Beige Book
For use at 2:00 p.m., E.S.T.
Wednesday
December 2, 2015
Summary of Commentary on ____________________
Current
Economic
Conditions
By Federal Reserve District
November 2015
SUMMARY OF COMMENTARY ON CURRENT ECONOMIC CONDITIONS
BY FEDERAL RESERVE DISTRICTS
NOVEMBER 2015
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
SUMMARY1
The twelve Federal Reserve District reports indicate that economic activity increased at a
modest pace in most regions of the country since the previous Beige Book report. Economic
growth was modest in the Districts of Cleveland, Richmond, Atlanta, Chicago, St. Louis, Dallas
and San Francisco. In the Minneapolis District the economy grew moderately, while in the
Kansas City District growth was steady on balance with mixed conditions across sectors. In the
New York District economic conditions leveled off since the previous report, and in the
Philadelphia District aggregate business activity continued to grow at a modest pace. In the
Boston District, growth was somewhat slower despite reports of revenue increases.
Consumer spending increased in nearly all Districts since the previous Beige Book, with
the pace of sales ranging from sluggish in New York to moderate in Minneapolis and San
Francisco. Sales of light vehicles remained robust in recent weeks, with low gasoline prices
helping to boost sales of light trucks and larger vehicles. Inventory levels were satisfactory.
Tourism was mixed across reporting Districts. In the Richmond, Atlanta, Minneapolis
and Dallas Districts, tourism grew in recent weeks. In the New York District, activity was at or
below year-ago levels.
Non-financial services were little changed to stronger, with most of the growth in
technology-related services. Transportation activity was softer on balance since the previous
report. Port activity remained strong, although largely on the strength of imports, as exports
continued to fall. Cargo volume in Dallas remained soft in recent weeks due to the slowdown in
energy-related cargo.
Conditions in the manufacturing sector were mixed in recent weeks. The strong dollar,
low commodity prices, and weak global demand were named by several Districts as factors for
constrained demand. The Boston, Richmond, Atlanta, Chicago, St. Louis and Dallas Districts
reported improvements since the previous Beige Book report, while the New York, Philadelphia
and Minneapolis Districts reported declines in manufacturing activity. The Boston, St. Louis and
Kansas City Districts reported solid capital investment plans. Manufacturers in most Districts
looked for slightly improved business conditions in the next six months.
1
Prepared at the Federal Reserve Bank of Richmond and based on information collected before November 20, 2015.
This document summarizes comments received from businesses and other contacts outside the Federal Reserve and
is not a commentary on the views of Federal Reserve officials.
ii
On balance, housing markets improved at a moderate pace since the previous Beige
Book, and home prices increased modestly. Home sales rose in the Boston, New York,
Philadelphia, Cleveland, Richmond, Chicago and Kansas City Districts. Philadelphia described a
“slow growth market” in which inventories were stable at low levels. Housing inventories
continued to fall year-over-year in the Boston, Cleveland, Richmond and St. Louis Districts.
Residential construction grew at a modest to moderate pace since the previous report. The
New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis and Kansas City Districts
reported growth in residential construction, while construction in Dallas and Minneapolis was
flat.
Commercial construction strengthened modestly in most Districts. However, the
Minneapolis District saw continued strong growth, particularly in cities where commercial
permitting increased. In contrast, New York reported little change. Commercial leasing activity
generally grew at a moderate pace in recent weeks. Activity increased in the Districts of Boston,
Cleveland, Richmond, Atlanta, Chicago, Dallas and San Francisco, but was unchanged in the
New York District.
Loan demand increased according to a majority of Districts that report on the sector.
Residential mortgage demand was stable on balance. Demand for home equity loans and lines of
credit rose in the Richmond and Dallas Districts. Commercial loan demand was reported to be
generally strengthening in most Districts. Credit quality was mostly stable. San Francisco noted
an increasing role of nontraditional lenders in mortgage markets.
Agricultural conditions varied across Districts in recent weeks. Rainfall helped alleviate
drought conditions in the Atlanta and Dallas Districts, while in the Richmond and St. Louis
Districts crops suffered from too much moisture. Energy activity declined mildly with limited
gas exploration being undertaken. Investment fell at oil and gas exploration and services firms in
the Atlanta District as a result of continued weak global demand and an oversupply of oil. The
Dallas, St. Louis, Kansas City and San Francisco Districts reported declines in energy activity.
Labor markets continued to tighten modestly, on balance, since the previous Beige Book.
The Atlanta, Kansas City and Dallas Districts reported a slight pickup in hiring, while the
remaining Districts characterized their increase as modest to moderate. Many Districts indicated
that increased hiring was driven by temporary and entry-level positions that were being fulfilled
by staffing firms. Employers in several districts reported difficulty finding skilled craftsmen and
iii
general laborers in the construction industry. However, the Atlanta, Minneapolis, Kansas City
and San Francisco Districts said that difficulties were spreading to lower skilled and entry-level
positions. Most Districts said that wage pressures increased only for skilled occupations and for
workers that were in short supply.
Prices were generally steady. Input and finished goods prices were stable for
manufacturing firms, according to most Districts. Some prices were lower due to further declines
in commodity and energy prices as well as the strong dollar. Agricultural commodity prices were
also lower. Some upward price pressures were reported by nonmanufacturing firms in the New
York, Philadelphia, Richmond, Kansas City and San Francisco Districts.
Consumer Spending and Tourism. Consumer spending increased in nearly all Districts
since the previous Beige Book, although the gains varied. The Atlanta District reported that retail
sales rose slightly above expectations and that the holiday outlook among retailers was
optimistic. The pace of growth was modest in the Philadelphia, Cleveland, Chicago, and St.
Louis Districts. Chicago District retailers reported that inventories were at comfortable levels. In
the Boston District, demand remained strong for home-related items, and in the Cleveland
District, revenue increases were driven in part by gasoline and home furnishings. Spending in the
New York District was described as generally sluggish, and inventories were up somewhat, but
said to be at satisfactory levels. Reports were mixed in the Boston, Richmond and Dallas
Districts. While consumer spending declined in the Kansas City District, contacts expected sales
to increase slightly in coming months. The remaining Districts reported moderate consumer
spending. In the San Francisco District, sales of online games remained brisk and demand for
pharmaceutical products remained robust.
Sales of light vehicles continued to rise since the previous report. Several Districts noted
that dealerships credited low gasoline prices for boosting sales. In the Atlanta and Cleveland
Districts, auto dealers reported a rise in the sale of larger vehicles, which they attributed to low
gasoline prices. Dealers in the Chicago District reported continued strong sales and said that
leasing activity increased noticeably. In the San Francisco District auto sales were very strong,
propelled in part by low sales prices and incentives. In contrast, the Kansas City District noted
that auto sales dropped markedly.
Among those Districts reporting on tourism, activity was mixed. Boston-area business
travel remained strong, although leisure travel decreased a bit. In New York City, revenues at
iv
hotels and Broadway theatres were at or slightly below year-ago levels. Philadelphia District
tourism was reported as growing at a modest pace through the fall. Richmond and Atlanta
indicated that tourism increased robustly, and sources in both Districts were optimistic in their
outlook. Favorable weather in the Minneapolis District was reportedly a factor for sustained
tourism in the fall, and a national park in Montana surpassed the all-time annual records for
visitation for the second year in a row, despite summer forest fires. Tourism in the Kansas City
District continued to decline, but was generally flat year-over-year. In Dallas, overall sales in
leisure and hospitality were above expectations, particularly in large metro areas in Texas.
Nonfinancial Services. Nonfinancial services activity ranged from flat to slightly
stronger since the previous Beige Book report. In Boston, software and information technology
firms cited mixed year-over-year revenues. New York reported that activity appeared to level
off. In the Richmond District, businesses generally reported no change in revenues, with the
exception of the faster growing telecommunications sector. In the St. Louis District, firms in
warehousing and storage services, as well as healthcare and social assistance services, planned
expansions. Courier services there cited growing e-commerce as driving the need to expand. In
Minneapolis, where growth was said to be moderate to strong, professional firms related to
health and records management reported expansions. Professional and high-tech firms in the
Kansas City District noted moderate increases in activity since the previous survey, with sales
well above year-ago levels. Demand for professional and technical services increased moderately
in the Dallas District, particularly in accounting. In the San Francisco District, demand for cloud
computing services and big-data analytics drove sales of technology services higher, while
demand for healthcare services also grew moderately.
Transportation activity was softer on balance in reporting Districts. Much of the growth
at the Richmond District ports was from imports; exports continued to weaken, which port
officials attributed to the stronger dollar. Record numbers of containers moved through ports in
the Atlanta District, but haulers of exported industrial products reported a continued decline in
volumes from October through mid-November. Railroads in that District also reported
significant year-over-year decreases in total carloads. In the Cleveland District transportation
services generally contracted since the previous Beige Book although volumes grew in
construction materials and supplies for healthcare and business service providers. Cargo volume
in the Dallas District remained soft in recent weeks, due to the slowdown in energy-related
v
cargo. Demand in the Dallas District airline industry was flat overall. The international outlook
remained weak, but airlines were positive about the domestic market and noted that as long as
fuel prices remain this low, they will continue to perform well.
Manufacturing. Conditions in the manufacturing sector were mixed in recent weeks.
Several Districts reported that firms continued to cite the strong dollar, low commodity prices,
and weak global demand as factors for constrained demand. The Boston and St. Louis Districts
reported moderate growth, noting that overall conditions improved since the previous report.
Manufacturing in the Richmond, Atlanta and Dallas Districts grew modestly, with reports that
new orders and production levels increased slightly. Chicago reported modest growth in the past
six weeks. Cleveland, Kansas City and San Francisco stated that manufacturing activity appeared
flat on balance. In contrast New York, Philadelphia and Minneapolis reported a decline in
manufacturing activity.
Food manufacturers located in the Richmond District noted an improvement in recent
weeks, with increased new orders. In Chicago, the auto industry continued to experience solid
gains and continued to report plans to expand capacity. Durable goods production improved
considerably for aircraft, computer, and electronic equipment products in Kansas City.
Additionally, fabricated metals manufacturers and machinery producers reported strong growth
in the Dallas District. Demand for high-tech manufacturing also picked up slightly. The Boston,
St. Louis and Kansas City Districts reported solid capital investment plans. The Cleveland
District said the steel industry continued to struggle because of the strength of the dollar,
competition from imports (particularly from China), and low demand from the domestic energy
sector. Minneapolis reported a continuing decline in demand for agricultural and mining
equipment. Finally, San Francisco noted that deliveries of commercial aircraft were up slightly
from a year ago, while new orders were significantly lower. Manufacturers in most Districts
looked for slightly improved business conditions in the next six months.
Real Estate and Construction. Housing markets grew at a moderate pace on balance,
and home prices also increased modestly since the previous Beige Book. Home sales in the
Boston and Cleveland Districts rose since the previous report. The Boston District market for
condominiums was generally strong, with sales up year-over-year in every state except
Connecticut. In the Richmond District, residential real estate increased moderately. Kansas City
residential sales strengthened moderately, led by strong gains in Colorado. Residential real estate
vi
continued to improve at a mild pace in the New York, Philadelphia and Chicago Districts.
Atlanta District real estate contacts indicated that sales activity held steady since the previous
report. In the New York District, weakness was noted at the high end of the single family home
market, particularly at the high end of New York City’s co-op and condo market. Philadelphia
described a “slow growth market” in which inventories were stable at low levels. Dallas singlefamily housing activity declined seasonally. Housing inventory continued to fall year-over-year
in the Boston, Cleveland, Richmond, and St. Louis Districts.
Residential construction grew at a modest to moderate pace since the previous report. The
Cleveland and Chicago Districts reported moderate growth, while New York, Philadelphia, St.
Louis, and Kansas City Districts reported modest growth in residential construction. In the New
York and Atlanta Districts, residential construction was noted as steady. In the New York
District, multi-family outpaced single-family construction, with new development largely
occurring in or near New York City and suburban rail hubs. In Richmond, single-family home
construction grew modestly, while multi-family construction remained strong. Most St. Louis
District contacts said that new home construction exceeded that of a year ago. The Kansas City
District reported a moderate increase in housing starts, while construction in the Dallas and
Minneapolis Districts was flat since the previous report.
Commercial construction strengthened modestly in most Districts since the previous
report. The Minneapolis District saw continued strong growth, particularly in cities where
commercial permitting increased. The Boston, Cleveland, Atlanta, Chicago, St. Louis, and San
Francisco Districts reported moderate commercial construction growth. In the Boston District,
office construction grew modestly in the greater Boston region. Demand remained strong in
commercial building, multi-family housing, and higher education in the Cleveland District, while
in the Atlanta District, non-residential construction was slightly up from a year ago and reports
on apartment construction remained robust. The Philadelphia, Richmond and Kansas City
Districts reported a modest pace of growth in commercial construction. Commercial construction
increased in most major cities in the Richmond District. In contrast, New York reported little
change since the previous report. The Dallas District reported that construction remained active,
although construction started to taper off in Houston.
Commercial leasing activity generally grew at a moderate pace. Cleveland reported
strong growth, while activity in the Districts of Boston, Richmond, Atlanta, Chicago, St. Louis,
vii
Minneapolis, Dallas and San Francisco expanded at a moderate pace. Commercial real estate
improved in the Atlanta District, with increased absorption and rent growth across property
types. Improvement in the Chicago District was widely distributed across the retail, industrial,
and office segments, with increased demand for both sale and lease properties. Contacts in St.
Louis reported slightly higher demand across all sectors, and expected demand to remain the
same or increase slightly in the first quarter of 2016. The Minneapolis-St. Paul retail, office, and
industrial space had positive net absorption, along with lower vacancy rates. Demand for
commercial leasing increased mildly in the Dallas District, while office space activity was strong
in the Dallas-Fort Worth area. Commercial leasing activity in New York was unchanged since
the previous report.
Banking and Financial Services. Loan demand increased since the previous Beige
Book, according to a majority of Districts that report on the banking and financial services
sector. The rise in demand ranged from slight to modest according to the New York, Cleveland,
Richmond and Dallas Districts. The Philadelphia and San Francisco Districts reported a
moderate rise while the St. Louis District reported the strongest growth. In the Chicago and
Kansas City Districts demand was steady. Residential mortgage activity was stable, on balance.
The Philadelphia District reported a slight decline in mortgage lending while demand rose
slightly according to the Richmond, Atlanta, St. Louis and San Francisco Districts. Demand for
home equity loans and lines of credit rose in the Richmond and Dallas Districts. Commercial
loan demand was reported to be generally strengthening in most Districts. One exception was the
Dallas District, which reported softer lending to businesses, but cited seasonal factors as the
likely cause.
Credit quality was generally stable. The New York, Philadelphia, and San Francisco
Districts indicated strengthening credit quality as delinquency rates declined and household
balance sheets improved. Credit standards tightened slightly for commercial and industrial loans,
according to the New York District, and for residential mortgage and business loans according to
St. Louis. Dallas noted some tightening of standards in response to slowly declining loan quality
among energy sector loans. Some loosening of standards was reported by Richmond and
Chicago.
The lending environment remained competitive in most Districts. Atlanta noted that some
community depository institutions found it difficult to compete with loan structures and terms
viii
offered by larger institutions. St. Louis said some banks experienced a decline in consumer
borrowing due to competition from alternative lenders. Richmond reported that private equity
was playing a major role in financing merger and acquisition activity. Similarly, San Francisco
noted an increasing role of nontraditional lenders in mortgage markets.
Agriculture and Natural Resources. Agricultural conditions varied across Districts in
recent weeks. In the Atlanta District heavy showers alleviated drought conditions although
soybean, cotton and peanut harvests were behind the five-year average. Rain improved
conditions in the Dallas District, where domestic demand for grains and cattle was solid, but
export demand was weak. San Francisco contacts reported modest growth, with strong yields in
areas less affected by drought. The condition of the Chicago District’s corn and soybean crops
improved mildly since the previous report, with contacts anticipating a record harvest for
soybeans. Minneapolis District agricultural conditions were mixed overall since the last report.
Corn, soybean, and sugar beet production hit new records in some states in the Minneapolis
District. In contrast, agricultural conditions weakened in the Richmond District since the
previous report. South Carolina farmers said conditions deteriorated due to the flooding in early
October and recent wet weather, resulting in delayed harvesting of soybeans, peanuts, cotton,
and vegetables, as well as lower crop yields. Additionally, the St. Louis and Kansas City
Districts reported a moderate decline in agribusiness. St. Louis District farmers noted that
extensive rainfall had resulted in lower crop production levels relative to last year, and industry
contacts had a mostly negative outlook for farm income.
Energy activity declined mildly in several Districts, although at a similar pace as in
previous months, with limited gas exploration being undertaken. Richmond reported mixed
conditions, with modest growth in natural gas production. However, additional drilling is on hold
due to oversupply. Appalachian coal production remained weak. Activity and investment fell at
oil and gas exploration and services firms in the Atlanta District as a result of continued weak
global demand and an oversupply of oil. However, petrochemical refiners set capacity and
production records. The Dallas District reported modest declines in energy sector demand.
Additionally, San Francisco reported a mild decrease in the energy sector. Low oil prices
continued to hold down petroleum extraction and exploration plans in the San Francisco District.
St. Louis and Kansas City Districts reported a moderate decline in activity. The Kansas City
District reported that energy activity declined at a similar pace as in previous months, and the
ix
number of oil and gas drilling rigs continued to decline, particularly in Oklahoma and New
Mexico.
Employment, Wages, and Prices. Labor markets continued to tighten modestly, on
balance, since the previous Beige Book. The Atlanta, Kansas City and Dallas Districts reported a
slight pickup in hiring while the remaining Districts characterized their increase as modest to
moderate. Many Districts indicated that increased hiring was driven by temporary and entrylevel positions that were being fulfilled by staffing firms. The exception was the Chicago
District, where staffing agencies said activity had slowed. Difficulties finding skilled workers
persisted, but varied by location and occupation. The Atlanta, Minneapolis, Kansas City and San
Francisco Districts said that difficulties were spreading to lower skilled and entry-level positions.
Several Districts reported difficulty finding skilled craftsmen and general laborers in the
construction industry. The Dallas and San Francisco Districts noted that labor shortages may
have constrained building activity in some areas.
Wage pressures were generally stable to increasing. Most Districts said that wage
pressures increased only for skilled occupations and for workers that were in short supply,
although a few Districts saw broader pressure. Cleveland said that wage pressures were
widespread, especially for higher-skilled jobs, while Atlanta reported signs of emerging pressure
to raise starting wages, even among low-skilled jobs. The Atlanta and San Francisco Districts
said some companies were revising incentives and benefit programs to retain and attract talent.
Chicago, on the other hand, reported some firms cutting benefit packages to contain labor costs.
A few Districts mentioned issues related to the minimum wage. For example, contacts in the
Boston District cited increased labor costs for restaurants due to changes in minimum wages, and
the Chicago District said recent initiatives were putting upward wage pressures on low paying
jobs. Finally, the Dallas District reported that some hospitality contacts increased starting pay as
a preemptive measure for future minimum wage increases.
Prices were generally steady, although reports varied. Input and finished goods prices
were stable for manufacturing firms, according to most Districts. However, the Richmond
District indicated an increase in raw materials and finished goods prices while intermediate input
prices were slightly lower according to the Boston, Atlanta, St. Louis and Kansas City Districts.
In some Districts lower input prices were attributed to further declines in commodity and energy
prices as well as the strong dollar. For example, Dallas said that a trucking firm was passing
x
lower fuel costs on to customers and Boston reported that the strong dollar put downward
pressure on prices. The Cleveland District noted that some manufacturers were cutting prices to
compete with foreign imports. Some upward price pressures were noted by nonmanufacturing
firms in the Districts of New York, Philadelphia, Richmond, St. Louis, Kansas City and San
Francisco. Price declines were reported for agricultural commodities such as raw milk, cotton,
soybean, wheat, chickens, hogs, and cattle. However, the San Francisco District reported that
drought conditions reduced cattle herd sizes leading to supply shortages and higher meat prices.
I-1
FIRST DISTRICT – BOSTON
Reports from First District business contacts suggest that activity is expanding at a somewhat slower
pace currently than was the case six weeks ago. Although most retail and manufacturing respondents cite
revenue increases from a year earlier, slightly more contacts in those sectors report declines in sales than
during the last Beige Book round. Software and information technology services firms cite mostly flat
revenues on a year-over-year basis; staffing firms, by contrast, continue to grow robustly. Most
commercial real estate contacts say markets are steady, while residential real estate sales and prices
continue to increase in the region. The strong dollar is said to be putting downward pressure on prices;
otherwise, contacts indicate prices remain a non-issue. Some firms say they are providing larger wage
increases than in the past few years to most or to selective job categories to retain existing employees;
others are not. Half of respondents across sectors are holding employment steady and most others plan to
do modest net hiring; a couple are cutting jobs.
Retail and Tourism
First District retail contacts report mixed comparable-store sales results: some were up or down from
a year earlier by 1 or 2 percent, while others had mid-single-digit increases. One contact reports that after
a good October, its sales as of mid-November were down sharply across all U.S. regions. More generally,
clothing sales are said to have declined, but footwear sales are good and demand for home-related items
remains strong. Some respondents are forecasting more muted holiday sales and downgrading their
expectations for the full fiscal year. For example, one contact earlier expected to finish 2015 with sales up
by 4-plus percent, but based on results since this spring now expects to finish up or down by 1 percent.
This same contact hypothesizes that erratic monthly sales results reflect U.S. consumers’ “just-in-time”
buying mentality instilled by online shopping. Some retail contacts with international operations report
that the strong dollar is muting their sales performance when calculated on a U.S. dollar basis.
Boston-area business travel remains strong, but leisure travel has decreased a bit. For the first time in
a while, Boston-area hotels performed a bit under forecast between July and September. In August and
September 2015, hotel occupancy rates were around 90 percent; this is still strong by historical standards,
but down from the corresponding months of 2014. For year-to-date, however, hotel revenues are up 6
percent to 7 percent through September. High-end restaurants that cater to business and corporate clients
are doing well, but mid-tier restaurants cite flat revenues through September 2015 compared to 2014.
Restaurants are experiencing higher operating costs due to changes in the minimum wage, higher
healthcare costs, and higher rents in prime urban areas. Attendance at museums and other attractions
decreased in the July through September period compared to 2014. Given these trends, contacts express
uncertainty about 2016. Added international air service and continued strong business travel are leading
hotels to expect higher room rates and revenues, despite slightly lower occupancy rates, while restaurants
and tourist attractions say they are taking a more wait-and-see approach to next year.
Manufacturing
Of 11 responding firms, only two, a maker of semiconductors and a manufacturer of motors and
other items for industrial uses, saw falling sales. The semiconductor sales declines reflect the
idiosyncratic cycle of the semiconductor business, while the motor-related firm’s falloff resulted from
exposure to mining and oil and gas, which have been hit hard by falling commodity prices. Low oil prices
are affecting several other contacts, with a manufacturer of tools reporting weaker sales to that sector and
an aerospace firm pointing to a collapse in demand for helicopters attributable to reduced use of offshore
oil platforms. Two additional contacts report that sales failed to grow versus the same period last year.
Several contacts mention China. A manufacturer of elevators and other construction-related goods says
that infrastructure spending in China was way down. But a supplier of testing and lab equipment for
medical uses reports that sales in China were exceptionally strong.
I-2
The strong dollar means that several firms are reporting sales increases in local currencies but a fall
in dollar sales. Aside from the dollar, the general pricing environment appears to be quite benign. Five
contacts cite falling input prices and several report passing those gains on to customers. A manufacturer
of milk products indicates that the price of raw milk has fallen significantly.
Inventories are mixed. Several firms report lower inventories, but one maker of semiconductor
testing equipment says it is increasing inventories in anticipation of strong demand in the new year. All
but one firm report that they are increasing or maintaining employment at current levels; the maker of
motors citing falling sales has made significant reductions in employment.
Capital expenditures are in line with plans; for most firms, this means they are up versus the same
period last year. The manufacturer of motors and related goods said that despite falling sales and
employment, they are maintaining capital expenditures. Several contacts mention increasing spending on
research and development.
With the exception of the manufacturer of motors, respondents’ outlooks are generally optimistic.
The semiconductor maker with down sales was upbeat about the outlook for its other businesses, which
include life sciences. And the two firms with flat sales are positive about their ongoing prospects.
Software and Information Technology Services
Reports from First District software and information technology services firms are mixed, with yearover-year revenue growth ranging from slightly negative to slightly positive. Most firms report flat
quarter-over-quarter revenue growth; only one firm cites strong quarterly growth. Both selling prices and
capital and technology spending have remained constant in recent months. While the majority of firms are
either maintaining or slightly increasing headcount, one firm decreased employment by 7 percent. Firms
are either holding wages flat or increasing wages slightly to keep pace with inflation. Overall, most
contacts maintain the same level of optimism, but one is less optimistic than before, expecting consumer
demand to remain soft through the end of the year. Various contacts cite a softer manufacturing sector and
weakness in China and the Americas as the biggest factors impacting business currently.
Staffing Services
Staffing contacts report continued growth in the New England region, with year-over-year revenue
increases in the 10 percent to 25 percent range. Labor demand remains very strong, and contacts note that
an increased number of companies are relying on staffing firms for recruitment. Labor supply is
reportedly tighter than in August, with shortages of skilled ambulatory nurses, medical assistants,
administrative assistants, skilled trades workers, IT programmers, legal professionals, and executive
assistants. The rate of temporary-to-permanent job conversion remains strong. Firms continue to use
recruitment tools such as LinkedIn and job boards in order to identify candidates to fill client job orders.
Reports on bill and pay rates are mixed, ranging from flat to increases of 10 percent year-over-year.
Looking forward, most contacts are cautiously optimistic, expecting the upward trajectory to continue
through the end of the year, despite the challenges inevitably posed by winter weather and holiday season.
Many contacts express concerns about the threat of terrorism and its possible effects on the economy.
Commercial Real Estate
According to First District contacts, office leasing activity remains strong in Boston and light in
Hartford. In Providence, office leasing tapered off somewhat in recent weeks from the robust pace
observed in late summer and early fall, while in Portland leasing activity increased slightly in both the
office and industrial sectors.
Investor demand for commercial property in greater Boston is still perceived as very strong, but one
contact reports a modest slowdown in sales volume and another notes that recent sales prices are down
slightly from the very high levels seen earlier in the fall. These contacts attribute the decline in sales
prices to the recent increase in 10-year Treasury rates and the recent decline in sales volume to a
somewhat tighter funding environment. However, the tight funding environment is seen as mostly an
artifact of year-end factors—for example, many funds have already met their requirements for
commercial real estate investment for the year—and therefore funding supply is expected to bounce back
in early 2016. In Hartford and Portland, investment demand for commercial property reportedly remains
I-3
solid, but a Hartford contact describes bid prices as somewhat more cautious in recent weeks, and a
Portland contact says the number of bidders is down slightly but prices remain robust. In Providence,
outside investors show increasing interest in the city’s commercial real estate assets but so far such
interest has not translated into sales.
Office construction activity increased modestly in greater Boston, with new projects under way in
both downtown and suburban locations; a mid-sized office structure was recently approved for downtown
Portland. Two significant retail developments close to Hartford are under discussion, but a contact doubts
that both will be funded based on their proximity to each other and to existing retail centers.
The outlook for commercial real estate activity remains weak for Hartford, with an emphasis on
downside risks to employment growth. The outlook remains modestly optimistic for Providence, and a
contact in that city reiterates his forecast that the city could begin to see increases in office rents by late
2016. The outlook for greater Boston remains optimistic for office leasing demand and further increases
in office construction activity are expected. A Portland contact sees a recent increase in efforts to promote
the city’s knowledge economy, which he hopes will attract more young people to the area.
Residential Real Estate
Residential real estate markets continue to exhibit strong performance throughout the First District.
For single-family homes, closed sales increased on a year-over-year basis in all six states in the latest
month (September or October). In Rhode Island, single-family home sales saw the tenth consecutive
month of increases, the longest period of growth in activity since 2012. In Boston, single-family closed
sales were the second highest volume ever recorded during September. The market for condominiums is
generally strong as well, with closed sales up year-over-year in every state except Connecticut.
Median sales prices for single family homes are rising or stable year-over-year across the board.
Median sales prices in the condo market are mixed; some states saw modest increases and others saw
modest decreases relative to last year. A contact from Rhode Island notes that homeowners are
experiencing “solid gains in price appreciation,” while a contact in Connecticut describes prices as
“stable”. A Massachusetts contact reports that high prices continue to be a barrier for buyers, especially
first-time home buyers. Both the single-family and condo markets show year-over-year increases in
pending sales, indicating that these markets will remain strong going forward into the winter months.
Continuing recent trends, single-family and condo inventory decreased year-over-year in every First
District state. Contacts continue to indicate that low inventory is a persistent issue with no easy remedy,
given the dearth of new construction. Average days spent on market and months of available supply are
decreasing on a year-over-year basis in most states, indicating ongoing robust competition among buyers.
Overall, contacts are optimistic about the outlook, noting the marked increase in activity when
compared to last year. Many report that markets are unusually strong for the season, as there is generally a
slow-down in activity going into the holidays. For example, one respondent says that sellers are extremely
motivated right now and he expects robust activity to continue, despite the season. Residential contacts
unanimously report that expected increases in interest rates are affecting consumers’ decisions to buy
and/or sell. Some say the recent strong activity may be due to buyers wanting to lock in low interest rates
before an increase occurs. Others express concern that the expected rise is driving people away from
buying homes, especially first-time buyers.
II-1
SECOND DISTRICT--NEW YORK
Economic activity in the Second District has leveled off since the last report, though labor
markets have shown some further signs of tightening. Selling prices remain generally stable, while
service-sector firms indicate ongoing upward pressure on input prices and wages.
Consumer
spending has been mixed but somewhat weaker, on balance, while tourism has remained sluggish.
Manufacturers continue to report weakening in activity. Housing markets continued to improve,
while commercial real estate markets were mostly stronger. Multi-family residential construction has
been steady at a high level, while commercial construction has remained fairly subdued. Finally,
banks report a pickup in demand for commercial loans and mortgages but slightly weaker demand for
consumer loans; they also note some improvement in delinquency rates for commercial borrowers
but little change on household loans.
Consumer Spending
Retailers report sluggish results for October and early November. One major retail chain
indicates that sales in the region came in below plan and below 2014 levels in both months; another
large chain indicates that sales were on plan in October but fell below plan in early November. One
contact maintains that the strong dollar, through its effect on tourism, has continued to affect sales—
especially in New York City—while a few contacts note that mild weather has hampered sales of
seasonal merchandise. Retailers in upstate New York report that sales have generally been flat in
recent weeks. Retail inventories, though up somewhat, are generally said to be at satisfactory levels,
and selling prices are reported to be generally steady.
Auto dealers in upstate New York characterize new vehicle sales as fairly strong in October
and early November, and up noticeably from comparable 2014 levels. Some improvement was also
noted in sales of used vehicles. Wholesale and retail credit conditions continue to be described as in
good shape.
Tourism activity has remained sluggish—particularly in New York City, where
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revenues at both hotels and Broadway theatres have continued to run at or slightly below comparable
2014 levels.
Separately, the Conference Board’s October survey shows consumer confidence
slipping in the region (NY, NJ, PA), as well as in New York State.
Construction and Real Estate
The District’s housing markets have been mixed thus far in the fourth quarter. The home
resale market in western New York has remained fairly strong, with a normal seasonal slowing noted
in sales activity; however, demand for higher-end properties has reportedly slowed. Similarly, some
weakening is reported at the high end of New York City’s co-op and condo market, reflecting both
softer demand and a supply glut. Aside from the very high-end, however, inventories across New
York City remain lean, and sales activity has been steady at a fairly sturdy level. Northern New
Jersey’s housing market has continued to improve gradually: resales are running ahead of a year
earlier, though prices have leveled off. The backlog of distressed properties, though still high, now
appears to be receding across northern New Jersey.
Residential construction has been steady. Multi-family continues to outpace single-family
construction, with the mix still weighted more toward rentals; new development is largely occurring
in or near New York City and near suburban rail hubs. However, there are signs of softening in
rental markets in Manhattan, Brooklyn and Queens: the inventory of available units has risen and
rents have edged down. Still, one contact notes that rents on apartments in both Manhattan and
Brooklyn continue to run ahead of last year.
Commercial real estate markets across the District were mostly steady. Office availability
rates are up slightly, but still fairly low, on Long Island, down slightly in Westchester and Fairfield
counties, and little changed across the rest of the District. Office asking rents are up moderately in
New York City and parts of northern New Jersey, down slightly across upstate New York, and
generally flat elsewhere. The market for industrial space, on the other hand, has continued to tighten,
with availability rates declining further and rents running about 5-6 percent ahead of comparable
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2014 levels. Commercial construction activity has remained steady, with relatively few new projects
breaking ground in recent months.
Other Business Activity
The labor market has been mixed but still fairly strong in recent weeks. More manufacturers
say they are reducing than expanding their workforce. Moreover, fewer service-sector firms report
that they are hiring. On a more positive note, two major New York City employment agencies report
that hiring activity has remained fairly brisk, and a major agency in upstate New York characterizes
hiring as steady at a moderate pace. Demand is described as particularly strong for workers in
information technology and human resources; and professional services and consulting firms are said
to be more actively hiring. One employment agency contact notes that more businesses are inquiring
about salaries and anticipates some possible upward recalibration of pay at the start of the new year.
Looking ahead to the next year, both manufacturers and service-sector businesses expect to increase
employment, on net.
Manufacturers report that both selling and input prices are generally stable. Service firms
report stable selling prices but continued upward pressure on wages and input prices more broadly.
As regards general business conditions, overall activity at service-sector firms appears to have
leveled off, while manufacturers, on balance, report further weakening in business activity. Contacts
in both sectors are somewhat less optimistic about the near-term outlook than earlier in the year.
Financial Developments
Small to medium sized banks in the District report mixed demand for loans. Specifically,
bankers indicate decreased demand for consumer loans, little change in demand for residential
mortgages, but increased demand for commercial and industrial (C&I) loans and especially for
commercial mortgages. Bankers again report decreased demand for refinancing. Bankers note that
credit standards were unchanged across all loan categories, except on C&I loans, where some
tightening was reported. Bankers indicate a decrease in spreads of loan rates over cost of funds
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across the commercial loan categories but little change in spreads on consumer loans and residential
mortgages. Finally, bankers report declining delinquency rates on commercial mortgages and C&I
loans, but a leveling off in delinquencies on consumer loans and residential mortgages.
III-1
THIRD DISTRICT – PHILADELPHIA
Aggregate business activity in the Third District continued to grow at a modest pace
during the current Beige Book period. Firms hired additional employees at a similarly modest
pace; most of the hiring was reported from staffing firms and service sectors. On balance, only
slight increases were reported in wages and prices, including home prices. Moderate growth of
economic activity is anticipated over the next six months.
Across sectors, activity at staffing firms continued to grow at a strong pace during the
current period, and the growth of auto sales, general services, and contracts for new homes
accelerated from the prior period to a moderate pace of growth. Lenders also continued to report
moderate growth of loan volumes. General retailers reported that sales slowed to a more modest
pace. Commercial contractors and commercial leasing agents continued to report modest growth,
while existing home sales slowed somewhat from its prior modest growth. Tourism contacts
continued to report modest growth and manufacturing contacts reported declines overall.
Manufacturing. Contacts indicated that general activity declined slightly during the
latest Beige Book period. Moreover, a greater percentage of firms reported declines in new
orders and shipments than reported increases. Over the period, firms reported little overall
change in employment numbers, but decreases in the average employee workweek. Activity
appeared to be down to flat for most major industrial sectors, with firms continuing to cite the
strong dollar, low commodity prices, and weak global demand for their products. That said
individual firms within sectors sometimes reported increasing demand. Growth in activity was
most often found among firms producing goods for the consumer, the housing market, or select
markets, such as, natural gas transmission pipeline projects.
Expectations of growth during the next six months have remained about the same since
the last Beige Book report, as have firms’ plans for future capital expenditures. However, the
percentage of firms that expect to increase employment has risen and the percentage expecting to
reduce employment has fallen.
Retail. Nonauto retail sales slowed to a modest pace in the current Beige Book period.
Area malls reported slight growth overall, including the apparel category which accounts for
about half of all sales; surprisingly, restaurant sales at mall properties declined significantly. An
outlets operator reported moderate sales growth, which is slower than the norm for their valueoriented stores. Mall and outlet contacts were hopeful that winter apparel sales would rebound
now that cold weather has arrived. Convenience store owners continued to report strong growth
of traffic and sales. Most contacts remained optimistic for ongoing growth through 2016
including convenience store operators; however, the latter does not expect to repeat their record-
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setting 2015 growth rates, which benefited from lower gas prices and a long run of warm, sunny
weekend weather.
On average, auto dealers reported moderate growth in auto sales — a pick-up in pace
from the prior period. Reports of growth were much stronger in New Jersey than in
Pennsylvania. Following two months of strong sales growth, New Jersey dealers reported that
November started very slowly. They expect Black Friday sales will help but that some sales may
be delayed, adding to the typically strong December sales. Pennsylvania dealers reported that
sales were strong in larger urban areas and weaker elsewhere. Overall, auto dealers remained
optimistic for continued growth through 2016.
Finance. Third District financial firms continued to report moderate overall increases in
total loan volumes since the previous Beige Book. Commercial and industrial deals and
commercial real estate activity continued to generate the strongest loan growth. Auto loans and
home equity lines grew moderately, as did credit card balances. Other consumer lending grew
slightly, while mortgage lending appeared to fall slightly. Most contacts attributed loan growth to
a steadily improving economy, though several noted that households and small businesses
remained cautious of taking on more debt. Banking contacts continued to report improving loan
quality and a competitive lending environment. Few signs of inflation were noted. Contacts
remained optimistic for continued growth over the next six months.
Real Estate and Construction. Homebuilding activity throughout the Third District
picked up to a moderate rate of growth since the last Beige Book according to contacts. A central
Pennsylvania builder reported that activity had begun slowly in the period but quickened in the
latter half. A New Jersey builder reported that, by mid-month, November was already the best
month of the year for contract signings, providing a solid backlog for the winter season. A
nationwide firm reported strong increases in contract signings for its markets covering the Third
District states. Builders continued to note difficulties managing labor costs as subcontractors
remained cautious about expanding to meet demand.
Brokers in the major Third District housing markets reported mixed results with yearover-year declines noted in the larger Philadelphia and Lehigh Valley markets compared with
gains in the smaller Harrisburg and Jersey Shore markets. The year-over-year comparisons are
weaker for the large markets because their sales began to improve earlier in the latter half of
2014. A major broker from the Philadelphia market described a “slow growth market” in which
inventories are stable at low levels. Prices increases remain constrained.
Nonresidential real estate contacts reported little change to the modest pace of growth in
construction and leasing activity seen earlier. Contacts representing architects, engineers, and
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contractors reported continued growth in demand for services and greater profitability on
projects won. Little to no inflation was reported in construction costs. Generally, brokers
described rents rising and concessions falling for office space as service sector activity picks up.
One contact reported that industrial rents were near all-time highs as supply has not kept pace
with demand. Contacts remained optimistic for ongoing growth of both new construction and
leasing activity throughout the District into 2016.
Services. Third District service-sector firms reported a moderate pace of growth — a
slight improvement from the prior period. On balance, firms reported additions of full-time and
part-time payroll employees, plus increases in hours worked. Staffing firms throughout the Third
District continued to report strong growth for temporary positions and permanent placements
across a broad range of manufacturing and service sectors. Temp positions have also included
long-term temporary placements. Tourism activity continued to grow at a modest pace from
mountains to shore through the fall. Contacts continued to cite weather worthy of Camelot for
attracting extra weekend visitors. Contacts offered retrospective reports that the strong summer
season had generated growth in bank accounts and investment in new and expanded businesses.
The remaining Atlantic City casinos are healthier, as well, although overall revenues have
continued to fall. Overall, expectations for future growth in services remained strong, with nearly
two-thirds of all service-sector contacts expecting growth.
Prices and Wages. On balance, general price levels have continued to rise slightly since
the previous Beige Book period. Roughly two-thirds of all contacts reported no significant
change in the prices they pay for inputs and the prices received for their goods and services. Of
firms that indicated a change, most nonmanufacturing contacts reported increases of prices paid
and prices received, although retail contacts reported little pressure to raise prices. Firms from
the smaller manufacturing sector tended to report a slight decrease in prices paid and little
change in prices received.
Overall, contacts continued to report only slight upward wage pressures, although some
contacts continued to report difficulties filling highly technical positions. One staffing contact
indicated a little upward wage pressure, noting that several client firms had set higher wage rates,
which allowed his firm to be more competitive in its search for qualified workers. In addition, he
noted that more prospective employees have begun trying to negotiate higher offers.
Over the next four quarters, firms expect their own per employee compensation costs
(wages plus benefits) to rise 3 percent, the median forecast from a broad-based survey of Third
District firms. Firms also reported expectations of 2 percent annual inflation for consumers and 1
percent increases in prices received for their firm’s own goods and services.
IV-1
FOURTH DISTRICT – CLEVELAND
On balance, the economy in the Fourth District expanded at a modest pace since our last
report. Factory output was stable. The housing market improved, with higher unit sales and
higher prices. Nonresidential building contractors reported continued strong activity. Retailers,
restaurateurs, and new-car dealerships saw higher revenues on a year-over-year basis. The
demand for business and consumer credit moved slowly higher. Exploration in the Marcellus and
Utica Shales declined; investment in midstream and downstream projects expanded. Freight
volume trended lower.
Reports indicated a tightening in labor markets. Net gains in employment were seen in
construction and banking. Staffing firms reported a pickup in the number of job openings,
although many are temporary positions. Job placements were stable. Wage pressure is
widespread, especially in higher-skilled jobs. Overall, input and finished-goods prices were
steady.
Manufacturing. Demand for manufactured products was little changed over the period.
Key factors tempering output include a strong dollar, a slowdown in the energy sector, and
softness in some emerging market economies. That said, suppliers to the motor vehicle,
construction, and aerospace and defense industries are seeing strong demand. Year-to-date auto
production at District assembly plants through October increased 1 percent compared to the prior
year’s level. The steel industry continues to struggle against an array of headwinds such as the
strength of the dollar; high levels of imports, particularly from China; and low demand from the
domestic energy sector. One steel processor noted that weakness in the energy sector is expected
to linger into 2016 and potentially 2017. Capacity utilization rates have contracted since our last
report. A steel executive reported that his industry’s utilization rate has fallen to 65 percent.
Despite the downside risks, many of our contacts expect that business activity will expand during
2016.
Capital spending was largely allocated for maintenance projects and new equipment.
Steel makers made budget cuts to control costs and preserve cash. Overall, input and finishedgoods prices were steady. Exceptions were found in agricultural commodities and energy, where
prices declined. Steel prices continued to fall. There is a growing apprehension that the current
trend in steel prices could persist for the medium run and severely depress the domestic steel
industry. A couple of reports indicated that manufacturers are cutting prices on select products to
compete with foreign imports spawned by the strong dollar. On balance, manufacturing payrolls
were stable. Difficulty finding high-skilled craft and professional workers is driving up wages in
some job categories. An auto executive reported that he expects a general lifting of wages across
the motor vehicle industry because of the recent UAW contract negotiations. We heard many
comments about moderate to large increases in health insurance premiums.
Real Estate and Construction. Year-to-date sales through September of new and
existing single-family homes rose almost 10 percent compared to those of the same time period
in 2014. The average sales price increased by more than 4 percent. Higher prices for new homes
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were attributed to rising labor costs and, to a lesser extent, low spec-home inventory. Realtors
reported that existing-home prices increased because of declining inventory and low interest
rates. Several contacts noted that demand for remodeling services has risen appreciably. Newhome contracts remain concentrated in the move-up price point categories. Downside risks cited
by homebuilders include a potential rise in interest rates and a shortage of skilled labor. In the
southern part of the District, a homebuilders association recently opened its own trade school as
a means of filling the labor pipeline. Despite the risks, homebuilders are cautiously optimistic
and expect that new-home sales will continue along recent seasonal trends.
Nonresidential contractors reported continued strong activity, with revenues rising above
year-ago levels. A majority of our contacts saw an increase in the number of inquiries and
backlogs over the period, but the pace of growth is not as robust as earlier in the year. Slower
growth was attributed to softening in the manufacturing segment and seasonal factors. Demand
remains strong in commercial building, multifamily housing, and higher education. Several of
our contacts expect some slowing in the flow of projects going forward, citing a decline in the
Architecture Billings Index as evidence. However, they see this slowing as a short-term event.
Capital spending by general contractors was mainly for maintenance projects and new
equipment. Materials prices were stable other than for concrete, the price of which has been
increasing over the past few months. Construction payrolls expanded at a modest pace over the
period for field and office jobs. The construction industry remains challenged by a labor
shortage, including laborers and skilled craftsmen. The end result is upward pressure on wages.
We heard many comments about escalating healthcare insurance premiums during the renewal
period, with an average year-over-year increase of 20 percent (median of 16 percent).
Consumer Spending. Entering the fourth quarter, consumer spending at retail outlets
and restaurants showed a modest increase when compared to that of the same time period a year
ago. Revenue increases were driven in part by gasoline sales (volume) and home furnishings.
The latter was attributed to a recovery in household formation rates by millennials. The apparel
segment is reportedly highly fragmented. Nonetheless, retailers were able to increase margins on
select apparel lines during the past few months. Same-store revenues for the 2015 calendar year
are expected to be on par or to increase in the low single digits compared to those of a year ago.
Vendor and shelf prices were fairly stable, other than declines in gasoline. Food costs have
stabilized over the period. Some capital spending is being reallocated from retail locations to
warehousing and logistic projects to adjust for changes in consumer shopping preferences.
Holiday hiring is on par with last year’s. The retail sector is confronting stiffer labor competition.
Higher turnover of managerial staff and hourly workers combined with a smaller pool of
qualified workers is driving up wages.
Year-to-date sales of new motor vehicles through October rose 1.5 percent compared to
those of a year ago. Dealers reported that light trucks and SUVs are expected to drive the upward
trend in motor vehicle sales, at least in the short run. Factors contributing to this trend include
low gasoline prices, favorable financing (includes leasing), and the perception by consumers that
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low interest rates will gradually disappear. One dealer commented that the average vehicle
transaction price is much higher than it was two years ago. Year-to-date pre-owned-vehicle sales
are moderately higher compared to those of last year. Payrolls were stable over the period, but
the market for service technicians is very tight, putting upward pressure on wages.
Banking. Bankers reported a modest increase in demand for commercial credit across
loan products, but several remarked that customers are proceeding more cautiously than during
the summer. Consumer lending expanded modestly over the period, although some banks noted a
downturn in auto lending. This may be due to the greater use of auto leasing by consumers. Little
change was reported in interest rates, delinquencies (already at low levels), and loan-application
standards. Core deposit balances remain strong. The number of branch offices continues to
decline because of consumer preferences for mobile transactions. Nonetheless, some bankers
expect that payrolls will rise on net during 2016. Job increases in areas such as regulatory
compliance and commercial lending will offset the decline in retail banking jobs. Wage pressure
is limited to select job categories.
Energy. Investment in upstream oil and gas projects has been cut back as evidenced by
the fact that rig counts have fallen more than 50 percent relative to last year’s counts.
Nonetheless, regional natural gas output remains at historic highs. Investment in mid-stream
projects is expanding slightly, while downstream investment in refinery projects is strong. The
economics of ethane cracking remain favorable, a situation which bodes well for constructing at
least one of the proposed crackers under consideration in the Fourth District. Expectations call
for wellhead gas prices to remain at low levels during the near to medium term. Small,
independent exploration and production companies are unable to operate wells at current prices.
As a result, they are selling assets to equity capital firms. Employment reductions in the industry
continue. One executive reported that labor at all skill levels is readily available, with little need
to provide wage incentives. In fact, some job categories are experiencing wage deflation.
Freight Transportation. Reports indicated that on net, freight volume contracted over
the period. Volumes grew in construction materials and supplies used by healthcare and business
service providers. Declines were prevalent in steel products. One executive reported that the
agricultural sector encountered fewer problems getting trucks during the harvest season this year
as compared to last year. A majority of our contacts see little change in volume along seasonal
trends in the next few months. The industry is boosting shipping rates even though volume is
lower. Rate adjustments are needed to cover rising equipment and labor costs. The former
includes the soon-to-be-mandated electronic logging devices. Not much customer pushback was
reported, perhaps because rate increases were partly offset by declines in fuel surcharges. Capital
spending is mainly for replacing older equipment and, to a lesser extent, footprint expansion.
Hiring has slowed during the past few months because of the slowdown in demand and is now
primarily for replacement. That said, a driver shortage still exerts upward pressure on wages.
V-1
FIFTH DISTRICT–RICHMOND
Overview. Fifth District economic conditions strengthened modestly since our previous report.
Manufacturing grew marginally, on balance. Retail sales were mixed, and other services firms reported
little change in activity. Tourism increased robustly in recent weeks. Household and business loan
demand increased modestly, and residential and commercial real estate markets continued to improve.
Labor demand also strengthened. District agribusiness softened, and severe flooding in South Carolina
during early October resulted in delayed harvesting and reduced crop yields. According to our most recent
survey, prices of raw materials rose more rapidly in recent weeks, and prices of finished goods increased
at a modest pace. Retail price increases slowed, while prices at other services firms rose at a moderately
faster rate. Average manufacturing wages edged up. Service sector wages rose at a modest pace, with
particularly strong growth in retail wages.
Manufacturing. On balance, manufacturing grew modestly since the previous report. Producers
reported mild growth in shipments and the volume of new orders. Food manufacturers located in Virginia
noted an improvement in overall conditions with increased new orders. They reported a slight decrease in
egg prices, but noted that other prices remained elevated. A South Carolina box manufacturer said that
shipments and new orders were up, despite early October flooding that slowed production for a week.
Contacts in Maryland and Asheville, North Carolina reported mixed manufacturing conditions, with
growth occurring primarily in larger firms. In contrast, overall demand and new orders declined for a
Virginia furniture manufacturer and a North Carolina textile company. Executives in fabricated metal,
transportation, chemical, and textile producing industries reported softer global demand, resulting in
falling exports. According to our most recent survey, prices of raw materials rose more rapidly in recent
weeks, and prices of finished goods increased at a modest pace.
Ports. Port activity increased since the previous Beige Book, with much of the growth attributed
to stronger imports. In fact, imported container volumes continued to exceed last year’s records at major
ports in the District. Inbound shipments of light vehicles remained strong. In addition, import volumes
rose for salt and aluminum. Imports of agricultural equipment softened, however. While imports of
commodity containers dropped slightly in recent weeks at one port, the volume of retail containers at that
port rose. Although exports of metallurgical coal rose since the last report, exports overall continued to
weaken, which port officials primarily attributed to the stronger dollar. One official commented that,
outside of weather-related issues earlier in 2015, the drop in exports in the last few weeks was the biggest
decline this year.
Retail. Recent reports on retail sales results were mixed. Strength in light vehicle sales persisted,
according to dealers, and a North Carolina building supply executive said that sales had grown more
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quickly in recent weeks. However, a Maryland supplier of construction materials commented that
business was sluggish, and a South Carolina wholesaler of plumbing and HVAC supplies reported a
decline in sales. A coastal South Carolina building supply merchant reported a drop in business as a result
of the extreme flooding there. He said it would take some time for insurance companies to assess damage
to homes and businesses but that his sales would pick up once people start rebuilding. Retail prices rose
more slowly since the last report.
Services. Services-providing firms reported little change in activity since the previous Beige
Book, with the exception of faster growth in telecommunications. Additionally, according to several
District healthcare organizations, demand for services was mostly unchanged and at typical levels for this
time of year. Prices at services firms rose at a moderately faster rate.
Tourism increased robustly in recent weeks. An hotelier in the mountains of North Carolina
commented that autumn bookings were at record levels and expectations are that the hotel will be sold out
during the holidays. Several new hotels are being built in various areas of the state, and a Charlotte
executive noted that occupancy at existing hotels has been at record levels. Additionally, a source in the
Virginia Beach area said that hotel bookings have been strong and that several new hotels are planned for
that region. An executive on the outer banks of North Carolina said that the record floods in South
Carolina did not affect local tourism. Tourist activity in the nation’s capital was little changed, on
balance, despite several Veterans’ Day events. Districtwide, contacts reported little or no change in room
rates or rental prices.
Finance. Since our previous Beige Book, lending activity picked up modestly in the District.
Residential mortgage demand was generally reported as steady to increasing. A banker in Maryland,
however, said that most of the demand came from refinancing loans and that the pipeline of mortgage
activity has softened slightly. A banker in West Virginia said that retail loan demand was steady,
particularly for home equity lines of credit and auto loans. Demand for commercial real estate loans also
rose modestly in recent weeks throughout the District. A Maryland banker reported an increase in merger
and acquisition activity but said that private equity was playing a major role in financing. According to a
banker in Baltimore, highly-qualified borrowers still have access to credit but may be paying marginally
higher rates. Credit quality remained high in West Virginia. Banking contacts in Maryland reported that
there were more lenders than borrowers, leading to intense competition. Several contacts across the
District mentioned that increased competition had led to some loosening of standards.
Real Estate. Residential real estate activity grew at a moderate pace since the previous report,
and average sale prices increased slightly. Days on the market decreased across the District, while
inventories remained low and in some cases declined. A broker in Washington, D.C. reported an increase
in home sales, especially for homes priced around $800,000, with a continuing trend of multiple bidders
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pushing sales prices above list. A contact in Hampton Roads, Virginia reported growth in home sales
including more sales in new construction. Additionally, a Baltimore builder saw pockets of increased
activity, with the million-plus range growing in some areas. A Realtor in Charlotte stated that sales
increased modestly, inventory levels decreased, and prices continued to gain traction. In Richmond, new
homes sales continued to do very well, although buyer traffic was said to be slow for this time of the year.
A Raleigh, North Carolina source stated that buyer traffic decreased and inventory was sluggish. Single
family home construction was reported as modest across the District. Multifamily leasing and
construction remained strong, although some contacts reported that the pace of growth had moderated in
recent weeks.
Commercial real estate activity increased moderately. Rental rates rose slightly, while vacancy
rates varied by submarket and region. Brokers in Charlotte stated that leasing activity was steady for all
sizes of space. One broker noted healthy industrial activity and higher rental rates. A real estate agent in
Columbia, South Carolina reported strong market activity especially post-flood. Retail leasing activity
and land sales were very strong. The industrial market was active with increased interest in the Columbia
and Charleston areas, while office leasing was slow. A Baltimore broker reported strong demand for
grocery space, with continued new construction. A contact in Raleigh commented that larger medical and
office space users were undertaking new construction and expanding existing spaces. Real estate activity
increased in Richmond, with higher rental rates for new construction. Commercial real estate remained
sluggish in Charleston, West Virginia. Commercial construction increased in Richmond, Charlotte and
Charleston, South Carolina and was unchanged in other locations.
Agriculture and Natural Resources. Agribusiness softened since the last report. South Carolina
farmers said conditions deteriorated due to the flooding in early October and recent wet weather, resulting
in delayed harvesting of soybeans, peanuts, cotton, and vegetables, as well as lower crop yields. One
farmer stated that the wet weather had caused him catastrophic crop losses. He said the ground was too
wet to harvest and they were in salvage mode with crops not yet harvested. Additionally, a sod grower in
South Carolina reported late harvesting and a drop in sales since the last report. A firm in North Carolina
also reported delayed harvesting and lower yields. Virginia growers reported good hay quality and
production but expressed concerns that recent rains may have damaged some crops still in the ground.
Prices received for cotton and cattle decreased slightly since the last report, and some farmers reported a
slight increase in input prices.
Natural gas production increased since our previous report, but sources said additional drilling is
on hold due to oversupply. Appalachian coal production was unchanged in the north, and decreased
slightly in the south since the previous report. Natural gas prices continued to decline, while coal prices
remained stable.
V-4
Labor. Labor markets strengthened moderately across most of the District since our previous
report. A staffing agent in Maryland noted a stronger-than-usual seasonal pick-up in demand across all
sectors. Sources reported greater demand for high-end IT talent, skilled tradespeople, managers and
supervisors, and construction workers. Several contacts reported that builders were struggling to find
framers and welders to fill open positions. Similar difficulties were reported for accountants,
manufacturers, IT consultants, engineers, truck drivers, mechanics, and bankers. An executive said that IT
companies only wanted people with five or more years of experience, leading to multiple offers for
qualified candidates. Wage pressures varied by region and occupation. For example, a South Carolina
executive saw wage pressures for construction and hospitality workers, while a Maryland source cited
increased wage pressure for construction workers, project managers, drivers, and HVAC technicians.
According to our most recent surveys, employment softened at manufacturing firms but rose modestly at
services firms. Average wage growth edged up slightly at manufacturing firms and rose at a modest pace
in the service sector, with particularly strong growth in retail wages.
VI-1
SIXTH DISTRICT – ATLANTA
Sixth District business contacts described economic conditions as modestly improving
from October through mid-November. On balance, the outlook remains largely optimistic with
the majority of contacts expecting growth to be sustained at or slightly above current levels for
the remainder of the year and the early part of 2016.
Retail sales across the District were greater than expected and sales of vehicles were up
from October through mid-November. Reports from the hospitality sector remained positive as
the sector experienced increased activity from both leisure and business travelers. Residential
real estate contacts noted that existing and new home sales were flat to slightly up from a year
ago, and home prices improved modestly. Commercial real estate contacts reported a slight
uptick in construction activity. Manufacturers indicated that levels of new orders and production
increased since the previous report, although expectations are subdued going forward. Bankers
indicated that loan activity remained competitive for the reporting period. The District continued
to experience a tightening labor market and greater demand for entry-level workers since the last
report. On balance, input cost and wage pressures remained subdued.
Consumer Spending and Tourism. According to District merchants, retail sales rose
slightly above expectations from October through mid-November. The outlook among retailers
for the upcoming holiday season remains optimistic. District auto dealers continued to see sales
of vehicles increase and reported a notable rise in the sale of larger vehicles, which they
attributed to lower gas prices.
Tourism and hospitality contacts continued to report an expansion of activity during this
reporting period. In Georgia, contacts reported increases in business travel and attendance at
major conventions compared with a year ago. Positive trends in leisure travel and hotel
occupancy continued in Florida. Mississippi gaming venues continued to report year-over-year
revenue growth. The outlook among contacts remains upbeat heading into 2016.
Real Estate and Construction. District real estate contacts indicated that sales and
construction activity held steady since the last report. Many builders indicated that construction
activity was up from the year-ago level. Most builders and brokers reported that home sales
were flat to slightly up relative to one year earlier, although reports on the level of buyer traffic
were mixed. Builders and brokers noted that inventory levels were largely unchanged, on
VI-2
balance. Most indicated that they were experiencing modest home price appreciation.
Residential brokers’ expectations for home sales activity over the next three months remain
positive, with the majority indicating that they expect activity to pick up slightly. Builders’
outlooks for home sales and construction activity were mixed.
District commercial real estate brokers indicated improvements in demand that resulted
in increased absorption and rent growth across property types, but they cautioned that the rate of
improvement varied by metropolitan area, submarket, and property type. Most commercial
contractors indicated that nonresidential construction activity was slightly up from one year ago,
regardless of market, with all reporting a backlog greater than or equal to the previous year.
Reports on apartment construction continued to suggest that activity remained robust. The
outlook among District commercial real estate contacts remains positive, with most expecting the
pace of construction activity to increase slightly over the next quarter.
Manufacturing and Transportation. District manufacturers reported an uptick in
business activity from the previous reporting period. Contacts indicated that new orders and
production levels were up, and employment levels improved at District firms. Finished
inventory levels were reported to be rising, while supplier delivery times increased slightly.
Costs of commodity inputs continued to decline, and expectations for future production were
subdued, with only about one-third of businesses expecting higher production over the next three
to six months.
On balance, transportation contacts noted that activity slowed since the last report.
District railroad contacts cited continued decreases in shipments of coal, iron and steel scrap and
metal, primary forest products, and phosphate, which have contributed to significant
year-over-year decreases in total carloads. Other haulers of industrial products, primarily for
export, reported a continued deceleration of volumes from October through mid-November.
However, port contacts reported that record numbers of containers moved through District ports.
Banking and Finance. Banking contacts indicated that credit was available with
attractive terms for qualified borrowers. Lending remained competitive, and some community
depository institutions cited difficulties in competing with loan structures and terms offered by
larger institutions. Small businesses indicated ongoing constraints in obtaining financing. In
areas more dependent on the energy sector, there was a pullback of both demand for and supply
VI-3
of credit. Purchase mortgage activity was up, but first-time home buyers struggled to qualify for
mortgages.
Employment and Prices. Business contacts continued to describe a tightening labor
market, and difficulties finding workers with specialized skills persisted. Demand for entry-level
workers increased, and some contacts noted recruiting challenges, leading firms to adjust
expectations and implement or enhance on-site training programs for new and existing staff. In
some cases, in order to attract and retain talent, businesses redesigned incentive and benefits
programs. Energy sector firms continued to cite layoffs.
Outside of select high-demand and specialized positions, wage pressures remained
muted. However, there were some signs of emerging pressures to raise starting wages, even
among lower skilled jobs. Non-labor input cost pressures remained restrained, helping support
ongoing improvement in profit margins, particularly for businesses with large commodity or
imported inputs. Firms with lower input costs were generally able to hold prices steady, though
the majority of business contacts reported little or no ability to push through price increases.
According to the Atlanta Fed’s survey of business inflation expectations, year-over-year unit
costs were up 1.3 percent in October and are expected to increase 1.8 percent over the coming
year.
Natural Resources and Agriculture. Sentiment among energy sector contacts was
mixed. Business activity and investment fell at oil and gas exploration and services firms as a
result of continued weak global demand and an oversupply of oil. On the other hand,
petrochemical firms were optimistic about industrial activity as refiners set capacity and
production records. Continued scarcity of tank and vessel storage space for excess supplies of
crude led to various storage terminal projects along the Gulf Coast.
Heavy showers improved drought conditions in much of the District. However, areas
where drought conditions remained were categorized as abnormally dry. Louisiana and
Mississippi's soybean harvests were behind their five year averages. Cotton harvesting was
behind the five-year average in much of the District with the exception of Alabama’s crop, which
met the five-year average. Peanut harvesting was behind the five-year average. On a
year-over-year basis, many agriculture product prices decreased, and concerns about the strong
dollar and its effect on agriculture exports persisted.
VII-1
SEVENTH DISTRICT—CHICAGO
Summary. Growth in economic activity in the Seventh District continued at a modest
pace in October and early November. Gains in construction and real estate were moderate, while
growth in consumer and business spending remained modest. In contrast, there was little change
in the level of manufacturing production. Credit conditions were about the same as during last
reporting period. Raw material and most retail prices were little changed. Wage pressures
remained limited. District corn and soybean harvests exceeded expectations, and most
agricultural commodity prices fell.
Consumer spending. Growth in consumer spending continued at a modest pace in
October and early November. Overall, non-auto retail sales continued to increase at a modest
pace. Traditional retailers reported mixed views and greater uncertainty surrounding holiday
sales this year relative to last year, while internet retailers expected sales to increase at a faster
rate. New and used light vehicle sales remained strong, and leasing activity increased
noticeably. Low interest rates and extended loan terms continued to support increases in light
vehicle demand. Relatively low gasoline prices reinforced an ongoing shift in the mix of light
vehicle sales toward light trucks, lifting average transaction prices.
Business spending. Growth in business spending slowed to a more modest pace in
October and early November. Most retailers and manufacturers indicated that their inventories
were at comfortable levels. Current capital spending slowed and now appears in line with the
modest plans for capital outlays that contacts have reported for a while. Current expenditures
were primarily focused on replacing industrial and IT equipment, though spending on structures
picked up. Auto suppliers continued to report plans to expand capacity, with attendant hiring and
capital spending to follow suit. Overall, though, the pace of hiring slowed notably, particularly
for non-auto-related manufacturers, and hiring plans remained modest. Staffing firms reported
slower activity, with one firm noting a widespread decline in orders across industries and skill
types. That said, labor demand continued to be strongest for skilled workers, especially in many
professional and technical occupations, sales, and skilled manufacturing and building trades.
Several contacts reported having trouble finding skilled labor and that turnover rates were higher
than desired.
Construction and real estate. Growth in construction and real estate activity picked up
to a moderate pace over the reporting period. Demand for residential construction increased
VII-2
moderately for both single-family and multi-family homes, in both urban and suburban markets.
Multiple real estate contacts noted that after rising throughout most of 2015, home sales have
slowed and the pace of home price growth has diminished. Contacts indicated that growth in
home values would likely remain low until the recently added inventories of homes-for-sale are
absorbed during the spring selling season. Commercial real estate activity continued to increase
moderately. Growth was again widely distributed across the retail, industrial, and office
segments, and contacts noted increasing demand for both for-sale and for-lease properties.
Commercial rents increased slightly, while commercial vacancy rates and the availability of
sublease space continued to decline.
Manufacturing. Manufacturing production growth slowed to near zero in October and
early November, with several contacts indicating that it feels as if manufacturing is in a
recession. Although the auto industry continued to experience solid gains, most other industries
saw limited growth or reported declines in activity. Auto industry contacts expect sales and
production levels for next year to be about equal to this year’s totals. Capacity utilization in the
steel industry declined, and specialty metals manufacturers reported weaker demand. Exporters
continued to indicate that soft global demand and the stronger U.S. dollar were dampening new
orders. Weak demand for agriculture and mining machinery continued to be a drag on the heavy
machinery industry. In contrast, transportation activity continued to increase at a modest pace.
Banking/finance. Credit conditions were little changed on balance over the reporting
period. Financial market volatility increased slightly, but remained lower than in recent months.
Loan demand from large and middle market firms fell; however, contacts noted a slight uptick in
small business lending. Consumer loan demand increased slightly, with multiple contacts citing
strong demand for auto loans. Mortgage lending standards loosened slightly. In particular, one
contact noted a shift towards non-conforming loans and more competitive pricing.
Prices/costs. Cost pressures remained subdued in October and early November. Steel
prices declined, while the prices of other primary metals and energy remained low. Prices
charged by upstream producers generally were little changed; downstream, most retailers
reported stable pricing, though grocers reported downward pressure on prices. Wage pressures
were subdued for most occupations. However, wages were up for workers in higher-skilled
occupations, where contacts indicated personnel have become increasingly hard to find,
particularly in health care, scientific, and technical industries. In addition, contacts reported that
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minimum wage initiatives were putting upward pressure on wages for lower-skilled positions.
Some contacts indicated they were reducing benefits in order to contain labor costs and avoid
increasing their own prices. A staffing firm continued to report moderate wage increases. Growth
in non-wage costs ticked up, and many contacts described uncertain and unpredictable increases
in health insurance costs.
Agriculture. The condition of the District’s corn and soybean crops improved further in
October and early November. A record harvest is anticipated for soybeans; corn yields, however,
are down from last year. The District’s harvest progressed quickly, which reduced crop
processing costs for most producers. Corn, soybean, and wheat prices all fell, and some operators
reportedly were storing more of their harvest on their farms in the hope of an increase in prices
down the road. Even with these declines, crop prices remained high by international standards,
holding back export demand. Overall, crop operations faced somewhat better prospects than
previously expected due to higher-than-anticipated yields and lower-than-expected costs.
Nonetheless, contacts continued to be concerned about an increasing number of crop operations
coming under financial stress over the coming year. Hog and cattle prices fell over the reporting
period, while milk prices remained at levels too low to cover production costs.
VIII-1
EIGHTH DISTRICT - ST. LOUIS
Summary
Economic activity in the Eighth District has increased at a modest pace since our previous report.
On net, hiring managers expect to increase their payrolls; most expect to raise starting wages or salaries to
attract new hires. Retailers continued to report higher sales, although most auto dealers noted currentquarter sales are below expectations. Banking conditions remain stable, as loan demand remains relatively
strong, particularly for commercial and industrial loans. Real estate contacts expect fourth-quarter homes
sales to be higher than one year ago. Low crop production and low prices continue to put downward
pressure on farm incomes.
Employment, Wages, and Prices
A survey of business contacts indicated that wage growth in the District was moderate, while
employment and prices grew at a modest pace. About half of hiring managers reported raising salaries or
wages of existing employees by more than they have in the past few years, and about two-thirds of hiring
managers reported raising starting salaries or wages of new hires by more than they have in the past few
years. Just over two-thirds of hiring managers surveyed are actively seeking employees: They cited high
sales, overworked staff, and need for different skills among the top reasons why.
One-third of respondents indicated that prices to customers had grown at a rate faster than at the
same time last year, whereas just over half indicated they grew at about the same pace; the remaining
indicated slower price growth. By sector, most manufacturing contacts reported their prices to customers
have remained unchanged or are slightly lower, whereas construction contacts noted increasing prices. In
services, retail contacts noted net increases in their prices charged to customers.
Consumer Spending
General retail has continued to grow modestly since the previous report. The majority of business
contacts indicated that sales in the current quarter have met expectations and were at least slightly higher
compared with the same time last year. An Arkansas hospitality contact stated that business travel has
increased in recent months, and a Louisville hospitality contact stated that fourth-quarter occupancy has
VIII-2
been strong throughout the state of Kentucky. Reports from local auto dealers were mixed. The majority
of survey respondents claimed that sales over the past two months have fallen short of expectations,
although one local dealer expects record sales for the fourth quarter. Most auto dealers surveyed believe
sales will continue at their current pace into early 2016. Several contacts noted that low gasoline prices
and low interest rates continue to benefit business activity in the short term.
Manufacturing and Other Business Activity
Manufacturing activity has increased since our previous report. Several companies reported
capital expenditure and facility expansion plans in the District, including firms that manufacture
transportation equipment, electric appliances, and furniture. In particular, firms that supply parts for the
automotive sector are working overtime to fill orders, according to contacts in Kentucky and Indiana, and
several of these firms plan to expand to meet the demand. Contacts in the primary metals industry
reported a decline in activity at steel and aluminum mills as a result of increased competition from
imports. In a recent survey of manufacturers, a majority of contacts noted that production, capacity
utilization, and new orders were either about the same level or higher in the fourth quarter relative to a
year ago, with responses split evenly between the two. The majority expect activity in the first quarter to
be about the same relative to one year ago.
Reports from the services sector have been positive since the previous report. Firms that provide
warehousing and storage services as well as health care and social assistance services reported plans to
hire new employees and expand facilities. Firms that provide courier services cited growing e-commerce
as driving the need to expand facilities and hire permanent positions in addition to seasonal positions.
Contacts noted that they are having a difficult time filling both full-time and seasonal positions.
Real Estate and Construction
Residential real estate activity expanded at a faster pace than in the previous report. Contacts
noted fourth-quarter home sales were slightly higher than the same time last year, while inventories
remain lower. Residential construction activity was positive throughout most of the District, compared
VIII-3
with the same quarter in the previous year. Most contacts noted that home construction has been higher
than one year ago; however, contacts were generally less optimistic about the first quarter of 2016.
Commercial real estate market conditions were positive throughout most of the District. Contacts
noted about the same to slightly higher demand across all sectors and expect demand to remain the same
or increase slightly in the first quarter of 2016. Commercial construction activity continues to be positive.
Since the previous report, there were announcements of large-scale multi-family construction projects
planned in many parts of the District.
Banking and Finance
A survey of District banks showed stable banking conditions. Loan demand was stronger overall,
especially for commercial and industrial loans. While most survey respondents reported unchanged or
slightly higher demand for residential mortgages, there was a noticeable increase in the number of banks
indicating lower demand. Credit standards were generally unchanged to slightly higher for residential
mortgages and business loans, except in St. Louis where they were slightly lower. Standards for the other
loan categories were unchanged. Loan delinquencies were unchanged to slightly lower for all loan
categories, and the creditworthiness of applicants was unchanged. About one-third of respondents noted
decreases in consumer borrowing due to increased competition from alternative lenders.
Agriculture and Natural Resources
As of mid-November, more than 90 percent of the District corn, rice, sorghum, and soybean crops
had been harvested, while cotton was just over 80 percent harvested. Contacts noted that extensive
rainfall has resulted in lower crop production levels relative to last year. Forecasts indicate that corn,
cotton, and rice production will be more than 15 percent below last year’s levels. Sorghum production
will be twice as high as the 2014 level, but it is a relatively small share of overall production. Because of
relatively low production levels and low crop prices, industry contacts mostly have a negative outlook for
farm income. Lastly, the District’s October coal production was 7 percent lower than in 2014. Year-todate production is currently about 4 percent below last year’s level.
IX-1
NINTH DISTRICT--MINNEAPOLIS
The Ninth District economy grew moderately overall since the last report. Increased activity was
noted in consumer spending, tourism, commercial construction and real estate, residential real
estate, and professional services. Agriculture and energy were mixed, while manufacturing,
residential construction, and mining were down. Labor markets tightened overall, while wage
pressures were modest and price pressures were low.
Consumer Spending and Tourism
Consumer spending was moderate. At a Minneapolis-St. Paul mall, analysts report that “the
appetite for luxury is growing,” and a discount retailer noted “solid” third-quarter profits. In
Helena, Mont., several new dining options have opened, including a brewery, a coffee shop, and
a restaurant. A national telecommunications vendor expanded its retail space in Minneapolis-St.
Paul in recent months to enhance the shopping experience. An auto dealer in Montana reported
that “sales in September and October were exceptional.”
Tourism was moderate; favorable weather was reported as a factor in sustained tourism
interest in the fall. A national park in Montana surpassed the all-time annual record for
visitation for the second year in a row, despite summer forest fires. Hotel occupancy rates in
Deadwood, S.D., jumped by 6 percent in September from the previous month. In the Upper
Peninsula of Michigan, tourism sales were “very good,” according to a tourism official; assessed
fees on hotel rooms were up 8 percent since the last reporting period and up 15 percent from the
same period last year.
Construction and Real Estate
Commercial construction expanded at a strong pace since the last report. Sioux Falls, S.D., and
Billings, Mont., have seen strong commercial permitting this year, including this fall. A
commercial contractor in Rochester, Minn., said that it has large work backlogs, both locally and
statewide. For residential construction, single-family permits have been flat to down since the
last report in Minneapolis-St. Paul, Billings, Sioux Falls, and Rochester, but up in Fargo, N.D.
Multifamily permitting has slowed in many places, with exceptions like Rochester and
Minnetonka, Minn.
Commercial real estate activity grew moderately since the last report. Minneapolis-St.
Paul retail, office, and industrial space all saw positive net absorption, along with lower vacancy
rates. In the St. Paul downtown market, office occupancy has risen to levels last seen in 2001.
Numerous sources in Rochester reported strong activity, especially downtown. Residential real
IX-2
estate activity was also moderate. Closed sales were strong in Minneapolis-St. Paul this fall, but
flattened in October, with median sale prices up 5 percent over the previous year. In Sioux Falls
median October sale prices rose almost 6 percent from a year earlier. Activity slowed in
Missoula, Mont., though prices there continued to rise; third quarter and early fourth quarter
sales in Bozeman, Mont., have been flat compared with a year earlier. Apartment rents were
reportedly rising in most markets, including by 5 percent in Minneapolis in the third quarter over
a year earlier.
Services
Professional services growth was moderate to strong. A tele-health services firm opened in Sioux
Falls in recent weeks. A health information management and records retrieval business in South
Dakota was expanding operations. An architecture firm in Wisconsin grew during the past three
months and reported “enough financial health that higher wages can be absorbed.” A Wisconsin
mental- and behavioral-health services company was expanding to Minneapolis-St. Paul due to
growing demand. Revenue was up at staffing offices in Wisconsin, some of which was the result
of high labor turnover for clients. A staffing executive there said, “Sales will not be sustained if
there is not greater participation in the labor market.”
Manufacturing
District manufacturing activity decreased slightly since the previous report. An index of
manufacturing activity released by Creighton University fell to levels indicating contraction in
October in Minnesota and the Dakotas. Several manufacturers reported weaker overseas sales
due to slower demand and exchange rate fluctuations, including a producer of paint-spraying
equipment and a consumer products maker. Contacts also pointed to the continued decline in
demand for agricultural and mining equipment as a source of weakness. In contrast, demand
from the commercial and residential construction sectors was solid. A producer of laminated
timber announced plans in October for a major new facility in Montana, and an ammunition
maker announced in early November that it will open a new plant in South Dakota.
Energy and Mining
Activity in the energy sector was mixed. Oil and gas exploration activity in North Dakota and
Montana declined further since the previous report; oil production was down slightly from its
peak earlier this year. Meanwhile, a firm announced plans for as many as 10 solar energy farms
in Montana. A dozen wind energy farms were under construction across the District, though
none have begun operations yet this year. Mining activity continued to decline. A major iron ore
IX-3
facility in northern Minnesota announced that it will idle for an indefinite period, and a smaller
operation shut down. Iron ore shipments on the Great Lakes fell 20 percent in September from a
year earlier. Nonferrous mining operations in the District have been negatively impacted by
falling metals prices, weak international demand, and the increased exchange value of the dollar.
Agriculture
District agricultural conditions were mixed overall since the last report. Farmers were buoyed by
favorable weather during harvests, which were completed well ahead of the typical schedule.
Corn and soybean production hit new records in some District states; sugar beet producers in
Minnesota and North Dakota also saw record yields and good quality. However, crop prices
remained low and farm incomes were expected to be weak. According to the Minneapolis Fed’s
third quarter (October) survey of agricultural credit conditions, 83 percent of lenders surveyed
reported that incomes fell from a year earlier, and 79 percent expect them to be down in the
fourth quarter. Prices received by farmers fell in September compared with a year earlier for
wheat, soybeans, hay, milk, chickens, hogs, and cattle; prices increased for corn, eggs, and
turkeys.
Employment, Wages, and Prices
Labor markets tightened overall, but softened in some places and sectors. Two recent
Minneapolis Fed ad hoc surveys showed that employers overall expect to add workers in the
coming year. A media company announced in November that it plans to add 400 jobs in St. Paul
next year. Across the District, numerous sectors reported difficulty finding workers. A staffing
services executive in southeastern Minnesota noted that labor tightness had shifted from skilled
labor to general labor. But employment was soft in some areas. In North Dakota, October online
job openings with Job Service North Dakota dropped 4 percent over the previous month and 20
percent from a year earlier. In the past month, silica sand mines in western Wisconsin laid off
workers, and two Minnesota iron ore operations announced total jobs cuts of about 650 workers.
Overall, wage pressures were modest. Ad hoc surveys suggested that a majority of
District employers expect wage increases between 2 percent and 3 percent in the coming year,
though larger raises were being reported for certain sectors and workers. A South Dakota firm
noted that it was seeing “lots of wage pressure on the low-end, entry level.” A Minnesota staffing
firm expected wages to continue rising for its clients “but not as much as this year.”
Price pressures overall were low, with certain exceptions. A Minnesota electronics
manufacturer expected little change in input prices for 2016, and an information technology
IX-4
executive expected “more of the same” in terms of low inflation, especially with cut-rate energy
costs. Average propane prices for October and November were roughly one-third lower than for
the same time last year. Health care premiums for many employers and individuals were
expected to increase considerably in all District states. Several Rochester-area businesses
reported premium increases between 35 percent and 50 percent.
X-1
TENTH DISTRICT - KANSAS CITY
Economic activity in the Tenth District held steady on balance since the prior Beige
Book, with continued mixed conditions across sectors. Consumer spending continued to decline
slightly, but remained above year-ago levels. Energy activity continued to decline moderately,
and farm income weakened further. District manufacturing firms reported flat activity compared
to the previous survey. On the positive side, District real estate activity continued to increase,
and transportation and wholesale trade firms noted a slight rise in sales. Professional and hightech firms reported moderate increases in activity, and bankers reported steady loan demand,
deposit levels, and overall loan quality. Prices were mixed across industries, but eased in the
construction and manufacturing sectors. Although wage pressures were mostly contained,
contacts in a few industries continued to report labor shortages for skilled and entry-level
positions.
Consumer Spending. Consumer spending activity continued to decline slightly since
the previous survey period, but activity remained higher than a year ago, with improved
expectations heading forward in most sectors. Retail sales picked up moderately in October and
November and remained higher than year-ago levels. Several retailers noted a drop in sales for
metal and luxury products, although sales of lower-priced items and lumber were favorable.
Contacts expected sales to increase slightly in coming months, with inventory levels expected to
decrease. Auto sales dropped markedly but were higher than a year ago, and dealer contacts
expected a slight pickup in sales growth for the months ahead. Auto inventories declined from
the previous month and were expected to remain stable. Restaurant sales weakened further but
were higher than a year ago, with contacts expecting moderate improvements in the months
ahead. District tourism activity continued to decline but was generally flat from a year ago.
Tourism contacts expected some strengthening in activity as the winter ski season begins.
Manufacturing and Other Business Activity. Manufacturing activity was generally
flat, while other business activity increased from the previous survey. Durable goods production
improved considerably for aircraft, computer, and electronic equipment products, while the
production of other durable goods continued to decline. Nondurable goods production remained
X-2
positive. Activity continued to be weakest in oil and gas states. Production, shipments, and new
orders increased modestly but remained lower than a year ago. Manufacturers’ capital spending
plans improved and expectations for future activity rebounded from the previous survey.
Outside of manufacturing, professional and high-tech firms reported moderate increases
in activity, with sales well above year-ago levels and solid expectations for future months.
Transportation and wholesale trade contacts noted a slight increase in November sales after a
considerable drop in October, although many firms expected activity to rise steadily in the
months ahead. Most service businesses reported fairly solid capital spending plans.
Real Estate and Construction. District real estate activity continued to increase at a
modest pace since the previous survey period and was moderately above year-ago levels.
Residential real estate sales, led by strong gains in Colorado, continued to rise at a moderate pace
compared to the previous survey period. Sales of low- and medium-priced homes continued to
outpace sales of higher-priced homes. Residential home prices were flat in October and
November, but remained well above year-ago levels. Inventories increased slightly, and home
sales were expected to slow in the winter months due largely to seasonal factors. Residential
construction contacts reported a moderate increase in housing starts, while contacts at
construction supply firms noted a slight increase in overall activity since the last survey.
Contacts in both residential construction and construction supply firms noted that activity was
moderately above year-ago levels. Commercial real estate activity continued to expand at a
modest pace in October and November as vacancy rates decreased and absorption rates,
completions, construction underway, sales and prices increased. The commercial real estate
sector was expected to continue to strengthen at a modest pace over the coming months.
Banking. Bankers reported steady overall loan demand, deposit levels and loan quality,
compared to the results of the last survey. Respondents indicated a steady demand for
commercial and industrial, commercial real estate, residential real estate, agricultural and
consumer installment loans. Most bankers indicated loan quality was unchanged compared to a
year ago. In addition, a strong majority of respondents expected loan quality to remain
essentially the same over the next six months. Credit standards remained largely unchanged in
all major loan categories. Finally, most respondents reported stable deposit levels.
X-3
Energy. Energy activity declined at a similar pace as in previous months, while
expectations remained negative. The number of oil and gas drilling rigs continued to decline,
particularly in Oklahoma and New Mexico. Local producers remained focused on maintaining
low costs and operating efficiently in their areas of highest returns. Oil prices were mostly
unchanged since the last survey period, and most respondents expected the low price
environment to continue through much of next year. Natural gas prices eased further as a result
of robust production and strong builds to inventories. Seasonal demand for natural gas was
expected to pick up as winter weather arrives across the region, but prices were expected to be
lower than last winter.
Agriculture. Farming conditions weakened further since the last survey period as
agricultural commodity prices remained relatively low. Despite expectations of strong crop
yields in the District and some government farm program payments, District contacts reported
further declines in farm income and expected additional weakening in the months ahead for both
the crop and livestock sectors. Crop prices generally remained flat since the previous reporting
period and livestock prices were substantially below year-ago levels. Agricultural credit
conditions also deteriorated further as repayment rates edged lower, credit availability declined
slightly, and expectations of future financial stress increased somewhat. Amid the weaker farm
economy, farmland values of all types were expected to decline in the coming months.
Wages and Prices. Price changes across industries were mixed, and wages were steady
overall since the previous survey period. Both retail input and selling prices rose at a modest
pace, with faster growth expected in the coming months. Restaurant menu prices were flat after
falling in the previous survey, though input prices still increased. The decline in manufacturing
raw materials and finished good prices slowed mildly, and manufacturers expected both of these
prices to rise in the near future. Transportation input prices increased slightly while selling
prices continued to decline. Selling prices in construction also declined. Wages in the retail
sector were steady, while restaurants experienced faster wage growth and the transportation
sector saw a slight decline in wages. Transportation contacts cited continued shortages in truck
drivers, technicians, mechanics, and entry-level workers.
XI-1
ELEVENTH DISTRICT—DALLAS
The Eleventh District economy grew at a modest pace over the past six weeks. Most respondents in
manufacturing and services reported that demand either held steady or increased. Auto sales rose while
reports on broader retail sales were mixed. A seasonal slowdown occurred in home buying, but broader
real estate activity remained strong overall, except for some weakness in Houston. Energy activity was
still depressed. Price pressures remained subdued and employment held steady or increased.
Prices Most input costs and selling prices were generally stable over the reporting period. With
respect to input prices, several contacts—grocery stores, restaurants and food manufacturers—noted
lower prices for meats. Airlines continued to say that lower fuel prices helped the industry immensely,
and machinery and primary metals manufacturers said the decline in steel and copper prices continued to
boost margins. Selling prices were mostly unchanged, although some leisure and hospitality contacts
noted higher prices and a freight trucking firm said they passed on fuel cost savings to customers.
Labor Market Employment in most industries held steady or increased. Contacts reported
hiring in staffing services, professional and technical services, airlines, and leisure and hospitality.
Several manufacturers also added to headcounts, including fabricated metals, transportation equipment
and food producers. Retailers said holiday hiring plans were in line with last year, and most said there
hasn’t been any difficulty hiring temporary workers. The second round of layoffs in the energy sector was
still underway and has consisted of more white-collar jobs than the round of cuts earlier this year. One
petrochemicals contact noted that some laid-off oilfield workers were showing up on the coast and getting
hired in the downstream energy sector, mostly in construction-related jobs. New-home construction
continued to be restrained by labor shortages, particularly in Dallas-Fort Worth, while contacts in
Houston noted increased labor availability.
Wages were mostly flat to up from six weeks ago. Several contacts continued to note difficulty
finding or retaining workers, particularly truck drivers, although a few said layoffs in the energy sector
eased labor tightness in some pockets of the service sector. Hospitality contacts said expectations of a
future minimum wage increase prompted increases in starting pay as a preemptive measure.
Manufacturing Most manufacturers reported flat or increased demand over the last six weeks.
Producers of construction materials like cement, brick and lumber said demand flattened due to a normal
slowdown that occurs heading into the winter. Most contacts in construction materials and primary metals
expect weaker demand through year end, in line with the usual seasonal pattern. A fabricated metals
manufacturer involved in commercial and road construction had the best year since the recession, and a
machinery manufacturer said that despite relatively flat demand, they were experiencing record profits
and payouts to employees because of lower input prices. A machine tools manufacturer closely tied to the
XI-2
energy sector said demand was terrible, worse than in 2009, that auction houses were loaded with
relatively new machinery from failed shops, and that sales of new tools are virtually nonexistent.
Demand for high-tech manufacturing picked up slightly, although concerns about weakness in the
global economy continued to weigh on producers. Contacts noted persistent softness in some memory
component manufacturing and consumer electronics. The overall outlook was slightly improved but
contacts remained cautious, saying that they expected slight growth in 2016 but that uncertainty in
international demand was a significant risk factor.
Refinery utilization rates were very high and rose further, and margins remained healthy thanks to
persistently low domestic energy prices. Gulf Coast chemicals producers reported softer global demand
and a strong dollar as sources of continued weakness in year-to-year comparisons. Firms remained
optimistic for 2016, with U.S. production costs remaining globally competitive.
Retail Sales Reports on retail sales were mixed this reporting period. Sources of weakness
included wet weather and the strong dollar, which deterred tourism and sales along the border. One
contact said that although they were experiencing overall growth, they were seeing negative impacts in
smaller markets such as Midland-Odessa, which they have attributed to low oil prices.
Automobile sales were at very high levels and continued to grow. Contacts said the industry is
performing strongly nationwide and one noted record sales. Contacts expect steady sales through year
end. A couple of auto dealers remarked that the robust sales level seen in 2015 likely won’t be exceeded
next year, so sales may be flat or down slightly in 2016.
Nonfinancial Services Most nonfinancial services firms reported demand was flat or up from
six weeks ago. Reports among staffing services firms were mixed. Staffing demand from sectors such as
logistics, healthcare, engineering, hospitality, and food service was strongest. One contact mentioned that
there was more hesitation in the market and that demand had shifted back to temporary and contract
workers and away from direct hires. Demand for professional and technical services increased moderately
in the last six weeks. Law firms noted softer-than-expected growth, primarily due to less litigation work,
but demand for intellectual property work strengthened, and mergers and acquisition activity remained
elevated. Accounting demand continued to grow at a robust rate. Consulting work ticked upward,
although international deals have been stagnant due to weakness abroad. Demand in leisure and
hospitality grew at a good pace, with contacts reporting overall sales above expectations and particularly
strong demand in Texas’ large metro areas. Overall, outlooks were positive going in to 2016.
In transportation services, cargo volume remained soft due to the slowdown in energy-related
cargo. Demand in the airline industry was flat overall, with continued strong domestic demand. The
international outlook remained weak, but airlines were positive about the domestic market and noted that
as long as fuel prices remain this low, they will continue to perform well.
XI-3
Construction and Real Estate Single-family housing activity decelerated over the reporting period.
Contacts noted seasonally slow buyer traffic and new home sales, but respondents in Houston cited a
sluggish economy as a factor affecting sales as well. Despite some slowing, sales of low- to mid-priced
new homes remained strong. Builders continued to work through their backlogs, although the pipeline
was thinning out in Houston due to softer demand. Apartment demand continued to run ahead of
deliveries across the four major Texas metros, resulting in a slight uptick in occupancy in the third
quarter. Rent growth generally remained solid and was the strongest in Dallas-Fort Worth, but it slowed
in Houston. Multifamily construction remained elevated. Outlooks were mostly positive, with weakness
expected in Houston.
Demand for office space was strong in Dallas-Fort Worth, with record net absorption so far this
year. Activity in Houston held steady for class B and C office space but softened for class A space.
Industrial leasing and construction remained active, although construction started to taper off in Houston.
Financial Services Loan demand grew at a slighter softer pace over the last six weeks.
Consumer lending remained strong with notable rises in auto loans and credit cards. Home equity loans
also accelerated due to home price appreciation and the need for long-delayed home improvement
projects. Lending to businesses, in contrast, has softened, but contacts believe this is likely due to
seasonal factors. Contacts expect some tightening of loan standards in response to slowly declining loan
quality among energy sector loans. Interest rates on deposits and loans remained historically low,
although most contacts anticipate a slow rise in rates for 2016. Outlooks were largely uncertain, mostly
due to the uncertainty of future oil prices, but also due to regulation and monetary policy.
Energy Demand for oilfield services remained depressed as drilling activity declined in the
Permian Basin and Eagle Ford Shale. Capacity utilization was at 50 percent, with some of the idle
equipment being maintained and some mined for parts. One oil producer plans to maintain its current rig
count if oil prices stay in the $40-$50 range but will enact further cuts if prices move lower. At current
pricing and demand, the financial positions of many energy firms continued to deteriorate, particularly
smaller firms.
Agriculture Abundant rainfall over the reporting period alleviated drought conditions. Less than
one percent of the district was in drought in mid-November, compared with more than a third at the end
of September. The wet weather improved soil moisture for crops and replenished ponds for grazing cattle.
That said, Texas is likely to have an average cotton production year rather than the bumper crop thought
possible in early summer. Cotton yields were hindered by a hot and dry August and the quality was
diminished by too much rain just before harvest. Domestic demand for grains and cattle remained solid
but export demand was weak. Grain prices fell slightly and cattle prices declined but remained at high
levels. Retail beef prices were down from a year ago.
XII-1
TWELFTH DISTRICT–SAN FRANCISCO
Summary
Economic activity in the District grew at a moderate pace during the reporting period of early
October to mid-November. Overall price inflation ticked up, and upward wage pressures increased
further. Retail sales grew moderately, while demand for business and consumer services expanded.
Manufacturing output was largely unchanged. Agricultural activity edged up modestly. Conditions in
residential and commercial real estate markets continued to strengthen. Activity in the financial services
sector expanded at a modest pace.
Prices and Wages
Overall price inflation appeared to tick up slightly on balance. Prices for branded pharmaceuticals
increased rapidly, while price growth for generic drugs was down relative to the same period last year.
Shortages of labor, selected materials, and land in desired locations for building continued to push up
construction costs in some metropolitan areas. Lower natural gas prices reduced electricity costs. In the
technology sector, competitive pressures and technological advances reduced prices for consumer
electronics, while price growth for technology services slowed as data centers continued to realize
economies of scale.
Upward wage pressures increased across the District. On balance, wage growth for high-skilled
workers exceeded that of low-skilled workers; however, contacts in a few areas reported that labor
shortages for entry-level employees increased relative to the previous survey period. Wage pressures grew
in the health-care sector, particularly for specialized positions such as nurses and software developers.
Labor shortages in the financial sector have increased pressure on firms to raise compensation levels, but
some contacts reported reliance on favorable benefit packages rather than salary increases to retain and
attract talent. In the technology sector, higher demand for labor bumped up wages for both experienced
and entry-level workers. Wage increases in the grocery industry were modest; one contact noted that
available labor supply is largely in line with demand, and stiff competition among retailers limits their
XII-2
ability to pass wage increases on to prices.
Retail Trade and Services
Retail sales grew at a moderate pace; however, a few contacts noted that sales had slowed
somewhat from the summer. Automobile sales were very strong, propelled in part by low sales prices and
incentives. Sales of apparel items were mixed, with high-end retailers experiencing slower sales and
higher inventory accumulation, which could cause significant price discounting during the holiday season.
By contrast, lower-priced boutique retailers saw moderate growth in demand for their products. Food and
beverage sales slowed a bit from the summer months but remained solid. Sales of online games remained
brisk, and contacts expect strong movie releases over the holiday season to propel additional growth.
Demand for pharmaceutical products remained robust, due in part to an aging population and the
development of new and more effective drug treatments.
Growth in consumer and business services remained strong. Demand for cloud computing
services and big-data analytics drove sales of technology services higher. Heightened household travel
and leisure activity spurred demand growth in the hospitality sector. Contacts reported that demand for
health-care services grew moderately as market expansion from the Affordable Care Act boosted demand
for insurance. Activity in the utilities sector grew modestly, and a few contacts expect El Niño weather
patterns to impact winter demand for energy and heating services.
Manufacturing
Activity in the manufacturing sector was largely flat. An elevated dollar, lower global demand,
and anti-dumping protections in some markets slowed manufacturing exports. Industrial production
remained somewhat soft on balance, with contacts reporting that oversupply in some markets had pushed
up inventories and curtailed production. Deliveries of commercial aircraft were up slightly from the same
period a year prior, but new orders were significantly lower. The recent passage of the federal continuing
budget resolution eliminated the near-term risk of major demand disruptions in the defense industry;
however, capacity utilization was flat and manufacturer competition for large contracts was intense.
Activity in the biotech and pharmaceutical manufacturing sector expanded, on balance, supported in part
XII-3
by extensive merger activity spurred by ready financing.
Agriculture and Resource-Related Industries
Output in the agriculture and resource sector expanded modestly over the reporting period. Yields
in areas less affected by drought were strong, while elevated price levels for some products helped
maintain revenue in drought-stricken areas with lower yields. Similarly, drought conditions have reduced
cattle herd sizes; however, supply shortages have boosted meat prices and helped keep profit margins
steady. Restaurant demand for agricultural staples grew modestly, and contacts expect this to continue
along with stable growth in consumer demand. Low oil prices continue to hold down activity in the
petroleum extraction industry, with one contact noting that several large companies have slowed
exploration plans significantly.
Real Estate and Construction
Real estate market activity continued to strengthen across the District. Demand for new
residential units remains high, with one contact highlighting growing backlogs for planned projects.
Residential construction picked up further, spurred primarily by multifamily rather than single-family
units. However, a few contacts mentioned that sales of affordable new single-family units grew strongly
in parts of Southern California, driven predominantly by first-time buyers. Shortages of qualified labor
and selected construction materials reportedly have held down the pace of construction in some areas.
Housing prices continued to rise significantly across much of the District. Activity in the commercial real
estate sector continued to expand. Contacts in the Seattle and Salt Lake City areas reported strong growth
in commercial market activity, with a contact from the latter area noting that growth has been spurred in
part by the relocation of California firms.
Financial Institutions
Lending activity grew modestly over the reporting period. Loan volumes expanded, particularly
for auto and mortgage loans, and a few contacts mentioned the increased role of nontraditional lenders in
mortgage markets. Deposits expanded further, and contacts viewed the financial sector as having ample
liquidity. However, low interest rates and regulatory burdens have reduced net margins and held down
XII-4
bank profitability. Credit conditions strengthened as household balance sheets continued to improve.
Contacts from a few financial institutions noted plans to expand capacity and employee counts in the
coming months.
Cite this document
Federal Reserve (2015, December 15). Beige Book. Beige Book, Federal Reserve. https://whenthefedspeaks.com/doc/beige_book_20151216
@misc{wtfs_beige_book_20151216,
author = {Federal Reserve},
title = {Beige Book},
year = {2015},
month = {Dec},
howpublished = {Beige Book, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/beige_book_20151216},
note = {Retrieved via When the Fed Speaks corpus}
}