a modest pace.
Most contacts reported
low-to-moderate single digit year-on-year growth rates. Higher interest rates appear to have different
effects on commercial real estate where some contacts reported upward pressure on capitalization rates
and residential real estate where contacts report that the prospect of rising rates “nudged” buyers into the
market, increasing demand. No firms report major cyclical layoffs but hiring remains subdued except
among fast-growing technology firms.
Sequestration has yet to have had any direct effect on contacts
with major government businesses but contacts anticipate weakness in the future. Contacts did not
complain of higher input prices and did not report that they were raising prices significantly either.
Retail and Tourism
Most contacts report year-over-year comparable store sales increases between 4 and 5
percent. Demand remains quite strong for all apparel, home furnishing, and home improvement
categories, as well as technology products like tablet computers. Contacts indicate that prices
remain steady, and feel that consumer sentiment continues to improve. There is some cautious
optimism that this more positive trend will continue but expectations for 2013 sales still center
on modest single-digit increases.
Both business and leisure travel remain strong with leisure driven by both domestic and
international visitors. Attendance at some museums and other attractions is below expectations.
While a contact noted that July and August are not heavy months for government-related travel,
there is some concern that U.S. government travel budgets, cut 30 percent because of the
sequester, will start to have a negative impact on travel industry revenues later in the year.
Manufacturing and Related Services
Three companies—a semiconductor industry supplier, a medical device maker, and a
fitness equipment manufacturer—reported double-digit increases in sales compared to the same
period a year earlier, four reported single-digit increases from the previous quarter and three
companies reported declines. Some contacts reported that sales in Europe were finally growing
again. The majority of contacts report no change in prices from the first quarter, either the input
prices they face, or their own sale prices. Employment growth continues to be modest. A
rapidly growing medical device manufacturer reports increasing headcount at a 15 percent
I-2
annualized rate but most firms are hiring only “selectively.” One firm did report layoffs due to a
repositioning of a formerly bricks and mortar business as e-commerce.
Defense industry
contacts reported little direct effect of sequestration but continued to worry with one contact
mentioning rumors that major cuts would come in the fourth quarter. Contacts reported no major
revisions of their investment plans and most expect single-digit year-on-year growth in the next
quarter.
Software and Information Technology Services
New England software and information technology services contacts generally report
weaker than expected business activity through August, with slow revenue growth. Several
attribute this sluggishness to continued macroeconomic uncertainty in the U.S. and Europe. In
contrast, a contact which mainly works with health care firms attributes the slowdown to the
expiration of federal stimulus funding for health records software; however, business in the poststimulus slump has been better than expected. A business advisory contact sees early signs of
improvement in the overall market, as evidenced by an uptick in Q2 sales activity in terms of
customer expenditure. Four out of five contacts continue to be cautious in hiring, and plan to
remain close to their current headcounts through 2013. Both selling prices and capital and
technology spending have gone largely unchanged in recent months. Looking forward, New
England software and IT firms are cautiously optimistic, with most expecting only modest
growth through the second half of 2013.
Staffing Services
New England staffing contacts generally report strengthened business conditions through
August, characterized by mid-single-digit year-on-year revenue growth. This continued growth
reportedly reflects both an increase in overall labor demand and a shift to more aggressive
marketing strategies at the firm level. Generally, there is a high demand for skilled IT workers
and engineers; contacts also report increased demand for manufacturers and medical assistants.
On the supply side, there remains a shortage of skilled technical workers to fill high-end IT and
engineering jobs. The general consensus is that despite a large pool of available workers, the
skills mismatch prevents staffing firms from fully meeting client demand. The number of
temporary-to-permanent placements continues to grow; a healthcare contact reports a 30 percent
I-3
increase in permanent placements this year. Bill rates and pay rates are largely unchanged, with
the exception of one firm reporting a decrease relative to May due to the current client mix.
Looking forward, staffing contacts continue to be cautiously optimistic, expecting mid-singledigit year-on-year revenue growth through the remainder of 2013.
Commercial Real Estate
Contacts were mixed in their analysis of the effects of higher interest rates. In Boston
and Providence, contacts reported upward pressure on capitalization rates noting that the
frequency of renegotiation (or “re-trading”) of deals in progress increased in recent weeks.
Contacts in Hartford reported no effects so far of higher rates on demand for commercial real
estate. A regional lender to commercial real estate continues to face challenges securing desired
loan volume in the face of competition from other lenders willing to offer commercial mortgages
at very low rates. Construction activity remained robust in greater Boston and the pipeline of
deals yet to break ground increased significantly over one year ago. Current and planned
construction projects in the Boston area are concentrated in high-end multifamily and mixed-use
(retail/residential) structures, although construction activity is poised to rise in the hospitality
sector and among institutions of higher education. Contacts continued to expect slow
improvements in commercial real estate fundamentals in the coming months, but roughly half of
contacts raised the uncertainty around their projections relative to last report, with much of the
growing uncertainty linked to uncertainty over long-term interest rates.
Residential Real Estate
Throughout the First district, the market for single-family homes and condos continues to
make a healthy recovery as sales and prices continued to increase and days-on-the-market
continued to fall. According to contacts, increases in the mortgage rates have nudged potential
buyers, hoping to take advantage of low-interest rates, to enter the market. In some areas,
particularly in the Greater Boston area and Massachusetts, realtors have observed an increasing
frequency of multiple offers being made on properties. Despite shrinking inventory, sources
state that modest appreciation in regions where multiple bids are common indicates that the
market is not overheating.
II-1
SECOND DISTRICT--NEW YORK
Economic growth in the Second District has continued at a moderate pace since the last
report. Contacts indicate that cost pressures remain moderate, while selling prices continue to be
steady to up slightly. Labor market conditions have shown further signs of improvement, while wage
increases have remained subdued. Retailers report that sales picked up a bit in July and August and
were on or close to plan; new automobile sales have strengthened since the last report. Tourism
activity has been mixed since the last report. Commercial and especially residential real estate
markets have shown signs of firming. Finally, bankers report steady to somewhat softer loan
demand, little change in credit standards, some leveling off in loan spreads, and widespread declines
in delinquency rates.
Consumer Spending
Retailers report that sales were mixed but on or close to plan in July and early August. A
major retail chain reports that sales were on plan in July and in early August, with New York City
stores out-performing the rest of the region somewhat. One major mall in upstate New York notes
that sales have picked up in recent weeks, following a sluggish June when sales were hurt by
inclement weather. However, another upstate mall reports that sales are down slightly from a year
ago, in part reflecting fewer Canadian shoppers. Inventories are generally at or near desired levels.
Prices are generally described as stable, though a few contacts say there is significant discounting.
Auto dealers in the Buffalo and Rochester areas report that new vehicle sales strengthened in
July, running roughly 15 percent ahead of comparable 2012 levels; early indications are that sales in
August have been similarly robust. High end brands are reported to be selling particularly well.
Sales of used automobiles have been mixed but generally soft. Wholesale and retail credit conditions
for auto purchases continue to be characterized as favorable.
II-2
Tourism activity has been mixed since the last report. Hotels across parts of upstate New
York have seen some decline in occupancy rates. Business at Broadway theaters has picked up
somewhat from mid-July to mid-August; attendance is still down modestly from a year earlier but not
by nearly as much as in June and early July. Moreover, revenue was running ahead of comparable
2012 levels in July and the first part of August—the first such gain since March. Finally, consumer
confidence in the region has retreated slightly since the last report: both The Conference Board’s
survey of residents of the Middle Atlantic states (NY, NJ, Pa) and Siena College’s survey of New
York State residents show confidence declining modestly in July but running roughly on par with a
year earlier.
Construction and Real Estate
Residential real estate markets in the District have strengthened since the last report.
Buffalo-area contacts describe market conditions as very robust, as demand continues to outstrip
supply. Thus far, there has been little new construction, and the lack of inventory has pushed prices
up. Bidding wars are common for desirable properties. Similarly, sales activity in New York City’s
co-op and condo market has been unusually strong in July and August. The inventory of available
apartments for sale has declined further and is at new lows, except at the high end of the market.
Prices have been rising only modestly in Manhattan, though in Brooklyn, prices are reported to be up
by close to 10 percent over the past year. Manhattan’s rental market appears to be at a plateau: rents
have leveled off and are up only marginally from a year ago. Brooklyn rents, on the other hand are
up 5-10 percent over the past year. As in the sales market, the inventory of available rentals remains
tight throughout New York City.
An authority on New Jersey’s housing industry reports that market conditions continue to
improve gradually: sales activity has picked up somewhat and prices of existing homes are up
roughly 2 percent from a year ago. Multi-family construction activity has been robust but single-
II-3
family construction remains sluggish; there continues to be little or no spec building. A sizable
inventory of distressed properties persists. The New Jersey shore rental market has not yet recovered
to 2012 levels; markets in communities hardest hit by Sandy remain particularly depressed.
Commercial real estate markets across the District have been steady to slightly firmer since
the last report. Manhattan’s office vacancy rate remains little changed at a low level and is down
modestly from a year ago; asking rents for Class A properties have been flat, whereas rents on Class
B office space have been trending up and have risen more than 10 percent over the past year. Office
vacancy rates in Northern New Jersey, as well as in Westchester and Fairfield counties, have come
down since the beginning of this year, though they remain elevated. Long Island’s vacancy rate is
steady at a low level. Office markets in the Buffalo and Rochester areas have been stable, while
Albany’s has been somewhat softer.
Other Business Activity
The labor market has shown signs of strengthening. One major employment agency notes
that summer business has been unusually strong across the board—in terms of both industries and
occupations. Another major agency describes the improvement as more gradual. Both these contacts
report that people are finding jobs more quickly and that demand for IT workers has been particularly
strong. Companies are also described as increasingly negotiable on salary, though pay has yet to
start escalating significantly.
Manufacturing firms in the District report a pickup in employment levels, and a growing
proportion of contacts plan to add workers in the months ahead. More broadly, manufacturers report
that business activity has continued to improve modestly since the last report, that input price
pressures are steady and that selling prices are little changed. Non-manufacturing firms indicate that
both business and hiring activity have been steady since the last report, though these contacts have
become a bit more optimistic about the near term outlook and also in their hiring plans. Service
II-4
sector firms report that cost pressures remain somewhat widespread but are more subdued than
earlier in the year.
Financial Developments
Small- to medium-sized banks in the District report a decrease in demand for residential
mortgages but little change in demand for other types of loans.
Bankers report fairly widespread
declines in refinancing demand—more so than at any time in the past three years. Respondents
indicate that credit standards are little changed across all loan categories. Spreads of loan rates over
costs of funds are reported to have narrowed, on balance, but to a lesser extent than has been the case
for most of the past two years. Finally, bankers report widespread decreases in delinquency rates,
particularly for consumer loans and residential mortgages.
III - 1
THIRD DISTRICT – PHILADELPHIA
Aggregate business activity in the Third District continued at a moderate pace of growth
during this current Beige Book period. Moderate rates of growth continued for general services,
existing home sales, and home construction. Homebuilders felt their sales may have been
partially dampened by rising mortgage rates; however, construction remained well above its
level of a year ago. Meanwhile, auto sales continued their strong rate of growth; growth of
freight shipping was also strong. General retail sales, commercial real estate leasing, staffing
services, and tourism continued to expand at modest rates, while manufacturing and commercial
real estate construction continued to expand only slightly. Loan volumes at Third District banks
grew at a modest pace across most categories; credit quality continued to improve. Contacts
reported slight increases overall for general price levels as well as for wages and home prices –
similar to the last Beige Book period.
An overall outlook for moderate growth has continued since the last Beige Book.
Contacts expressed greater confidence in the U.S. economy and in global conditions. However,
firms remained cautious in their hiring and long-term capital expenditure plans and expressed
concern about a potential fiscal crisis regarding the federal debt ceiling.
Manufacturing. Overall, Third District manufacturers reported further increases in
orders and shipments since the last Beige Book, although overall growth remained slight. Makers
of food products, paper products, and fabricated metals reported gains. Producers of lumber and
wood products, primary metals, electronic equipment, and instruments reported lower activity,
much of it seasonal in nature. Reports were mixed for makers of industrial machinery. Overall,
firms continued to report strong demand from auto- and residential construction-related
businesses. Firms also reported some demand related to infrastructure repairs in response to
Superstorm Sandy. Several firms reported difficulties meeting demand because of insufficient
physical capacity, an inability to train new workers quickly enough, and/or customers’
expectations of shorter delivery times. A large supplier to a broad base of industry reported that
business improved from early summer through early August, with larger backlogs in key
segments.
Optimism has generally grown among Third District manufacturers that business
conditions will improve over the next six months. A contact described U.S. manufacturing as
“poised to grow” while citing signs of improvement globally, particularly in Europe and China.
Some capacity expansion appears to be under way, as infrastructure projects that were being
intentionally delayed are now coming on stream. Though generally positive, firms have lowered
their expectations somewhat regarding hiring and capital spending plans since the last Beige
Book.
III - 2
Retail. Third District retailers reported modest growth overall since the last Beige Book,
though results were mixed between outlets and traditional malls. Contacts said sales were soft in
July, possibly dampened by excessive heat, but began to pick up in August with more back-toschool shopping. Sales of children’s apparel were stronger at outlets than at traditional malls,
indicating that consumers were doing more price-shopping. Mall retailers were optimistic that
sales would continue to pick up into the fall.
Auto dealers continued to report strong sales growth in July and the beginning of August.
Pickup truck sales have been strong in the shore areas as rebuilding efforts continue. Contacts
cited healthier household balance sheets, pent-up demand, and attractive leasing options as
factors for strong sales. Dealers noted lean inventories as production has generally kept in line
with demand. Dealers remain very optimistic, although their hiring continues to lag rising sales.
Finance. Overall, Third District financial firms continued to report modest increases in
total loan volume. The most notable difference from the last Beige Book period was the further
reduction in mortgage refinancing in response to higher interest rates. Contacts noted that
demand for mortgages to purchase homes continued to increase modestly, as did demand for
home equity lines and commercial real estate and C&I loans. Stronger increases were noted for
most types of consumer lending, although credit card volumes fell off slightly. Contacts
uniformly reported that small businesses remain very cautious, doing little or no borrowing for
expansion and needed infrastructure. Credit standards have changed little, according to most
banking contacts. However, many expressed concern about very tough competition on rates and
terms – reflecting a “lack of reason,” according to one banker. However, most bankers reported
that business was good overall and the credit quality of their loan portfolios was healthier. They
remained “cautiously optimistic.”
Real Estate and Construction. Homebuilders throughout most of the Third District
remained moderately busy with existing projects from spring sales. However, several builders
reported a dip in traffic and new sales contracts in July, with modest sales growth resuming in
early August. Higher interest rates were partly blamed for the lull: Locking in a mortgage rate
now for an existing home appeared preferable to getting a mortgage later when the new home is
completed. Sales of existing homes continued to grow at a moderate pace into August, according
to residential brokers. A broker in the greater Philadelphia area described sales growth as “good
steady improvement, not soaring.” Sales closed and sales pending grew by double digits (year
over year) in some of the larger metropolitan areas in the Third District and by nearly double
digits in a few others. The estimated months of supply of homes has risen since May in several
areas, described as a seasonal trend rather than evidence that the shadow inventory of homes is
emerging.
III - 3
Nonresidential real estate contacts continued to report little change in the modest pace of
overall leasing activity and slight growth of construction. However, architecture and engineering
firms were seeing greater interest and increased workflow, which are expected to generate
construction activity in the future. Meanwhile, general contractors reported that activity was very
slow, with heavy competitive bidding on each project. New and ongoing projects continued to be
heavily represented by industrial structures, institutional facilities, multifamily residential units,
and public utilities. Market analysts observed a shift in recent leasing activity by large users of
commercial space away from a contraction in square footage to some expansion. In addition,
some companies are opening branches in the Philadelphia area market. Contacts remained
generally optimistic for slow, steady growth.
Services. Third District service-sector firms continued to report a moderate pace of
growth overall. After a slow start to the summer, traffic counts, bookings, and boardwalk sales at
shore destinations in Delaware and southern New Jersey picked up to a modest pace. A Delaware
hotel group reported that its properties matched or exceeded last year’s record; another hotel
reported that July was its best month ever. However, those parts of central New Jersey hardest hit
by Hurricane Sandy continued to struggle, with low numbers of returning summer residents and
tourists. Throughout the District, tourists continued to spend cautiously. Atlantic City casino
revenue continued its years-long downward spiral.
Other service firms reported continued moderate growth, although some cited seasonal
slowdowns for the summer. One staffing firm explained that its clients’ decision-makers are
away for much of the summer. A large consumer firm anticipates higher activity in September
following a typical August lull. Freight shipments have grown robustly throughout the District,
tied to the expansion of intermodal facilities along the I-81 and I-76 corridors and to refinery
activity along the Delaware River. Overall, service-sector firms remained optimistic about future
growth.
Prices and Wages. Overall, price levels continued to increase slightly, similar to the
previous Beige Book. Manufacturing firms reported that prices paid and prices received again
increased modestly; the increases were even slighter this period than last. Auto dealers reported
no changes in pricing. A mall operator noted apparel inflation in recent months. Builders
continued to report land selling at a premium, rising land development costs, and difficulty
finding qualified tradespersons. Most real estate contacts reported rising prices for lower-priced
homes; price trends for higher-priced homes are closely tied to local market conditions. Recent
safety regulations for truckers are expected to tighten capacity and spur higher prices this fall
until more workers and new equipment are brought online. Generally, however, there are few
wage pressures, according to most firms, including staffing companies.
IV - 1
FOURTH DISTRICT – CLEVELAND
Business activity in the Fourth District expanded at a moderate pace since our last report.
On balance, demand for manufactured products grew at a moderate rate. Housing market
activity has leveled out after a six-month period of strong growth; sales of new and existing
homes were above year-ago levels. Nonresidential builders experienced a rise in backlogs and
the number of inquiries. Retailers were disappointed with sales during June and July, while new
motor vehicle purchases posted robust gains on a year-over-year basis. Shale drilling picked up
in regions rich in wet gas and was above year-ago levels. Output at coal mines trended lower.
Freight transport volume remained strong. Applications for business credit were flat, while
consumer demand for credit rose slightly.
Hiring was sluggish across industry sectors. Staffing firm representatives reported that
the number of job openings increased, with vacancies found primarily in healthcare and
manufacturing. However, job placements were lower. Wage pressures remain contained. Input
and finished goods prices saw little change, apart from increases in construction materials and
oil.
Manufacturing. Reports from District factories indicated that demand grew at a
moderate pace during the past six weeks. Companies seeing the strongest activity were suppliers
to the energy, housing, medical device, and transportation industries. Defense contractors are
still coping with uncertainty. Compared to a year ago, manufacturing production levels are
similar or higher. Many of our contacts are optimistic and they expect that demand will rise
during the next few months. Steel producers and service centers reported that shipping volumes
were stable or fell below expected levels. Some respondents continue to express concern about
the quantity of steel imports and the negative impact it is having on domestic producers. The
outlook by steel producers is uncertain. As a result, they have been reducing inventories.
District auto production showed a substantial decline in July on a month-over-month basis, due
to normal seasonal retooling for model changeovers. Compared to a year ago, July production
figures revealed a sizeable increase.
We heard some reports about a need by motor vehicle parts suppliers and assembly plants
to expand capacity in order to meet demand. Other reports indicated that small manufacturers
have reduced capacity utilization rates and bypassed growth opportunities because they were
unable to hire skilled production workers. A majority of our contacts anticipate increasing
capital budgets in the upcoming fiscal year. Raw material and finished goods prices were
generally flat or trended lower, although producers acknowledged volatility in commodity prices.
Steel producers who attempted to raise prices met with limited success. Factories expanded
payrolls at a modest pace. Wage pressures are contained, though there is concern about rising
health insurance premiums. One executive commented that he sees downward pressure on
domestic labor costs due to excess production capacity off-shore.
Real Estate. Sales of new single-family homes have stabilized during the past couple of
months, when compared to the solid growth seen earlier in the year. Builders characterized their
sales as good, and most reported that they are higher than a year ago. One builder commented
IV - 2
that he is concerned about a lot shortage in the near term. On-line traffic and inquiries are rising.
New home contracts were found mostly in the mid- to higher-price-point categories. Demand
for multifamily housing remains strong. Builders expressed confidence that demand for new
homes will persist in the upcoming months, but they are apprehensive about rising interest rates
and difficulties in obtaining construction loans. They also believe that a rise in consumer
confidence would bring additional first-time buyers into the market. Selling prices of new
homes across the District were up about 5 percent on average year-over-year due to rising costs
and larger building footprints. The number of existing single-family homes sold year-to-date is
up substantially across many regions of the District, relative to a year earlier. Contract prices
rose moderately. In some regions, the supply of existing homes for sale is a challenge, which is
leading to higher prices.
Nonresidential builders continued to see slowly improving business conditions.
Although inquiries have picked up, uncertainty about interest rates and the economy led to
hesitancy on the part of some customers. Backlogs have grown substantially. The strongest
activity was on the industrial and manufacturing side. The former is related to shale gas work
and the conversion of coal-fired generators to natural gas. Work in higher education has
replaced government-sponsored projects as a major revenue source. Multifamily housing,
including senior living, was also strong. Our contacts were more optimistic about near-term
growth prospects than they have been in recent months.
We heard many comments from homebuilders about price increases for construction
materials (lumber, drywall, and concrete), though the rate of increase has slowed during the past
month. Several builders reported that they plan to retain their temporary summer workers
through the fall season. Hiring of permanent employees (office and field) was modest. Wage
pressures are contained. General contractors reported a shortage of qualified subcontractors. On
the residential side, requests for higher rates by subcontractors were met with mixed results.
Commercial builders said their subcontractors are having difficulty obtaining operating capital.
Consumer Spending. Retailers were disappointed with their June and July sales. They
cited consumers being strapped for money and unseasonably cool weather as factors that held
down spending. On a year-over-year basis, same-store revenues were fairly even or lower.
Products in greater demand included core goods such as food, back-to-school items, and
furniture. Looking ahead, fourth-quarter sales are expected to improve slightly when compared
to those in the third quarter. Inventories were characterized as a little high, but manageable.
Vendor and shelf prices held steady. Capital expenditures were on plan for the fiscal year, with
no changes expected in the near term. Hiring will be limited to staffing new stores.
Sales of new motor vehicles increased at a robust pace during July, and year-to-date sales
were running ahead of last year’s pace. The number of new vehicles sold in July was moderately
higher than in June. Buyers prefer smaller, fuel-efficient vehicles. One dealer commented that
the unpredictability of gasoline prices is a primary factor behind the sales of smaller cars. Newvehicle inventories are rising, but a majority of dealers said that they are satisfied with their
inventory positions. Our contacts are optimistic about sales for the remainder of the year.
IV - 3
Dealers pointed to pent-up consumer demand, the availability of financing, and the option to
lease as reasons for their optimism. Dealer service departments in the eastern third of the
District are especially busy due to the influx of work generated by shale gas activity. Usedvehicle purchases rose during the past six weeks. Inventory is building as lease rollovers start to
come in, which is putting some downward pressure on used-car prices. Even with an increase in
business, dealers are reluctant to hire a large number of employees. For the few open positions,
finding qualified applicants remains difficult.
Banking. Bankers reported that their industry is functioning in an environment of low
interest rates, rising operating costs, and over-capacity. Net interest margins are showing signs
of widening but remain below acceptable levels. Demand for business credit is flat or up
slightly, with no loan category or industry performing significantly better than others. Our
contacts attribute this to firms holding large cash reserves. A financial intermediary reported on
a loosening in venture capital funding and commented that a substantial number of startups in the
District are now contemplating an S-1 filing. Consumer-credit demand improved slightly,
especially for auto loans, credit cards, and home equity lines of credit. Several bankers reported
a slowing in residential mortgage activity. While new-purchase mortgages are trending higher,
refinancing has dropped off. No changes were made to loan-application standards. Delinquency
rates declined slightly. There were few reports about workforce reductions.
Energy. District coal production remains below year-ago levels, with the largest declines
seen in eastern Kentucky. Spot prices for steam-coal declined slightly, whereas metallurgical
coal prices were flat. Unconventional drilling picked up in regions rich in wet gas since our last
report, and the number of drilling rigs is higher than last year at this time. However, in dry gas
regions, drilling has declined during the past 12 months due to the low price for natural gas.
Total output from gas wells was down slightly, while oil production was stable. Well-head
prices for natural gas are flat to down, while oil prices were up substantially. Capital
expenditures remain at targeted levels. One driller commented that the low price for natural gas
is affecting the value of his reserves, which he uses as collateral for loans. As a result, banks are
increasingly reluctant to extend credit for drilling new wells. On balance, little change was seen
in production equipment and material prices. Labor costs are steady other than for rising
healthcare insurance premiums.
Freight Transportation. Freight executives reported that shipping volume remains
strong and they are seeing an improvement in net profits. Their outlook is cautiously optimistic.
Freight haulers are still sorting through the effects of the hours-of-service regulations (HOS) that
went into effect on July 1. The primary concern focuses on the availability of drivers and the
ability of shipping companies to effectively schedule those drivers. Prices for equipment and
maintenance items were stable. Capital outlays were allocated more for equipment replacement
than capacity expansion. Some of our contacts have begun evaluating the use of tractors that run
on compressed natural gas (CNG). Preliminary results indicate that these trucks may be more
suitable for short-haul situations due to infrastructure issues. The industry is still experiencing a
shortage of drivers, due in part to HOS rules and a high turnover rate.
V-1
FIFTH DISTRICT–RICHMOND
Overview. Economic conditions in the Fifth District improved moderately since our last report.
Manufacturing shipments and orders rose, and capital spending increased. Retail weakened, with the
exception of robust auto sales. Revenue growth was strong among non-retail services firms and tourist
destinations reported good attendance. In banking, lending activity slowed somewhat under the pressure
of higher interest rates. Residential real estate and construction activity varied, while commercial real
estate and construction markets were little changed. Heavy rains in the Mid-Atlantic hindered harvests
and raised concerns about crop damage. In energy markets, natural gas production increased sharply as
more infrastructure came online; in contrast, coal mining declined. Conditions in District labor markets
improved modestly. Growth in manufacturing prices for inputs and finished goods slowed; service sector
price increases also slowed. Average wages rose in both sectors.
Manufacturing. Manufacturing shipments and orders rose moderately, and reports of greater
spending on plant and equipment increased. Producers of auto parts, plastics, and textiles were buying
machinery. A lumber company executive said his business had purchased new equipment to increase
production in response to higher order volume. Another contact indicated that demand had picked up for
mid-range and high-end cabinetry. In contrast, a furniture producer reported that all employees had to
take unpaid time off in recent weeks, and a machine parts manufacturer worried that he might have to
begin layoffs by early autumn. According to our latest manufacturing survey, growth slowed in prices of
both raw materials and finished goods.
Ports. District port contacts indicated that bulk and container shipments grew briskly in recent
weeks. Agricultural products accounted for much of the increase in exports, while auto-related products
were a large share of the growth in imports. Coal exports declined in recent weeks while remaining
slightly up for the year. The ports’ peak season began in July, as retail imports allowed stores to stock up
for the holidays. Port officials were monitoring developments in the Middle East closely because the Suez
Canal is a “vitally important artery” for shippers.
Retail. Sales revenues weakened since our last report. Retail and wholesale suppliers of
construction inputs gave mixed reports. A West Virginia building materials wholesaler commented that
his sales were flat and cautioned, “Contractors who normally have a six-month backlog of work are down
to two months.” Several grocers, convenience stores, and pharmacies also reported flat sales, while sales
at art and hobby shops and an electronics retailer declined. Auto sales were strong; a dealer in West
Virginia remarked that his dealership had its best thirty days ever this summer and a dealer in the
Washington, D.C. beltway area said his sales doubled compared to this time last year. He noted, however,
that purchases were based on need, rather than discretionary spending. Average retail price growth picked
V-2
up slightly. In particular, a grocery wholesaler noted gradual but steady increases in his cost of meat,
poultry, and seafood.
Services. Non-retail services firms reported generally robust growth in recent weeks. Among the
categories noting stronger revenues were architectural services, IT, business law, advertising, and
accounting. A financial services executive reported that clients were becoming more aggressive with
respect to the amount of risk they would assume while remaining “a little nervous under the surface.”
Construction-related businesses such as contracting reported more bidding opportunities and project
starts; several also commented that they were able to pass along rising input prices. Healthcare
organizations reported softer demand and many were making cost reductions to help offset lower
reimbursements, sequestration, and uncompensated care. Smaller hospitals continued to express concern
about their viability under the Affordable Care Act, and the solution for some has been to pursue
affiliation with a larger healthcare system. Growth in overall services prices slowed.
Tourism representatives reported strong attendance at resort locations. Year-over-year National
Park visits in the Washington, D.C. area increased. A contact on the outer banks of North Carolina
indicated hotels bookings were up and rentals were good, albeit not quite “the banner year” people had
expected. She noted that restaurants were generally busy, although budget-conscious tourists were
primarily frequenting “tapas and deck parties” instead of fine dining establishments. A resort executive in
western Virginia reported that occupancy rose and revenues increased by double digits over this time last
year. He observed that “the family vacation seems to be coming back.” In central North Carolina, an
hotelier reported that corporate bookings were up, while government stays fell.
Finance. The pace of growth in District lending slowed somewhat as many bankers reported a
drag from higher interest rates. On the business side, contacts generally indicated that any adverse impact
from the modest increase in interest rates was being offset by expectations for better economic conditions
and stronger profit growth. One banker flatly stated that “CFOs understand that rates remain near
historically low levels.” Small business loan volumes increased modestly. A lender in the D.C. area noted
that some small businesses that wanted to grow were looking to do so through acquisitions. Most banks
reported no changes in standards and terms for business loans, although competition was reportedly
testing lenders’ discipline. New residential mortgage lending was said to be holding up, but virtually
every banker said that refinancing had slowed. Overall, mortgage loan volumes were reported to be
modestly lower. Demand for other types of household loans held fairly steady, and metrics of consumer
credit quality displayed fewer signs of duress.
Real Estate. Reports on residential real estate and construction activity were more varied since
the last survey period. Several Realtors said that demand for owner-occupied homes remained firm and a
dearth of quality inventory was leading to fewer days on the market, more multiple offers, and higher
selling-to-asking price ratios. Some reports suggested that rising home prices and mortgage interest rates
V-3
may have boosted demand in the near term as many “fence sitters” were moved to make a decision. While
homes remained affordable, one contact said that “they aren’t the screaming bargain they once were.”
Residential construction activity increased at a slower rate. A homebuilder who develops in the Carolinas
reported that sales and traffic through models edged lower since our last report, although he could not
determine if this was due to higher interest rates or a typical summer lull. A builder in Northern Virginia
noted a similar slowdown, but added that activity had picked up in early August as potential homebuyers
adjusted to higher mortgage rates. He expected that strength to be sustained.
Commercial real estate and construction markets were little changed in recent weeks. Contacts in
most areas reported that vacancy rates continued to decline modestly in office and industrial markets,
while retail vacancies remained very low. There were a few suggestions that rents were firming and
several real estate professionals noted that landlords were offering fewer concessions to potential tenants.
Given the rather steady improvement in vacancy rates, and lack of construction in recent years,
respondents in many areas expected commercial construction to pick up momentum in late 2013,
particularly in the office and industrial markets.
Agriculture and Natural Resources. Heavy rains in the Mid-Atlantic delayed the harvest of
some grains and hay cutting, particularly in the lowlands of the Carolinas. According to one source,
cotton, peanuts, and soybeans might be damaged by the unusually high levels of precipitation. Another
contact in South Carolina noted that some late crops could not be planted and root systems of plants in the
ground have not developed well because of the rain. He added that cotton and tobacco crops “do not look
good at all.” A number of contacts noted that corn prices had risen and were expected to remain high for
some time. Prices of beef and pork were also up, according to sources. Poultry farming and fruit
production were strong in recent weeks. Results of our recent agricultural credit survey indicated that
farmland values remained relatively constant since the beginning of this year.
Natural gas production increased sharply as more infrastructure came online. An industry
executive expected production and rig counts to continue to rise. Another contact stated that demand for
District coal had declined further since our last report, idling some mines and resulting in large layoffs.
Labor Markets. Labor market conditions improved modestly since our last report. Employment
increased in most areas. Demand increased for workers in financial services, accounting, IT, health
services, and manufacturing. Reports of difficulty finding workers with the “correct” skills were
widespread, and a West Virginia contact commented that it was difficult to find people “at any price.” A
Virginia executive noted that workers went from temporary to permanent employment more frequently,
while a source in North Carolina indicated that temporary assignments were lasting longer than they did a
year ago. Our most recent survey results were generally consistent with other accounts: hiring increased
somewhat at manufacturing and non-retail services establishments, while retail employment declined
slightly. Average wages rose in the manufacturing and service sectors, including retail.
VI-1
SIXTH DISTRICT – ATLANTA
Summary. According to reports from Sixth District contacts, economic conditions
modestly improved from July to mid-August. Most businesses noted a positive outlook for the
remainder of the year.
Merchants indicated a slight pickup in retail sales and automobile sales were strong. The
travel and tourism sector remained a bright spot across much of the District. Residential real estate
continued to recover at a solid pace as sales and prices stayed ahead of last year’s level. However,
low housing inventories were still restraining sales growth. Commercial real estate contacts
reported slight improvements in demand and construction activity. Manufacturers cited a decrease
in new orders and production. Bankers noticed very little pickup in loan activity, overall. District
payrolls improved slightly. Input cost increases were described as being relatively subdued by most
firms.
Consumer Spending and Tourism. District retailers indicated that sales rose slightly from
July to late-August. Reports described consumers as remaining cost conscious. Automotive dealers
noted that year-end projections are being revised up as truck sales strengthen mostly from
contractors purchasing vehicles again.
Hospitality contacts continued to witness strong travel and tourism activity this summer.
Overall demand in the sector remained on the rise resulting in a pickup in hiring of both full-time
and part-time workers, although the cruise industry reported a decrease in both domestic and
international demand as a result of the recession in Europe and a slowing economy in China. With
the exception of cutbacks in travel in the government sector, the industry is forecasting steady
growth for the remainder of the year.
Real Estate and Construction. District brokers continued to report that existing home
sales and prices remained ahead of last year's level. When polled about rising mortgage rates, some
said business had improved as buyers moved to lock-in rates. However, nearly half of respondents
also said that rising rates were having a negative impact on their business by slowing buyer traffic,
disqualifying some buyers, and forcing some to shift to lower price points. Inventory shortages
persisted and were seen as a major factor restraining sales. Low inventory levels continued to put
upward pressure on home prices in many submarkets across the District. Even so, the outlook for
sales growth remained slightly positive, with the majority of brokers anticipating sales gains over
the next several months.
District homebuilders cited that new home sales and construction were ahead of year earlier
levels. The majority of builders said that rising rates were not having an impact on their business.
VI-2
Most builders reported that the availability of development and construction financing remained
below demand, new home inventories were below the year earlier level, and prices rose modestly.
The outlook for new home sales and construction was positive, but the outlook for growth
continued to moderate from earlier in the year.
District commercial brokers noted that demand for space improved at a modest pace during
the summer. Construction activity was described as flat to slightly up from earlier this year with
apartment development dominating activity. Brokers reported that most markets still favored
tenants; however, rate increases continued to be noted in select submarkets. The outlook among
District commercial real estate contacts remained positive with further improvements expected for
the rest of the year.
Manufacturing and Transportation. While the majority of the region’s manufacturers
cited expanding activity, the pace of growth decreased from July to mid-August. New orders and
production experienced modest decreases which contributed to the slowing of activity. However, a
number of firms, especially those in the auto sector, continued to report solid demand for their
products. When asked about their outlook, one-third of regional purchasing managers expect higher
production over the next three to six months.
Regional railroad companies noted that total year-over-year volumes remained flat;
however, growth was seen in shipments of petroleum-related products, forest products, nonferrous
scrap metals, and metallurgical coal. District ports cited robust activity in the movement of energy
products as well as rubber and steel used in automobile production. Reports were mixed for
containerized cargo volumes. Air cargo contacts stated that year-to-date air freight tonnage rose
slightly from a year ago with notable increases in imports, while declines in exports were attributed
to the recession in Europe and a slowing economy in China. District trucking companies reported a
slowdown in year-over-year volumes.
The recent implementation of the “Hours of Service”
regulation, which restricts driving hours, and a short supply of new drivers were mentioned as
limiting growth opportunities.
Banking and Finance. Banking contacts did not witness any noticeable increase in overall
lending as most borrowers had already taken advantage of lower rates. However, the recent uptick
in rates did motivate many businesses to move to lock-in rates through refinancing. Some bankers
also reported a pickup in loan volume for lending products such as second mortgages, credit cards,
auto lending, and commercial lending. A surge in second mortgage requests was caused by
increasing home values. Qualifying new business loans remained fairly scarce with many banks
competing over the same few loans.
VI-3
Employment and Prices. Since the last report, the region’s pace of payroll growth
improved modestly. Gains were seen in Georgia and Florida, as those states saw slight payroll
increases in retail, leisure and hospitality, and professional and business services. On balance, firms
were hesitant in hiring new staff due to various uncertainties, with healthcare reform mentioned
most frequently. Similarly, in recent polls, contacts expressed a clear preference for investing in
capital expenditures to improve efficiencies and reduce costs rather than hiring additional labor.
Growth in input costs was muted for most businesses as price inflation for crude and
intermediate materials remained relatively subdued. According to our August Business Inflation
Expectations survey, costs were up 1.7 percent from the previous 12 months and were expected to
rise to 2.0 percent in the year ahead. Businesses continued to note tight margins and very little
pricing power. Wage pressures were largely subdued, except for industries where workers are in
short supply, such as information technology and specialized construction. Wage increases in the
2 to 3 percent range remained standard, with the distribution of increases weighted toward workers
whose skills are in highest demand.
Natural Resources and Agriculture. Energy refiners reported a pickup in activity, with
more oil flowing into the region from the central U.S. and Canada. Rail transport capacity
expanded for crude oil and liquid feedstocks, with large off-loading and increased storage capacity
occurring along the coast. Contacts expect deep-water drilling in the Gulf of Mexico to continue to
expand.
Since the last report, most of the District received ample or, in some cases, excessive rain.
These rains have resulted in problems with pesticide efficacy, delayed planting, and damage or
reduced yield for some crops. On a year-over-year basis, prices paid to farmers were elevated for
meat protein (beef, hogs, and broilers), corn for grain and cotton saw price reductions, and soybean
prices remained unchanged.
VII-1
SEVENTH DISTRICT—CHICAGO
Summary. The pace of economic activity in the Seventh District improved in July and
August, and contacts generally expected moderate growth for the rest of the year. Growth in
consumer and business spending picked up. Manufacturing production increased, as did
construction. Credit conditions tightened some. Cost and wage pressures were modest. Abnormally
dry weather hurt crop prospects in many areas of the District, but to a much lesser degree than
during last year’s drought.
Consumer spending. Growth in consumer spending picked up a bit in July and August.
Non-auto retail sales increased modestly, with sales of luxury and housing-related items such as
furniture, appliances, plumbing-related hardware, and flooring improving. Compared with last year,
retail contacts expected a slight increase in back-to-school sales with a high level of promotional
activity. Auto sales rose, and continued to outpace growth in non-auto retail sales. Dealers reported
an increase in demand across all vehicle segments, but especially for fuel-efficient cars and light
trucks. Used vehicle sales remained strong. Several dealers indicated that they expect leasing and
sales activity to pick up further in the fall, boosted in part by still-elevated replacement demand.
Business spending. Growth in business spending increased some in July and August.
Contacts reported moderate investment in equipment and software and structures as well as a small
increase in merger and acquisition activity. In contrast, inventory investment decreased, as
manufacturing and retail contacts indicated a reluctance to increase inventories at the current pace
of sales. Labor market conditions softened a bit. The pace of hiring slowed, with some contacts
noting layoffs in recent weeks. Manufacturers and retailers, in particular, indicated that if they
needed to add labor, they were more likely to boost hours or temporary and part-time hiring than
expand their existing full-time workforce. Nonetheless, overall contacts reported an increase in their
hiring plans for the remainder of the year. Demand for skilled workers remained relatively strong,
particularly for finance, healthcare, engineering, accounting, and information technology
occupations; and contacts again noted shortages of qualified truck drivers and workers in some
skilled manufacturing and construction trades.
Construction/real estate. Construction and real estate activity increased further in July and
August. Demand for residential construction grew steadily, as multifamily construction remained
strong and single-family homebuilders reported an increase in showroom traffic. New single-family
construction remained concentrated in infill areas, but an industry contact noted a number of
VII-2
homebuilders are planning new developments slated to begin later this year. In residential real estate
markets, home sales, prices, and rents all continued to rise. Contacts speculated that recent increases
in mortgage rates had stimulated home sales, as buyers attempted to make purchases before rates
rose further. Several also noted that a limited supply of existing homes currently on the market had
pushed home prices higher, and that residential rents in some areas were now back above their prerecession peaks. Nonresidential construction grew at a more modest pace, again in large part
reflecting the ongoing expansion of the auto industry. Commercial real estate conditions continued
to improve, as rents rose slowly and vacancies fell. In particular, leasing activity for specialty food
stores was noted to be strong.
Manufacturing. Manufacturing production increased in July and August. Steel output
continued to grow at a moderate pace. In addition, specialty metal manufacturers reported an
increase in orders, particularly from the auto and aerospace industries. The auto industry continued
to be a source of strength for District manufacturing. In addition, a contact indicated that demand
for heavy and medium-duty trucks is likely to increase over the remainder of the year in anticipation
of new emission standards in 2014. Demand for construction equipment, construction materials, and
household appliances continued to strengthen with the recovery in the housing market. However,
overall demand for heavy equipment remained soft, hampered by weak export demand and a
reduction in mining activity.
Banking/finance. Credit conditions tightened some over the reporting period. Several
financial market participants expressed concern about the impact of changing perceptions regarding
monetary policy on long-term Treasury yields and equity markets. Net corporate borrowing costs
were up slightly as benchmark interest rates rose. Banking contacts cited a modest reduction in
overall business loan demand, but noted continued steady growth for commercial and industrial
loans in the middle market. Contacts involved with commercial real estate finance indicated that the
recent rise in interest rates was likely depressing some commercial investment. In contrast,
consumer loan demand continued to increase, particularly for auto lending. Mortgage lending also
rose, with new originations beginning to outpace refinancing activity for some banks.
Prices/costs. Cost pressures were modest in July and August. Contacts noted an increase in
some commodity prices, such as those for metals like steel, copper, and aluminum. A few also cited
higher energy costs, particularly for fuel and natural gas. In contrast, prices paid for some building
products such as lumber moved lower. Retailers again reported mostly small increases in wholesale
VII-3
prices; and, overall, pass-through to downstream prices was limited. Wage pressures were also
modest, although many contacts again noted rising healthcare and other benefit costs.
Agriculture. Dry weather affected crop conditions in much of the District during the
reporting period, lowering expectations for crop yields. Soybeans especially needed rain in order to
fill out pods. Some of Iowa once again faced drought conditions. Nonetheless, corn and soybean
conditions remained much better than they were during the drought last year. There were even parts
of the District that received adequate moisture and should have above normal yields. Indeed, corn
and soybean prices decreased on both spot and futures markets. There were also reports that less of
this year’s harvest than usual was pre-sold. Milk, hog and cattle prices declined from the prior
reporting period, with livestock producers benefiting from falling feed costs. District milk
production once again outpaced the levels of a year ago.
VIII-1
Eighth District - St. Louis
Summary
The economy of the Eighth District has expanded at a moderate pace since the previous report.
Recent reports of planned activity in manufacturing and services have been positive. Reports of retail and
auto sales over the past three months have also been positive. Residential real estate market conditions
have continued to improve, and commercial and industrial real estate markets have also improved.
Lending activity at a sample of large District banks was little changed during the second quarter of 2013.
Prices, wages, and employment levels over the past three months have stayed the same or increased for a
majority of contacts across the District.
Consumer Spending
Reports from retail contacts were generally positive. Two-thirds of contacts noted increases in
sales over the past three months relative to the same period last year, while seventeen percent noted
moderate decreases and the rest saw no changes. Half of retail contacts reported that sales levels met their
expectations, and the other half reported that sales fell short of expectations. In addition, half of retail
contacts reported an increase in the sales of low-end products relative to high-end products. The sales
outlook for the next three months compared with the same period last year was slightly pessimistic:
About half of contacts expect sales to stay the same, twenty-five percent of contacts expect sales to
increase slightly, and the remaining contacts expect sales to decrease moderately.
Reports from auto dealers about sales over the past three months were generally positive.
Seventy-five percent of the car dealers surveyed saw increases in sales relative to the same period last
year, seventeen percent saw decreases, and the rest saw no changes. Similarly, seventy-three percent of
contacts reported that sales met or exceeded their expectations. Two-thirds of car dealers reported an
increase in used car sales relative to new car sales, and twenty-two percent reported the opposite. The
sales outlook for the next three months relative to the same period last year was optimistic: Half of
contacts expect sales to increase, while twenty-one percent expect sales to decrease.
VIII-2
Manufacturing and Other Business Activity
Reports of plans for manufacturing activity have been positive since our previous report. Several
manufacturing firms reported plans to add workers, expand operations, or open new facilities in the
District, while a smaller number of manufacturers reported plans to reduce employment. Firms that
manufacture appliances, food, outdoor equipment, automobile parts, refrigeration compressors, safety
products, automobiles, roofing shingles, barges, ammo, apparel, and watercrafts plan to hire new
employees and expand operations in the District. In contrast, firms that manufacture plastic products and
printing products reported plans to lay off workers in the District.
Reports of planned activity in the District’s service sector have also been positive since the
previous report. Firms in health care benefit management, logistics, pharmaceutical benefit management,
information, transportation, and restaurant services reported new hiring and expansion plans. In contrast,
firms in information technology, health care, and disability benefit application services reported plans to
reduce employment.
Real Estate and Construction
Home sales have continued to increase throughout most of the Eighth District on a year-over-year
basis. Compared with the same period in 2012, July 2013 year-to-date home sales were up 19 percent in
Louisville, 21 percent in Little Rock, 10 percent in Memphis, and 9 percent in St. Louis. June 2013 yearto-date single-family housing permits increased in the majority of the District metro areas compared with
the same period in 2012. Permits increased 15 percent in Louisville, 24 percent in Memphis, 3 percent in
Little Rock, and 18 percent in St. Louis.
Commercial and industrial real estate market conditions have continued to improve moderately.
Compared with the first quarter of 2013, the second quarter 2013 industrial vacancy rates declined in
Louisville, Little Rock, Memphis, and St. Louis. During the same period, downtown office vacancy rates
decreased in Louisville, Little Rock, and St. Louis and increased in Memphis. A contact in Evansville
reported new plans for speculative office space, while a contact in Louisville reported new plans for
VIII-3
speculative industrial space. Contacts reported industrial construction plans in southwest Missouri and
several commercial construction plans in St. Louis. A contact in Little Rock noted a mixed-use
commercial project, while another contact noted an industrial factory expansion in Baxter County.
Banking and Finance
A survey of senior loan officers at a sample of large District banks found little change in overall
lending activity during the second quarter of 2013. During this period, the credit standards for commercial
and industrial loans remained mostly unchanged, while demand ranged from unchanged to moderately
stronger. Credit standards for commercial real estate loans ranged from basically unchanged to eased
somewhat, while demand was moderately stronger. Credit standards for prime residential mortgage loans
remained unchanged, while demand was moderately stronger. Meanwhile, credit standards for auto loans
were mostly unchanged, while demand ranged from moderately weaker to moderately stronger.
Agriculture and Natural Resources
Farmers in the District expect that the corn crop in 2013 will produce, on average, 59 percent
more corn than last year. In contrast, the District cotton crop is expected to fall short of 2012 levels both
in terms of acres harvested and production. Across the District states, 92 percent of the corn crop was
rated in fair or better condition; the sorghum and soybean crops were similarly rated, with 93 percent and
91 percent in fair or better condition, respectively. District coal production improved modestly.
Prices, Wages, and Employment
Fifty-eight percent of contacts indicated that prices charged to consumers over the past three
months have stayed the same, while 35 percent indicated that prices have increased relative to the same
period last year. In turn, 36 percent of contacts noted that wages over the past three months have stayed
the same, while 64 percent noted that wages have increased. Meanwhile, 39 percent of contacts reported
that employment levels have remained the same over the past three months, while 42 percent reported that
employment levels have increased, compared with the same period last year.
IX-1
NINTH DISTRICT--MINNEAPOLIS
The Ninth District economy grew at a moderate pace since the last report. Increased
activity was noted in consumer spending, tourism, residential and commercial real estate
and construction, manufacturing, energy and agriculture. Growth in residential real estate
and construction has slowed somewhat, but is still strong. The mining sector was flat, and
professional services were mixed. Hiring announcements were more prevalent than layoff
announcements since the last report. Wage increases were moderate. Prices were
relatively level since the last report.
Consumer Spending and Tourism
Consumer spending increased modestly. A Montana mall manager reported that sales
increased about 5 percent in June and July from a year earlier. Recent same-store sales at
a Minnesota-based retailer were up slightly compared with last year. In the Minneapolis
area, a mall manager noted that summer traffic and sales increased slightly compared
with a year ago, while another mall reported modest decreases in traffic and increases in
sales. Truck and car sales during the summer were generally higher at a number of
dealerships in Montana, according to an auto dealers association; some dealerships noted
that sales were constrained due to a lack of inventory.
Tourism increased from a year ago. Summer tourism activity was strong after a
slow start in northern Wisconsin, according to a representative of a chamber of
commerce. The number of visitors to Glacier National Park in Montana increased more
than 5 percent compared with a year ago. Tourism activity was solid in southwestern
Montana. Camping permits and revenue at state parks in South Dakota were up from last
year.
Construction and Real Estate
Commercial construction activity continued to grow since the last report. A commercial
real estate research firm noted an increase in planned construction of industrial and
medical office space in the Minneapolis-St. Paul area. The value of July hotel building
permits in Billings, Mont., increased significantly from last year. However, in Sioux
Falls, S.D., the value of July commercial permits was down from a year ago. Growth has
slowed somewhat but is still strong in residential construction. In the Minneapolis-St.
Paul area, the value of residential permits in July was up by 25 percent from July of 2012.
The value of July single-family residential building permits in Billings was up 24 percent
IX-2
from last year; multifamily building increased by $23 million. However, the value of July
residential building permits in Sioux Falls fell from 2012.
Activity in commercial real estate markets increased since the last report.
A commercial real estate professional noted an increase in transactions, including a portfolio
of retail centers, a large distribution center, an office building, a mixed-use property and a
hotel in the Minneapolis-St. Paul area. Growth has slowed somewhat but is still strong in
residential real estate markets. July home sales were up 13 percent from the same period a
year ago in Minnesota; the inventory of homes for sale increased by 1 percent, and median
sale prices rose 13 percent. In the Sioux Falls area, July home sales were up 25 percent and
inventory was down 11 percent, but the median sale price decreased 3 percent relative to a
year earlier.
Services
Recent activity at professional business services firms was mixed, depending on the
service. An information technology consulting contact noted continued strong demand. A
health care consulting contact said business was up. Mortgage and real estate title
company contacts reported an increase in purchase activity but a decrease in refinance
activity. An architectural contact noted flat activity since the last report. A large
Minnesota-based law firm noted a slight decrease in July billable hours compared with a
year ago primarily due to reduced merger and acquisition business.
Manufacturing
The District manufacturing sector continued to grow moderately. A July survey of
purchasing managers by Creighton University (Omaha Neb.) indicated that
manufacturing activity increased in Minnesota and the Dakotas; the pace of growth rose
in South Dakota but declined in North Dakota and Minnesota. An electronics
manufacturer recently broke ground on a new plant in Minnesota. However, a large beef
slaughter and packing facility in South Dakota filed for bankruptcy in July.
Energy and Mining
Growth in the energy sector continued, while mining activity was flat. Oil and gas
exploration activity decreased slightly in mid-August in North Dakota and Montana from
a month earlier. The Bureau of Land Management in South Dakota recently auctioned off
50 oil and gas leases, indicating that exploration is expanding into the area, but activity is
expected to be modest relative to North Dakota. An electricity utility completed
IX-3
multiyear upgrades to a nuclear power plant in Minnesota, at a total cost of nearly $600
million. Two facilities that will serve Canadian oil sands development are under
construction in Montana. July output at District iron ore mines was slightly above its
year-earlier levels after several slower months. Some Minnesota and Wisconsin mines
that produce sand for hydraulic fracturing have idled recently.
Agriculture
Conditions for District agricultural producers improved since the last report. While
progress remains slower than average, recent warm and dry weather has helped crops
catch up, as the majority of the corn, soybean and spring wheat crops are listed in good or
excellent condition in all District states. According to the Minneapolis Fed’s secondquarter (July) survey of agricultural credit conditions, 90 percent of respondents said
farm incomes increased or held steady over the previous three months, with similar
results for household and capital spending. Despite the wet beginning to the growing
season, USDA estimates indicate that acres of corn and soybeans planted in District states
saw only a small decline compared with last year. North Dakota wheat acreage fell nearly
1 million acres, or 12 percent, from last year. Prices received by producers increased in
July from a year earlier for cattle, hogs, milk, eggs, chicken, hay and potatoes; prices for
corn, wheat, dry beans and turkeys fell, while soybean prices were flat.
Employment, Wages and Prices
Hiring announcements were more prevalent than layoff announcements since the last
report. A new information technology support center broke ground in South Dakota that
will bring 200 jobs to the state. In Minnesota, a manufacturer recently completed an
expansion of its headquarters, with plans to hire 200 new workers over the next few
years. Another manufacturer recently purchased a new industrial building in Minnesota
and will hire 100 new workers. A representative of a Minnesota staffing firm noted
continued solid demand for temporary work placements. Some district manufacturers
were having difficulty filling job openings for technical positions due to a lack of suitable
workers. In contrast, the aforementioned South Dakota meat packer laid off about 250
workers and a bank in Minnesota is laying off 160 employees due to slowdown in
mortgage refinancing activity.
Wage increases were moderate. A Minnesota county recently offered a contract to
union employees with wage increases of 4.5 percent, spread over three years.
IX-4
Prices were relatively level since the last report, with some exceptions noted.
Recent fertilizer prices were down from a year ago, while lumber prices were up about 10
percent compared with last year. Metals prices increased somewhat since the last report.
Representatives of health systems with operations in the District noted that medical cost
inflation subsided recently, and they expect it to remain relatively subdued going
forward.
X-1
TENTH DISTRICT - KANSAS CITY
The Tenth District economy expanded moderately in July and early August with further
gains anticipated during the coming months. Strong retail and auto sales fueled consumer
spending with positive expectations for future sales. District manufacturing activity picked up,
and some plant managers were hiring additional workers. Residential and commercial real estate
markets continued to strengthen with an upswing in construction and a rise in sales. District
banks reported improved loan quality and stable deposits, but slightly weaker loan demand.
Agricultural growing conditions were affected by drought, but lower farm income expectations
did not dampen farmland prices. District energy activity remained solid with stronger natural gas
exploration offsetting a slight drop in oil drilling. The price of raw materials continued to trend
higher, but finished goods prices generally held steady. More contacts commented that difficulty
finding qualified labor, particularly in highly skilled fields, was placing modest upward pressure
on wages. Most firms reported little or no effect on business activity from sequestration budget
cuts, though some manufacturers reported a decline in defense orders and hotels noted fewer
government employees were traveling.
Consumer Spending. Consumer spending strengthened in July and early August and
was expected to rise further in coming months. District retailers reported higher sales,
particularly for large-ticket home goods such as mid-priced appliances and furniture as well as
seasonal items and clearance merchandise. However, sales of premium goods such as jewelry
and high-end appliances slowed. Auto dealers reported somewhat easier access to credit and a
rise in sales that was expected to continue in coming months. Economy cars and used vehicles
sold well with strong demand for trucks in rural areas. Restaurant sales increased, as more diners
paid higher average check amounts. Tourism activity remained solid through the summer, though
gasoline sales were down from year-ago levels. After rising during the last survey period,
District hotel owners reported a moderate drop in occupancy despite previous reductions in
average room rates. Some hoteliers attributed fewer bookings to less government travel.
Manufacturing and Other Business Activity. Manufacturing activity rose moderately
in July and early August while sales at high-tech service firms and transportation firms generally
held steady. Following a downturn in June, District factory activity strengthened with increased
production, especially for food processing, machinery and metal manufacturers. Some
X-2
manufacturers noted a drop in orders from defense contractors due to federal spending cuts.
Overall, however, the volume of new orders rose in July and was expected to strengthen during
the next six months. In addition, a rise in the volume of shipments reduced order backlogs and
finished goods inventories held steady. Plant managers indicated modest hiring and capital
spending plans with solid expectations for future factory output. After slowing during recent
survey periods, transportation activity stabilized, despite an upswing in prices charged. Several
trucking firms noted more shipments of refrigerated goods. Sales at high-tech firms dipped
during the survey period but were expected to bounce back during the next three months.
Real Estate and Construction. Residential and commercial real estate activity
strengthened further in July and early August and was expected to remain robust through the fall.
Home starts rose, though some builders were concerned that a shortage of skilled labor could
constrain growth. Lot prices were expected to increase with tighter supplies of available sites.
Sales at construction supply firms were up and some building materials, particularly drywall and
roofing shingles, were in short supply. A rise in home sales supported higher home prices even
with an uptick in the number of houses on the market. Residential mortgage lenders reported
solid demand for home purchase loans but a sharp drop in refinancing activity that was attributed
to higher interest rates. Commercial construction escalated during the survey period and was
expected to expand further in the coming months. Commercial real estate prices and rents moved
higher as sales activity picked up and vacancy rates trended down. Developers reported little
change in access to credit.
Banking. In the recent survey period, bankers reported slightly weaker overall loan
demand, improved loan quality, and stable deposit levels. Respondents reported steady demand
for commercial real estate, consumer installment loans, and commercial and industrial loans,
while demand for residential real estate loans declined. Bankers noted a moderate improvement
in loan quality since the last survey period with additional quality improvements expected during
the next six months. Credit standards remained unchanged in all major loan categories and
respondents reported stable deposits.
Agriculture. Farm income prospects dimmed since the last survey period as drought
persisted and crop prices fell. While yields varied, winter wheat production was below average
across the District. In some areas without irrigation, dry weather hindered corn development and
weakened plants against disease. Much of the District’s corn crop was considered in fair
X-3
condition although the soybean crop was still rated in mostly good condition. Crop prices fell in
August on higher global production estimates. Even with a drop in feed prices, losses continued
for most feedlot operators as cattle prices moved lower. In contrast, a rebound in hog prices
returned profits to some hog producers. Demand for farm operating loans strengthened with high
input costs and reduced farm income. Despite weaker farm income prospects, farmland values
continued to set records, with demand for farmland driven in part by high levels of wealth in the
farm sector.
Energy. District energy activity remained solid in July and early August and was
expected to strengthen somewhat in the coming months. The number of active natural gas rigs in
the District edged up, particularly in Wyoming and Colorado, despite further declines in natural
gas prices. Natural gas prices, however, were expected to rise seasonally as increased demand for
winter heating draws down supplies. In contrast, the number of active oil rigs in the District
tapered during August even though oil prices have recently risen. Some District contacts noted a
lack of qualified labor and difficulty obtaining financing were constraining drilling activity.
Several energy firms were also concerned that government budget cuts due to sequestration
could cause further slowdowns in permitting. Wyoming’s coal production through early August
remained below year-ago levels. After falling in July, ethanol production rose modestly in early
August when corn prices fell.
Wages and Prices. Wage pressures edged up during the survey period, raw materials
prices trended higher, and finished goods prices generally held steady. On-going shortages of
high-skilled labor in some specialized industries, particularly construction, energy, high-tech and
transportation, placed slightly more upward pressure on wages during the survey period. Other
firms, primarily in retail, leisure and hospitality industries, were beginning to raise wages to
attract salespeople, housekeepers, maintenance and clerical staff. Builders and construction
supply companies noted higher prices for construction materials in short supply. Some
transportation companies charged more for freight hauling in light of higher input costs. The cost
of raw materials for manufacturing rose at a similar pace compared to the previous survey period
and most finished goods prices were flat. Despite an ongoing rise in food costs, most restaurant
owners were not increasing menu prices. Retailers held selling prices steady and did not
anticipate raising prices during the next three months. As occupancy rates fell, hotel operators
planned to lower average room rates.
XI-1
ELEVENTH DISTRICT—DALLAS
The Eleventh District economy expanded at a moderate pace over the past six weeks.
While many respondents noted steady demand, there were more noting improving versus declining
demand. Sales grew for firms in residential construction, retail, accounting, fabricated metals, food and
kindred products, and automobile dealerships. Financial firms and paper producers reported a decline in
demand. The energy sector noted some flattening of activity at high levels. Drought continued to plague
the region although recent rains have slightly improved growing conditions in some areas.
Prices Most responding firms said that prices were stable since the last report. Contacts in oil,
paper and beef production reported slight increases in prices while law firms and retailers noted slight
price reductions. Fabricated metals producers and accounting firms said that increasing cost pressures
may result in price increases in the coming months. Contacts in the residential housing sector noted that
overall home prices in most major metros continued to rise at a moderate to fast pace. Energy prices were
mixed, with natural gas prices holding steady and the price of West Texas Intermediate crude rising to an
average of $104 per barrel over the past six weeks. Gasoline and diesel prices declined modestly.
Labor Market Employment was flat to slightly higher at most responding firms with few reports
of layoffs. Wage pressures remained subdued except in the case of a few professions such as information
technology and engineering. Construction-related contacts noted some labor shortages, although there
were no reports of wage pressures. Contacts in auto dealerships, primary metals, high-tech manufacturing
and accounting firms said that employment was up slightly. Retailers reported flat employment growth,
except in oil and gas producing areas where jobs continued to grow. Financial firms reported a slight
decline in jobs.
Manufacturing Construction-related activity was mixed, according to respondents. Some
contacts reported flat to slightly improved demand, although one contact noted strong demand from
Houston infrastructure projects. Fabricated metals producers noted demand was up due to oil and gas
activity and outlooks were positive. Primary metals producers said demand held steady, but outlooks
were mixed, with some concern for the rest of the year.
Food producers said demand picked up since the last report and the pickup was above normal
seasonal increases. Paper producers noted weak demand and uncertain outlooks.
Respondents in high-tech manufacturing said that growth in demand remained stable at a modest
pace since the last report. Demand for tablets and cloud-related products continued to grow strongly
while personal computer-demand remained weak. One contact noted a pickup in U.S. demand for
communications infrastructure. Employment was reported as flat to slightly increasing. While overall
wage pressures were modest, in some locations, such as Austin, respondents said that competition for
XI-2
skills such as electrical engineering was driving wages higher and causing employees to change jobs more
frequently. Respondents remain cautiously optimistic about growth over the next six months with one
respondent noting that growth has become more persistent in recent quarters
Retail Sales Retail sales picked up since the last report, spurred in part by back-to-school
shopping. According to two national retailers, Texas sales continued to outperform the national average.
Contacts’ outlooks through the end of the year were positive.
Automobile sales picked up over the reporting period, and demand was up from year-ago levels.
Inventories continued to vary by manufacturer. Selling prices remained stable, but contacts expect an
increase with the new model year this fall. Contacts’ outlooks for the rest of the quarter and the rest of the
year were optimistic.
Nonfinancial Services Staffing firms’ reports were mixed, with one contact reporting near-record
levels of direct hiring, especially in engineering and healthcare, and other contacts reporting declines in
hiring in manufacturing and logistics. Outlooks were also mixed.
Legal firms reported modest growth in demand for services, a positive sign after mixed growth in
the second quarter. There was a continued absence of transactions and litigation work—with the
exception of robust intellectual property litigation demand. Rates were unchanged, and collections were
good, although not as good as last year. Employment was roughly flat, with many partners moving
laterally, but some firms were actively seeking experienced associates. A small number of summer clerks
were offered jobs starting next summer. Associate compensation at large firms rose to match associate
compensation at New York firms. The outlook is for modest hiring and growth over the next two months,
with some recent growth in transactions work spurring more optimism
Accounting demand remained strong and exhibited growth across the board. Rates remained
stable, and wages have increased or will increase moderately. Firms continued to hire, and headcounts
were up. A San Antonio contact noted it was hard to find good, experienced candidates because of
competition from other firms. The outlook is for a strong close to the quarter with robust backlogs for the
next six months.
Transportation service firms noted that cargo volumes were mixed, with increases in railroad and
container volumes, but flat air cargo and declining small parcel volumes. Rail volumes were boosted by
robust growth in petroleum shipments.
Airline contacts said demand was seasonally down but bookings and yields were up year-overyear. Demand was strong over the summer and the outlook is quite optimistic compared to last year.
Construction and Real Estate Single-family housing activity remained strong over the past six
weeks according to contacts. Most responding firms noted that new home construction has increased in
response to robust sales, especially in the Houston, Dallas and Austin metro areas. Some contacts
XI-3
expressed concern about the high level of multi-family construction in major Texas metros, but overall
apartment occupancy rates improved since the last report. Contacts are mostly optimistic in their forecasts
through year-end.
Office and industrial construction was reportedly rising, with several announced projects in the
Dallas/Fort Worth and Houston areas. Overall, Texas commercial real estate markets continue to fare well
compared to other parts of the U.S. Contacts noted moderate to strong growth in rental rates in most
commercial real estate sectors as leasing activity has increased.
Financial Services Financial institutions experienced a modest decline in loan activity and the
level of loan demand was soft. Demand for real estate loans, especially in the San Antonio and Austin,
areas was good, with the exception of weakness in multi-family real estate lending. Contacts reported
loan quality was good and continued to improve and borrowers continued paying down debt. Loan
pricing remained competitive. Deposit volumes remained strong and grew at a moderate pace, although
slower than a year ago. Deposit rates were mostly unchanged, with increases on some long-term
certificates of deposit. The outlook for financial institutions is for continued softness in lending; however,
there is a good pipeline for loans, and there is hope for more mergers and acquisitions activity according
to responding firms. The finalized Basel III regulations were a relief to community bankers.
Energy Drilling activity was little changed at high levels. Global demand held steady.
Respondents expect improvement in energy activity in the second half of the year, due in part to
anticipated increases in rig activity and production from the Gulf of Mexico. The recent increase in oil
prices has increased the cost advantage of domestic petrochemicals firms.
Agriculture Drought conditions continued to affect most of the district, although the severity in
several areas was eased by unusually good July rainfall. Farmers began harvesting row crops, and
conditions were mostly fair to good. The cotton crop is expected to be smaller than previously anticipated,
causing cotton prices to improve slightly. Feeder cattle prices rose over the reporting period because of
tight supplies and lower feed costs.
XII - 1
TWELFTH DISTRICT–SAN FRANCISCO
Summary
Economic activity in the Twelfth District expanded at a modest pace during the reporting period
of early July through late August. Price inflation was subdued for most final goods and services, and
upward wage pressures were very modest. Retail sales rose on net, while demand for business and
consumer services was more mixed. District manufacturing activity edged up. Agricultural production
and sales expanded. Demand for housing strengthened, and commercial real estate activity firmed.
Reports from financial institutions indicated that loan demand increased slightly.
Prices and Wages
Price inflation was subdued for most final goods and services. Reports indicated stable prices for
steel and scrap metal products. Technology industry contacts reported that prices were slightly lower than
had been anticipated for some business software and for computer hardware inputs. Hospitality sector
contacts noted large price declines for linens, versus persistent price increases for a variety of food
products.
Upward wage pressures were very modest overall. Slack in the labor market held back wage
gains in most sectors, occupations, and regions. Reports indicated that overall wages at technology firms
have been mostly stable or modestly increasing. However, firms in various industries continued to
compete vigorously for a limited pool of qualified workers to fill certain technical positions, spurring
significant wage growth in these slots.
Retail Trade and Services
Retail sales rose on net, and most contacts’ outlooks for future consumer spending improved
slightly since the prior reporting period. Technology companies reported increased sales overall, with
growth on the business side outpacing gains in consumer demand. However, grocery and apparel retailers
noted soft sales. These contacts pointed to evidence of households taking advantage of attractive
financing opportunities and devoting their budgets to big-ticket items, such as housing and autos. Large
inventories at many dealerships fueled a robust pace for new and used automobile sales, especially light
XII - 2
truck sales. Contacts indicated strong demand for hobby game products, as the core customers tend to
work in relatively high-wage math and science professions.
Demand for business and consumer services varied across sectors. Reports indicated that many
service providers increased capital expenditures in anticipation of stronger demand. However, contacts
noted that recent demand has been tepid for elective health-care and other discretionary services,
including restaurant dining. Contacts also noted soft demand and downward pressure on fees for legal
services. Travel and tourism activity in Hawaii maintained its solid pace of growth, and after slipping
earlier in the year, tourist activity in Southern California picked up during the summer months. Contacts
noted strong convention attendance in Las Vegas but some weakness in leisure travel.
Manufacturing
District manufacturing activity edged up during the reporting period of early July through late
August. Demand for semiconductors increased, as indicated by modest growth in new orders and sales.
Although capacity utilization for electronic components in general held steady, contacts noted that
demand was somewhat subdued. Demand for commercial aircraft remained solid. Defense
manufacturers noted more muted demand due to the ongoing effects of the federal sequester. Biotech
drug manufacturing increased modestly. Shipments of steel products used primarily in nonresidential
construction continued to increase, and steel producers reported that overall capacity utilization ticked up
a bit further. In particular, reports indicated that capacity utilization for steel manufacturing was stronger
for automobile and aircraft-related inputs than for nonresidential construction inputs. Many contacts
expect manufacturing industry conditions to improve slightly in the second half of the year relative to the
first half.
Agriculture and Resource-related Industries
Sales of agricultural items and resource-related production activity expanded in the District.
Demand was generally strong for most crop and livestock products. However, relatively light traffic at
fast-food restaurants limited sales of some vegetables. In addition, some grain producers expect slightly
lower profits due to price declines. Despite a modest decline in demand for various oil products, contacts
XII - 3
expect overall sales to increase in the medium term. Refinery utilization rates and gasoline production
increased. Utility providers reported that energy sales to aerospace and housing-related firms were
robust.
Real Estate and Construction
Demand for housing strengthened further, and commercial real estate activity was stable or
improved. Although levels remained significantly lower than in the pre-recession period, both home sales
and house prices climbed further relative to the prior reporting period in many District cities. In some
areas, demand for new homes substantially exceeded the supply, and shortages of construction workers
held back the pace of new home construction activity. Multifamily residential construction projects
increased. Rental rates for commercial real estate edged up as occupancies climbed. Contacts in some
major metropolitan areas noted declining commercial real estate inventories and expressed near-term
concerns about capacity constraints.
Financial Institutions
Financial institution reports indicated that loan demand increased slightly on net. Most contacts
reported increased lending relative to a year earlier, but some reported a slight downtick more recently.
Contacts noted that mortgage origination levels were mostly stable despite the increase in mortgage
interest rates, although the number of new applications has dropped a bit in some areas. Some contacts
expect the pace of refinancing activity to slow as well. Reports highlighted ample bank liquidity and
substantial competition for high-quality commercial borrowers. In the District’s Internet and digital
media sectors, mergers and acquisitions activity and venture capital activity grew in terms of both deal
value and volume. However, the pace of initial public offerings remained weak, and private equity
activity was flat.
Cite this document
Federal Reserve (2013, September 18). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20130919
@misc{wtfs_beige_book_20130919,
author = {Federal Reserve},
title = {Beige Book},
year = {2013},
month = {Sep},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20130919},
note = {Retrieved via When the Fed Speaks corpus}
}