Beige Book

For use at 2:00 PM EDT

Wednesday

September 6, 2017

The Beige Book

Summary of Commentary on Current Economic Conditions

By Federal Reserve District

August 2017

Federal Reserve Districts

Minneapolis

Boston

Chicago

New York

Cleveland

Philadelphia

San Francisco

Kansas City

St. Louis

Richmond

Atlanta

Dallas

Alaska and Hawaii

are part of the

San Francisco District.

The System serves commonwealths and territories as follows: the New York Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin

Islands; the San Francisco Bank serves American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands.

National Summary

Boston

1

A-1

First District

New York

B-1

Second District

Philadelphia

C-1

Third District

Cleveland

D-1

Fourth District

Richmond

E-1

Fifth District

Atlanta

F-1

Sixth District

Chicago

G-1

Seventh District

St. Louis

H-1

Eighth District

Minneapolis

What is The Beige Book?

The Beige Book is a Federal Reserve System publication about current

economic conditions across the 12 Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety

of mostly qualitative information, gathered directly from District

sources.

The qualitative nature of the Beige Book creates an opportunity to

characterize dynamics and identify emerging trends in the economy

that may not be readily apparent in the available economic data. Because this information is collected from a wide range of business and

community contacts through a variety of formal and informal methods,

the Beige Book can complement other forms of regional information

gathering.

How is the information collected?

Each Federal Reserve Bank gathers anecdotal information on current

economic conditions in its District through reports from Bank and

Branch directors, plus phone and in-person interviews with and online

questionnaires completed by businesses, community contacts, economists, market experts, and other sources.

How is the information used?

The anecdotal information collected in the Beige Book supplements the

data and analysis used by Federal Reserve economists and staff to

assess economic conditions in the Federal Reserve Districts. This

information enables comparison of economic conditions in different

parts of the country, which can be helpful for assessing the outlook for

the national economy. The Beige Book also serves as a regular summary of the Federal Reserve System’s efforts to listen to businesses

and community organizations.

I-1

Ninth District

Kansas City

J-1

Tenth District

Dallas

K-1

Eleventh District

San Francisco

Twelfth District

L-1

This report was prepared at the Federal Reserve Bank of Chicago

based on information collected on or before August 28, 2017. The

information included in the District reports was primarily collected

before Hurricane Harvey made landfall on the Gulf Coast. However,

some Districts received preliminary information from business contacts regarding the impact of the storm, which is compiled in a special

paragraph in the national summary.

This report summarizes comments received from contacts outside the

Federal Reserve System and is not a commentary on the views of

Federal Reserve officials.

National Summary

The Beige Book ■ August 2017

Overall Economic Activity

Economic activity expanded at a modest to moderate pace across all twelve Federal Reserve Districts in July and

August. Consumer spending increased in most Districts, with gains reported for nonauto retail sales and tourism, but

mixed results for vehicle sales. Capital spending also increased in several Districts. Manufacturing activity expanded

modestly on balance. That said, reports were mixed regarding auto production, and contacts in many Districts expressed concerns about a prolonged slowdown in the auto industry. Both residential and commercial construction

increased slightly overall. Low inventories of homes for sale continued to weigh on residential real estate activity across

the country, while commercial real estate activity increased slightly. Activity in the energy and natural resources sector

was generally positive prior to shutdowns arising from Hurricane Harvey. Agricultural conditions were mixed overall,

with drought conditions reported in multiple Districts. Business and consumer loan demand grew at a modest pace in

most Districts, with a number of banks reporting rising competition from both other banks and non-bank lenders.

Employment and Wages

Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts. Labor markets

were widely characterized as tight. There were reports of worker shortages in numerous industries, most notably in

manufacturing and construction. Firms in the Atlanta, St. Louis, and Minneapolis Districts said that they had turned

down business because they could not find the necessary workers. Many Districts indicated that businesses were

having difficulty filling openings at all skill levels. In spite of the tight labor market, the majority of Districts reported

limited wage pressures and modest to moderate wage growth. That said, there were reports from firms in the Dallas

and San Francisco Districts that labor shortages were pushing up wages.

Prices

Prices rose modestly overall across the country. Input and materials costs generally increased, most notably for freight,

lumber, and steel. In contrast, movements in energy and agricultural commodity prices were mixed. A number of Districts indicated that pass-through to downstream prices was limited, with increases in input prices exceeding gains in

selling prices. Home prices moved up overall, as low inventories put upward pressure on prices in many regions.

A Special Note on the Impact of Hurricane Harvey

Hurricane Harvey created broad disruptions to economic activity along the Gulf Coast in the Dallas and Atlanta Districts, although it was too soon to gauge the full extent of the impact. Many firms and organizations in the affected

areas closed due to flooding. A fifth of the oil and natural gas production in the Gulf of Mexico was offline, and many

onshore producers in the Eagle Ford region temporarily stopped production. Harvey also affected fuel and petrochemical production, forcing fifteen refineries in the region to shut down temporarily and several others to operate at reduced

capacity. Some areas experienced gasoline shortages, and supply was expected to remain tight in the Southeastern

United States because of pipeline disruptions. Contacts in the Richmond District indicated that spot freight prices

jumped after the storm, as freight was being redirected around the country. The Port of Charleston expected increased

volumes in coming weeks as freight traffic is routed away from the Port of Houston.

1

Highlights by Federal Reserve District

National Summary

Boston

Chicago

Business reports indicated that revenues at most manufacturing and retail firms continued to expand modestly

to moderately. Staffing firms, however, cited revenue

declines, which they blamed on limited labor supplies.

Prices were stable and wages were up very little. Residential real estate markets were constrained by inventories. Respondents continued to cite a positive outlook.

Growth slowed to a modest pace. Employment, consumer spending, business spending, and manufacturing

production all grew at modest rates, while construction

and real estate activity increased slightly. Wages and

prices rose modestly. Conditions were little changed in

the financial sector and worsened some in the agricultural sector.

New York

St. Louis

Economic growth picked up to a moderate pace in recent

weeks, and labor markets remained tight. Input prices

continued to rise moderately, while selling prices were

flat to up modestly. Housing markets strengthened,

whereas commercial real estate markets were steady.

Economic activity improved at a modest pace. Contacts

continue to hold a generally optimistic outlook for the

remainder of 2017. District bankers continued to report

moderate growth in demand for new loans and a modest

uptick in delinquency rates.

Philadelphia

Minneapolis

Economic activity resumed a modest pace of growth,

with trends improving for nonauto retail sales, new home

construction, and nonresidential construction and leasing. Manufacturing growth softened and auto sales declined further. Other sectors continued to grow modestly.

On balance, employment and wages continued to grow

modestly, and prices resumed a modest pace of growth.

Economic activity grew modestly. Consumer spending

was mixed, but tourism was having a good summer

season. Manufacturing continued on an upward trend,

and residential construction saw growth that likely would

have been stronger if not for tight labor, which was holding back employment in general. Home sales lagged in

most regions due to low inventories, and drought was

negatively affecting farmers.

Cleveland

Business activity picked up to a moderate pace during

the past few weeks. Manufacturers and construction

contractors saw rising payrolls and wage pressures.

Higher wages were attributed to growing employee

turnover. Motor vehicle production trended lower at

District assembly plants. The trucking industry was concerned about the effect of electronic logging requirements on freight capacity.

Kansas City

Richmond

Dallas

The economy continued to expand modestly. Reports on

consumer spending and real estate and construction

were not as consistently positive. Manufacturers noted

stronger new orders, and ports and freight haulers were

seeing increased volumes. Lending was up slightly while

nonfinancial services firms saw moderate growth. Labor

markets improved moderately and prices rose modestly.

Economic activity grew moderately. Activity in the energy

sector held steady, and contacts expected the rig count

to stay flat or dip through year-end. Manufacturing output

strengthened, and growth in retail sales accelerated, in

part due to a rebound in auto sales. Crop prices were

generally below breakeven levels.

Atlanta

Economic activity continued to expand at a moderate

pace. Overall price inflation was flat, while upward wage

pressures intensified and labor market conditions tightened further. Growth in consumer and business services

remained strong. Activity in the manufacturing sector

expanded at a moderate pace. Activity in the residential

real estate sector remained robust. Lending activity

expanded modestly.

Economic activity in the Tenth District increased modestly. Manufacturing and other business services expanded

at a moderate pace, and energy activity continued to

increase modestly. Consumer spending was mostly flat,

with modest growth expected. Agricultural conditions

weakened, but at a slower pace, and farm income and

farmland values remained subdued.

San Francisco

Economic activity rose modestly since the previous report. Labor markets remained tight but wage growth was

unchanged. Retailers, excluding auto dealers, noted an

increase in sales levels. Home sales increased and

prices continued to rise modestly. Credit remained readily available for qualified borrowers.

2

Federal Reserve Bank of

Boston

The Beige Book ■ August 2017

Summary of Economic Activity

Business contacts indicated that economic activity in the First District expanded modestly to moderately through midsummer, with both retailers and manufacturers mostly reporting increases in revenues compared with a year earlier.

Most staffing firms, by contrast, cited revenue declines attributed to tight labor supply. Commercial real estate markets

were mixed across the region, with little change in leasing fundamentals and some loosening of commercial sales markets. Residential real estate markets in the region continued to experience increases in prices and declines in sales.

Most responding firms cited a positive outlook.

Employment and Wages

aviation contact said they continue to feel strong downward price pressure from big customers despite record

aircraft sales.

Despite labor supply falling short of demand in many

cases, wage pressures continued to be modest. Retailers’ hiring plans were said to be in line with planned

store expansions and they cited “not much” wage pressure. All nine manufacturing contacts this round indicated that employment was flat or increasing. All but one of

the manufacturers who commented on the ability to

recruit said that they were not having any trouble hiring

and replacing workers. Two manufacturing respondents

said they were forgoing cost-of-living increases this year.

Among staffing firms, all contacts reported high demand

for labor and tight labor supply. Demand for skilled labor

has been strong, but contacts said many job applicants

fall short on requested training; some suggested that

clients needed to moderate their expectations. Likewise,

low-skill labor supply has not met demand, with two firms

citing public assistance as a challenge to recruitment,

given the low wages in these positions. All responding

staffing firms reported rising pay rates.

Retail and Tourism

Retail contacts consulted for this round reported that

their most recent year-over-year comp store sales results ranged from low single-digit decreases to low single

-digit increases. One contact noted that younger adults

tend to make more purchases online, leading to fewer instore sales, and two contacts attributed recent sales

increases or decreases in part to changes in customer

traffic. The outlook for the remainder of 2017 is positive.

A contact in the Massachusetts restaurant industry reported that restaurant revenues through June were up

about 3.6 percent from a year earlier. Restaurants in

tourist areas such as the Berkshires, Cape Cod, and

Boston’s North Shore have experienced severe staffing

shortages, especially those that have historically relied

on seasonal workers needing H2B visas. This labor

shortage has had a negative effect on revenues in what

is traditionally the high summer tourist season. There is

also concern among many Massachusetts restaurant

owners that the just-signed law “Further Regulating

Employer Contributions to Health Care” imposes substantial penalties on employers whose (non-disabled)

employees obtain health coverage through MassHealth

(Medicaid, CHIPS) or receive subsidized coverage

through the state’s health insurance exchange.

Prices

Prices were generally reported to be stable. Retailers

reported that prices on most items remained steady.

Restauranteurs said that while there were some small

price increases on food, some menu prices have gone

up more, in the 2.5 percent range. Manufacturing contacts mostly reported stable prices, and a manufacturer

of dairy products said that pricing had been

“exceptionally stable” in the last two years; a commercial

A-1

Federal Reserve Bank of Boston

Manufacturing and Related Services

office and industrial sectors were seen as restraints on

leasing activity. However, a Portland contact noted that

demand for office space was also soft. Leasing fundamentals were mostly flat across the region, with the

exception that office rents increased modestly in Providence and rose slightly in Boston.

Of the nine manufacturing firms contacted, all reported

sales in line with their expectations. Sales were up for

seven respondents, while two reported changes near

zero. Strong areas included commercial aviation and

semiconductors. One semiconductor contact reported a

year-on-year increase in sales in the second quarter in

excess of 30 percent but cautioned that semiconductors

are notoriously cyclical. A manufacturer of electrical

equipment described the last two years as an “industrial

recession” and said that we are now in a recovery.

Commercial real estate sales fell modestly in Boston and

Portland and remained light elsewhere in the District.

Prices for premier office properties in Boston were stable

despite a modest decline in the number of interested

buyers. Maine saw an uptick in retail vacancies and retail

property foreclosures. Throughout most of the District,

investor demand for industrial properties remained robust, and banks bid aggressively to lend to industrial

buyers. At the same time, some banks required more

equity on loans for construction of new apartments. One

new hotel project was proposed in the Portland area,

which reportedly has enjoyed a strong summer tourism

season. The outlook among contacts was mostly unchanged, and contacts were cautiously optimistic on

balance.

Only one contact reported a major revision to capital

spending plans. The dairy firm said that capital spending

was up more than 40 percent last year as they expanded

alternatives to traditional dairy products such as almond

milk. A manufacturer of electrical equipment said that

political pressure had led them to reduce off-shoring to

Mexico and China and to increase spending on factory

automation.

All respondents said the outlook was positive. A manufacturer of test equipment said that uncertainty about the

federal budget and shutdowns was a cause for concern.

Residential Real Estate

Residential real estate markets in the First District continued recent trends of supply shortages and price increases. For single-family homes, all areas but New Hampshire and Vermont reported moderate decreases in

closed sales (New Hampshire data refer to changes from

June 2016 to June 2017; the other areas reported July-to

-July changes). Pending sales generally increased. For

condos, closed sales were down in Boston, Connecticut

and Vermont. Persistent upward pressure on prices was

observed across the region, with median sales prices

increasing in all states except Vermont for both singlefamily homes and condos.

Staffing Services

Staffing services contacts in New England gave mixed

reports on current revenue growth, with the majority of

firms seeing an overall decline year-on-year, which they

attribute in large part to difficulty recruiting candidates.

Skilled labor markets, particularly in health care and IT,

have been strong sources of revenue among contacts,

buoying businesses more concentrated in these sectors.

All respondents remained optimistic but said they were

less optimistic than three months ago. Most anticipate

only slight improvement in revenue growth from this

quarter to next.

Low inventory prevails. On a year-over-year basis, all

reporting areas experienced a sharp decrease in inventory for both single-family homes and condos. A contact

pointed out that varying rules across cities and towns

created regulatory difficulties for home builders.

Multiple firms cited the current political situation as a

negative influence on hiring; health care reform was

singled out as a source of instability, as job applicants

now seek employer-based coverage as their top job

benefit. All contacts said they are adapting to the tightsupply landscape through targeted recruitment including

an expanded online presence, a better referral process,

active community engagement, and building stronger

relationships with job market candidates.

Contacts expressed concern about the decline in sales,

noting that as prices increase, potential sellers become

wary about finding new listings elsewhere and may be

less likely to list their homes. Nonetheless, some contacts expect the market to become more active with the

prospect of rising interest rates. ■

Commercial Real Estate

Commercial real estate markets remained somewhat

mixed across the First District. Contacts reported that

leasing activity was very slow in both Hartford and Portland, modest in Providence, and moderate in Boston. In

both Portland and Providence, limited inventories in the

For more information about District economic conditions visit:

www.bostonfed.org/regional-economy

A-2

Federal Reserve Bank of

New York

The Beige Book ■ August 2017

Summary of Economic Activity

Economic activity in the Second District has picked up somewhat since the last report, expanding at a moderate pace,

and labor markets have remained tight. Input prices continued to rise moderately, while selling prices were flat to up

modestly. Manufacturers noted a brisk pickup in business activity, while service-sector businesses reported more moderate gains. Consumer spending expanded modestly since the last report, tourism picked up somewhat, and consumer

confidence has remained close to a cyclical high. Housing markets were somewhat stronger, though sales volume in

many areas has been restrained by a dearth of homes on the market. Commercial real estate markets were generally

steady. New residential construction activity has slowed slightly, while commercial construction has been flat. Banks

reported some tightening in credit standards on commercial mortgages.

Employment and Wages

education & health, and leisure & hospitality noted modest growth in selling prices, while those in other sectors

indicated little change.

The labor market has remained tight. One New York City

employment agency reports further strengthening in the

labor market, with brisk hiring in the usually slow summer months. However, a major agency in upstate New

York and another downstate both characterize the market as steady. Businesses across a broad array of industries have been reporting widespread difficulty finding

qualified workers—particularly in rural areas.

General merchandise retailers reported that prices have

been steady, on balance, and New York City hotels

indicated little change in room rates. Broadway theaters,

on the other hand, continued to report 10-13 percent

gains in ticket prices from a year earlier.

Consumer Spending

Manufacturers reported that hiring activity has been

subdued and some have scaled back hiring plans for the

months ahead. Businesses in the transportation and

information sectors reported some pickup in hiring, while

those in retail trade and leisure & hospitality noted

steady to slightly lower employment. Businesses in other

service industries report little change in staffing levels.

Retailers reported that sales have been a bit firmer in

recent weeks. One major chain reports that sales picked

up and have been running ahead of plan in July and the

first few weeks of August. Similarly, retailers in upstate

New York have seen some pickup in both traffic and

sales in recent weeks. Inventories were generally reported to be in good shape.

Overall, wages have risen modestly, though contacts in

retail, education & health, information, and real estate

report more widespread wage hikes. One employment

agency maintains that employers have become more

negotiable on both compensation and required skill sets.

Auto dealers in upstate New York reported that sales of

new vehicles were steady at high levels in July and early

August and were up from comparable 2016 levels. Vehicle inventory levels have come down somewhat but are

still higher than desired. Used vehicle sales have been

steady to up moderately, while prices have softened

somewhat. Retail and wholesale credit conditions were

characterized as being in good shape.

Prices

As in the last report, businesses indicated that input

prices rose moderately. Businesses in wholesale trade,

B-1

Federal Reserve Bank of New York

Consumer confidence in the Middle Atlantic states (NY,

NJ, PA) has retreated from its multi-year high set during

the spring but has remained at a high level.

Commercial real estate markets have been mixed but

steady, on balance. The market for office space has

softened a bit in upstate New York and Long Island but

tightened modestly in New York City. The market for

industrial space, which had been tightening for quite

some time, appears to have lost some momentum. Availability rates were steady near multi-year lows in downstate New York and northern New Jersey but edged

down to new lows in upstate New York. Still, industrial

rents have continued to rise, running 8-10 percent above

comparable 2016 levels.

Manufacturing and Distribution

Manufacturers reported that business activity has expanded at an increasingly brisk pace since the last report. Contacts in the transportation industry, however,

continued to report modest growth, while those in wholesale trade noted that activity was generally flat. Looking

ahead, manufacturers remained broadly optimistic about

the near-term outlook, while those in transportation and

wholesale trade expressed a more moderate degree of

optimism.

Single-family home construction has been subdued—

except at the high end of the market—while new multifamily development has slowed. While there continues to

be a good amount of multifamily construction in progress

throughout the District, new starts have slowed considerably, except in northern New Jersey. Similarly, new

commercial development has largely ground to a halt,

except in northern New Jersey, where new construction

starts for both office and industrial space remain fairly

brisk.

Services

Businesses in most service industries reported some

pickup in business activity. Contacts in both professional

& business services and education & health services

noted modest increases in activity. Service sector businesses were generally optimistic about the near-term

outlook, except in the leisure & hospitality industry.

Broadway theaters reported stronger than usual attendance and revenues for the summer months. In New York

City, while tourism has picked up somewhat, advance

bookings for the months ahead have been softer.

Banking and Finance

Small to medium sized banks in the District reported that

loan demand was steady overall but mixed by category—weaker demand for consumer loans and residential

mortgages, no change in demand for commercial mortgages, and higher demand for C&I loans. Bankers also

noted a moderate decrease in refinancing activity. Some

tightening in credit standards was reported for commercial mortgages, but no change was indicated for other

loan categories. Contacts reported lower spreads of loan

rates over cost of funds for residential mortgages and

C&I loans. Finally, banks reported steady delinquency

rates across all loan categories. ■

Real Estate and Construction

Housing markets across the District have been mixed

but, on balance, a bit stronger. Real estate contacts in

upstate New York report that low inventories of homes

on the market have restrained sales activity but have

driven prices to new highs, with homes often selling for

above the asking price. Low inventories and rising demand have also started to push home prices up in the

suburbs around New York City—except at the high end

of the market, where there remains an excess supply.

New York City’s condo and co-op market has been

mixed; home prices have risen at a roughly 5 percent

annual rate in Brooklyn and Queens but have been flat in

Manhattan. Here too, an oversupply at the high end has

kept that segment of the market soft. Sales activity has

picked up, as sellers have cut prices, especially at the

high end.

Rental markets have also been mixed. In New York City,

effective rents have drifted down—face rents have been

flat, while landlord concessions have increased. Thus

far, these rising concessions have kept vacancy rates

from rising. In northern New Jersey and parts of upstate

New York, rental markets have been fairly robust, with

rents rising steadily.

For more information about District economic conditions visit:

www.newyorkfed.org/data-and-statistics/regional-datacenter/index.html

B-2

Federal Reserve Bank of

Philadelphia

The Beige Book ■ August 2017

Summary of Economic Activity

Aggregate business activity in the Third District resumed a modest pace of growth during the current Beige Book period

— a bit stronger than during the prior period — but reports were mixed by sector. Manufacturing, nonfinancial services,

new home sales, and tourism grew modestly; nonresidential construction and leasing appeared to grow slightly; nonauto

retail sales and new home construction activity exhibited essentially no growth; and auto sales declined modestly.

These trends were an improvement over the prior period for nonauto retail sales, new home construction, and nonresidential construction and leasing; they were less positive for manufacturing and more negative for auto sales. On balance, employment, wages, and prices continued to grow at a modest pace. Overall, firms appear to anticipate continued

modest growth over the next six months with a somewhat larger percentage of firms expecting growth.

Employment and Wages

Retailers and banking contacts generally noted no signs

of inflation, while homebuilders continued to report high

lumber costs. Overall, existing home prices continued to

edge up with some variance across markets and price

categories.

Employment has continued at a modest pace of growth,

although reports of net additions to staff were somewhat

less than the prior period for both manufacturing and

nonmanufacturing firms. Average hours worked also

dipped over the period for manufacturing firms but held

steady among nonmanufacturers.

Looking ahead one year, firms anticipate a 2.25 percent

increase in prices received for their own goods and

services — unchanged from one quarter prior. Firms

also reported expectations of nearly 2.6 percent annual

inflation for consumers — a bit higher than last spring.

On balance, wage growth held steady at a modest pace.

Staffing firms and other contacts generally reported

steady wage growth and an occasional lack of labor

availability for specific jobs. In particular, Pennsylvania

staffing firms continued to note difficulties finding qualified, committed workers, while demand for labor continued to grow. One staffing firm added to its own staff in

order to keep pace.

Manufacturing

On balance, manufacturing firms edged back to a modest pace of growth in general activity after nearly six

months at a moderate pace. Firms reported somewhat

slower overall growth of new orders and shipments than

during the prior period; however, growth rates appeared

to begin picking up late in the period.

Prices

On balance, price levels rose modestly. Although reports

were mixed, over two-thirds of the contacts responding

indicated no change at all in prices paid and prices received. Prices appeared to hold firmer for raw inputs to

and intermediate goods from manufacturers, while fewer

firms reported increases for prices received for their own

goods sold.

The makers of paper products, chemicals, fabricated

metal products, industrial machinery, and electronic

products continued to note gains in new orders and

shipments; firms in the lumber and primary metal sectors

reported declines in activity.

C-1

Federal Reserve Bank of Philadelphia

Generally, manufacturing contacts continued to expect

growth over the next six months. The percentage of firms

expecting future increases rose for general activity and

capital expenditures, and held steady for employment.

equity loan volumes were essentially flat. Commercial

and industrial loan volumes declined again. Credit card

volumes are highly seasonal — they grew at a modest

rate during this Beige Book period, but at a somewhat

higher rate in the comparable year-ago period.

Consumer Spending

Banking contacts tended to describe economic growth

as slow and steady. Several noted a small increase in

shale gas drilling activity; others pointed to gains stemming from renewed global activity. On balance, loan

portfolios were considered healthy, with low delinquencies and no significant signs of concern.

As physical stores continued to struggle, nonauto retail

contacts reported little change in sales, on balance — an

improvement over the modest declines of the prior period. In late reports from traditional malls, declining apparel sales pulled overall sales negative in June, although

remaining segments were up. An outlets operator reported a summer resurgence and good back-to-school sales

through the current Beige Book period. Convenience

store contacts noted a “tough” July and a weak start to

August.

Real Estate and Construction

Homebuilders generally reported little change in a market that has oscillated between slight growth and slight

decline in activity in recent months. The four weeks

around Labor Day are typically slow for traffic and contract signings. Production problems continued to include

labor availability, labor costs, and lumber prices.

Auto dealers throughout the region reported that the

slight year-over-year sales declines of the prior period

had deepened to a modest rate during the current period, although the level of sales remains high. Prices are

very competitive and manufacturers are providing significant dealer incentives to move inventory. Dealers expect

manufacturers to back off production next year.

Brokers in most major Third District housing markets

continued to report modest growth of existing home

sales, but no increase of inventories. Several contacts

noted a pickup of second home purchases in vacation

areas, but this trend appears modest so far.

Tourism held steady at a modest pace, although mountain resorts appeared to make greater gains than the

shore locations this summer. Strong gains were reported

from the Poconos and from Amish country, while a Delaware shore contact noted concerns about shorter stays

and more cautious spending, and Atlantic City’s July

casino revenues fell relative to July 2016. A Philadelphia

analyst noted that demand exceeded expectations,

locally and nationally, and that international tourism

seems to have held steady.

Nonresidential real estate contacts reported slight growth

in construction activity, which had been flat last period;

individual markets do vary by sector and geography.

Leasing activity also appeared to grow slightly, at best.

One contact reported that the industrial market was

holding up nicely, but that two spec buildings have taken

longer to lease up than has been the case recently.

Contacts also reported that the Philadelphia office market was getting tighter, with steady demand being met

mostly by changing space utilization and shifting locations within the region’s footprint rather than by new

office construction. The rental market is shifting in favor

of landlords. ■

Nonfinancial Services

Service-sector firms continued to report modest growth

in general activity for the period as a whole, but as with

manufacturers, reports of sales and shipments began to

strengthen late in the period. Expectations about future

growth have increased somewhat since the prior Beige

Book period and remained positive with nearly 60 percent of the firms anticipating increased activity.

Financial Services

Financial firms reported modest growth of overall loan

volumes (excluding credit cards) — a bit faster than the

slight growth that had occurred during the prior Beige

Book period. Auto loans and other consumer loans exhibited moderate growth in loan volume. Commercial

real estate and mortgages grew modestly, while home

For more information about District economic conditions visit:

www.philadelphiafed.org/research-and-data/regionaleconomy

C-2

Federal Reserve Bank of

Cleveland

The Beige Book ■ August 2017

Summary of Economic Activity

Aggregate business activity grew at a moderate pace in the Fourth District since our last report, an improvement from

the modest growth seen in the prior period. Labor markets expanded, with wage pressures reported primarily in the

construction, manufacturing, and energy sectors. Upward pressure on prices paid was prevalent in the construction

industry. Freight carriers and construction contractors increased billing rates and reported little pushback. Consumer

spending at brick-and-mortar establishments rose slightly, while new motor vehicle sales strengthened. Manufacturing

activity grew slightly overall, but production at District motor vehicle assembly plants trended lower. Nonfinancial services firms saw moderate gains in activity. Year-to-date residential real estate unit sales stayed above year-ago levels

and selling prices were higher. Activity in the commercial real estate market remained elevated.

Employment and Wages

few manufacturers and upstream oil and gas companies

cited an upward trend in steel prices. Selling prices for

products and services were stable on net. Construction

contractors and freight carriers increased billing rates

and reported little pushback. Contractors attributed the

need to increase rates to rising labor and material costs,

and an increase in demand. Some freight carriers reported that they needed to offset higher labor costs and

additional equipment purchases associated with electronic logging requirements. Projections call for an additional 500,000 off-lease motor vehicles in 2017 compared to the number in 2016. This increase will drive

down used vehicle prices, a situation which will likely

have an impact on new vehicle sales. However, OEM

incentives continue to rise and are reportedly as high as

15 percent.

District payrolls continued to expand, although at a slower pace than in the previous reporting period. Staffing

increases were notable in the manufacturing and construction sectors. In contrast, energy firms and brick- and

-mortar retailers described payrolls as flat. Several industrial products manufacturers filled openings that had

previously been left vacant, or they created new positions because of rising demand and an improving outlook for sustained business growth. Construction contractors reported a shortage of experienced labor, making it difficult to fill newly created positions. To be in

compliance with newly enacted electronic logging regulations, freight carriers anticipate adding drivers in order to

maintain capacity. Wage pressures were felt primarily in

the construction, manufacturing, and energy sectors in

response to employee turnover. Mid-year wage increases were widespread in most other industry sectors.

Consumer Spending

Consumer spending at brick-and-mortar department

stores rose slightly during the period, whereas revenue

growth at specialty stores was characterized as flat or

lower. Contacts reported that revenue gains from online

shopping have not yet offset declines from brick-andmortar operations. Retailers were satisfied with sales of

furniture, food, and women’s apparel. Purchases of

Prices

Similar to the previous reporting period, upward pressure

on prices paid eased somewhat when compared to that

of the second quarter. Construction contractors saw

rising prices for lumber, concrete, and wiring products. A

D-1

Federal Reserve Bank of Cleveland

electronics products remained soft. Year-to-date unit

sales through July of new motor vehicles increased

about 3 percent compared to those of a year ago. Auto

dealers are concerned about above-normal inventories.

Customers are reportedly waiting for higher OEM incentives.

backlogs, though inquiries are beginning to show signs

of slowing. The highest demand was for commercial

property development, including office buildings, and

public infrastructure projects. Office vacancy rates are

stable, and asking rents are slowly rising. A strong increase was reported in selling prices for office properties

during the first half of 2017 compared to those of a year

ago. Reports indicated a slowing in the construction of

multifamily housing, as lenders and investors are considering pulling back from commitments to multifamily development projects. Apartment rental increases were

described as moderate to strong.

Industrial Production

Overall activity in the manufacturing sector picked up

slightly during the period. Factors contributing to the

expansion included strong demand for construction

materials, rising activity in upstream oil and gas markets,

and rising exports to China. The latter was attributed to

strong infrastructure spending in that country. In contrast,

demand for consumer packaged products and capital

goods was weaker than expected. Year-to-date production through July at District auto assembly plants declined more than 16 percent when compared to that of

the same period a year earlier. Much of the decline can

be attributed to retooling for three next-generation vehicles. Even with the decrease in auto production, some

OEM suppliers reported satisfaction with their order

books. Allocations of capital monies for plant expansion

and product development rose. Many of our contacts are

bullish in their outlook for the economy. However, some

have tempered their outlook during the past few months,

citing slowing demand from the transportation sector.

Banking

Reports on commercial lending were more upbeat than

in recent reporting cycles. Strongest demand was for

CRE loans. Several bankers noted that customers have

sufficient confidence in the current business climate to

self-finance capital projects. Skittishness related to the

political climate and rising competition from nonbank

sources were cited as factors holding back more robust

loan growth. Consumer lending was largely stable. Purchase mortgages were in high demand, while auto lending softened. Bankers reported generally improving loan

quality. Loan application standards were little changed

other than some tightening in auto lending.

Reports through July indicated that the number of drilling

rigs operating in the District increased significantly compared with that of a year ago. Natural gas output remains

at historic highs. Thermal coal production declined because of reduced demand from a warmer-than-average

2016-2017 winter.

Nonfinancial Services

Real Estate and Construction

Professional and business services firms reported moderate gains in activity during the period. Strongest demand was seen by management consulting and software

and IT services firms. Factors contributing to strong

demand for the latter group include clients’ concerns

about cyber-security and data protection. ■

Freight volume expanded along seasonal trends during

the past couple of months and was relatively stable

compared to that of the same period a year ago. Several

contacts expressed concern about the effects of electronic logging on trucking capacity.

Year-to-date unit sales through July of new and existing

single-family homes increased 1.5 percent compared to

those of a year earlier. The average sales price rose

almost 5 percent. A softening in the new-home market

was attributed to rising list prices. Homebuilders cited a

shift in buyer preference from homes in the move-up

price point categories to those in the lower price points.

One builder described this sudden shift as unusual.

Slightly higher interest rates were not seen as a deterrent for purchasing a house. Although demand has softened, estimates of single-family construction starts for

the first half of the year are more than 5 percent higher

compared to those of a year earlier.

Nonresidential real estate activity generally remains at

an elevated level. Building contractors reported strong

D-2

Federal Reserve Bank of

Richmond

The Beige Book ■ August 2017

Summary of Economic Activity

The Fifth District economy continued to expand at a modest pace, although reports from some sectors were a little more

mixed since the last report. Moderate growth in new orders and shipments was noted by manufacturing firms; ports and

trucking companies reported increased cargo movements. Retail sales were mixed but mostly flat in recent weeks while

tourism and travel activities were strong. Existing home sales declined slightly while new home sales and construction

were said to be up modestly. Commercial leasing increased at a slightly slower pace in recent weeks; reports on commercial construction were mixed. Overall loan demand increased slightly as business lending was up modestly while

residential lending was relatively flat. Services firms indicated that revenues grew moderately. Labor demand strengthened moderately and prices increased at a modest pace.

Employment and Wages

Manufacturing

Labor demand continued to strengthen moderately in

recent weeks. Compared to the previous report, employment agencies noted slightly lower levels in new job

openings; however, they anticipated a significant increase during the upcoming fall recruitment months.

Wage increases remained modest across all sectors,

and a few firms reported increased wage pressures to

retain top talent in tight labor markets. Executives reported difficulty finding qualified cybersecurity specialists,

mechanics, accounting professionals, construction workers, agriculture workers, truck drivers, and customer

service agents.

On balance, manufacturing firms reported moderate

growth in new orders and shipments in recent weeks.

Metal manufacturers continued to report improved business conditions, and computer and electronic equipment

firms noted a recent pickup in new orders. Additionally, a

steel producer commented that business remained very

strong with order backlogs above normal levels. Expectations were generally optimistic for the next six months,

as most producers anticipated modest increases in new

orders.

Ports and Transportation

Cargo volumes at District ports remained robust since

our last report and continued to increase modestly. Most

ports were seeing growth that was in line with, or better

than, expectations. However, one executive indicated

that new services initiated in June had not resulted in the

increase in activity he had anticipated. Growth in import

volumes continued to exceed that of exports. Remarks

from trucking firm executives were unusually consistent

as they reported moderate increases in shipments,

broad-based strength in demand, and very steady

growth beginning around April. One trucking firm executive suggested that he had “the luxury” of being able to

turn down business. A regional airport in the District

reported that air cargo shipments were up significantly

over the year and there were no signs that this growth

trend was trailing off.

Prices

Overall, prices rose at a modest pace in recent weeks.

According to our most recent surveys, services firms

indicated that prices grew modestly, on balance. Manufacturing input prices grew a modest rate and continued

to outpace final goods price growth. Contacts throughout

the Fifth District specifically noted increases in prices for

steel and scrap metal, fuel, and construction inputs, such

as lumber and dirt. Contracted trucking prices reportedly

rose moderately as capacity continued to tighten.

Conversely, an architectural firm noted that increased

competition over bids was driving fees down slightly.

Coal and natural gas prices were unchanged or marginally lower.

E-1

Federal Reserve Bank of Richmond

Retail, Travel, and Tourism

construction remained limited throughout the District.

Reports from brokers in Virginia Beach and Columbia,

South Carolina said there were fewer new multi-family

developments taking shape and fewer sales in recent

weeks, while agents throughout North Carolina and in

Charleston, South Carolina, central Virginia, and the

District of Columbia said that demand is keeping pace

with new construction and new space is needed.

On balance, retail sales were flat to up in recent weeks,

with some variation by segment. A home furnishings

store reported the largest improvement in sales in the

past six to seven years, although margins were down

due to discounting. Clothing sales were flat to slightly up,

with considerable variability from month to month. Hardware and home improvement stores saw strong sales for

seasonal outdoor items, but slower growth for smallerticket hardware sales. An auto dealer in coastal South

Carolina reported that sales had leveled off and that

inventories continued to build, so he expects manufacturers to offer even more incentives in coming months.

Banking and Finance

Loan demand grew slightly in recent weeks. Commercial

real estate and business lending picked up modestly,

overall, while residential real estate lending was little

changed. A North Carolina lender said that recent

branch expansions and a rise in deposits provided additional capital and allowed them to increase commercial

and business lending. Interest rates were little changed,

on balance, as short term rates rose slightly while long

term rates were flat to somewhat down. Competition

among banks intensified, particularly in the residential

mortgage market. A West Virginia lender reported seeing

secondary market mortgage lenders offering low and no

down payment mortgage loans in an effort to combat the

flat demand. Historical credit quality metrics remained

strong and there were no reports of changes to credit

standards.

Tourism and recreation activities were strong in recent

weeks in coastal areas as well as the mountain attractions in the District. A rafting and outdoor adventures

business in West Virginia experienced a record July,

despite double-digit increases in many of their activity

prices. In contrast, a western Virginia outdoor recreation

facility reported a dip in July activity, but saw bookings

picking up at a normal pace for September and October.

In coastal North Carolina, visitors were up relative to last

year, despite a power outage in the Outer Banks, and

restaurants and retailers were busy. Modest growth in

hotel occupancy was reported in western North Carolina

as well as Washington, DC, although average daily rates

were mostly steady.

Non-Financial Services

According to our most recent survey, services firms

indicated moderate revenue growth and expected demand to grow further over the next six months. Reports

from firms in the administrative, education, hospitality,

telecom, and warehousing services were the most consistently positive. A civil engineering firm in Maryland

noted an uptick in demand in recent weeks and expected

it to persist for the remainder of the year. There were

fewer bidding opportunities reported for government

contracts, as federal agencies relied more on large,

single award agreements. ■

Real Estate and Construction

Residential real estate agents reported a slight seasonal

decline in home sales and noted that buyer traffic remained slow in recent weeks. Brokers reported a significant increase in first time home buyers, with one firm

indicating that sixty percent of its sales were to first time

home buyers. Inventories remained low, and home prices continued to rise modestly. Average days on the

market remained at low levels; however, some contacts

noted slight increases due to the seasonal slowdown in

sales. New home construction and sales improved modestly since the previous report.

Commercial real estate leasing rose modestly in recent

weeks, slowing slightly from the previously reported

pace. Industrial leasing transactions generally declined,

while retail leasing and sales remained strong. Office

leasing remained limited; however, a few brokers reported an increase in office building sales. Vacancy rates

remained low across markets. Rental rates were stable

to increasing modestly, with reports of rising rate pressure in the industrial market due to lack of inventory.

Commercial construction accounts were mixed. Realtors

reported more industrial warehouse construction and

noted an increase in speculative building, while office

For more information about District economic conditions visit:

www.richmondfed.org/research/regional_economy

E-2

Federal Reserve Bank of

Atlanta

The Beige Book ■ August 2017

Summary of Economic Activity

According to reports from businesses across the Sixth District, economic activity expanded at a modest pace from July

through mid-August. The outlook among contacts remains optimistic as most expect slow and steady growth over the

remainder of the year. Businesses reported continued tightness in the labor market, though wage growth remained flat

for most types of jobs. Firms cited that non-labor input costs remained steady. Reports from most retailers indicated that

sales increased slightly while auto dealers noted soft sales activity. The hospitality sector continued to experience weakening activity. Residential brokers and builders cited that sales of existing and new homes were flat to slightly up from a

year ago and home prices continued to rise modestly. Commercial real estate firms reported that demand continued to

improve and construction increased from a year ago. Manufacturers noted that activity pulled back slightly since the

previous report. Bankers indicated that credit continued to be available.

Employment and Wages

nisms were losing their effectiveness, thus broad wage

increases were expected in the near term. Some firms

noted increased offerings of early retirement packages in

an attempt to lower overall compensation costs (replace

higher-paid, tenured workers with technology or lowerpaid, entry to mid-level workers). Businesses continued

to report increases in starting wages to attract new hires

for high-skill positions, but most contacts indicated that

these increases remained in the two to three percent

range.

Broadly, business contacts expressed that labor demand

continued to outweigh supply in fields such as information technology, construction, and healthcare. Construction industry contacts reported that the lack of available labor was still so severe that companies were turning down business opportunities. The leisure and hospitality industry experienced notable net gains in payrolls

across the region; however, contacts continued to describe challenges filling positions during the summer.

Some employers who rely on immigrant labor—either

directly or indirectly—continued to express concerns that

efforts to tighten immigration were having a tangible drag

on the supply of labor. Turnover was mixed across the

region; however, any time turnover occurred, firms pursued opportunities to increase operational efficiencies by

evaluating whether to fold one job into another, replace

position(s) with technology, and/or shift the salary towards training and development of other employees.

Prices

Non-labor input costs were stable and businesses reported that pricing power remained constrained. According to the Atlanta Fed’s Business Inflation Expectations

survey, respondents indicated that year-over-year unit

costs were up 1.7 percent in August and they expect unit

costs to rise 1.9 percent over the next twelve months.

Consumer Spending and Tourism

District retail contacts reported that sales levels were

higher than expected in July. Retailers noted that back to

school shopping and online sales helped boost overall

sales levels this period. Automotive dealers continued to

report a slowdown in the momentum of auto sales from a

year ago.

Firms continued to implement various methods to attract

and retain top talent, often in lieu of wage increases.

Contacts shared that in addition to offering flexible work

hours and locations, more vacation time, and training

and education opportunities, they were increasingly

focused on social responsibility initiatives and support

systems to encourage work-life harmony. Some contacts

indicated that these non-wage compensation mecha-

In general, tourism and hospitality contacts in the District

reported that activity over the summer season was softer

F-1

Federal Reserve Bank of Atlanta

than expected, which they attributed to significant rainfall

throughout the region. In most markets, hotel occupancy

achieved expectations; however, average daily rates

remained subdued. Many contacts noted that the outlook

for the remainder of the year should be in line or slightly

below forecasts made earlier in the year.

previous report, with about half expecting higher production levels over the next six months.

Transportation

Reports from District transportation contacts were little

changed since the previous report. Ports continued to

indicate strong growth in containerized, bulk, and breakbulk cargo. Total rail traffic remained flat. The declines in

shipments of grain, petroleum and petroleum products,

and metallic ores, were mostly offset by increases in

nonmetallic minerals, crushed stone, sand and gravel,

and coal. Year-to-date intermodal traffic, however, was

up modestly. Logistics and freight forwarding contacts

cited further growth in e-commerce shipments.

Construction and Real Estate

Reports from District residential real estate contacts in

July signaled modest but continued growth. Builder

reports on construction activity were mixed. Brokers and

builders continued to report that home sales were flat to

slightly up relative to one year earlier. The majority of

contacts noted that buyer traffic was flat to slightly up

and inventory levels were down from the year-ago level.

Both builders and brokers continued to report modest

gains in home prices. Home sales expectations remained positive in July, with most brokers and builders

anticipating that sales would hold steady or increase

slightly over the next three months compared to the year

-earlier level. Most builders continued to expect that

construction activity would match or exceed the current

pace over the next three months.

Banking and Finance

Credit remained readily available for most qualified borrowers. Some contacts reported mortgage activity

slowed due to a limited supply of homes for sale and a

decline in auto lending due to decreasing demand. Commercial loan activity was brisk and small businesses

used loan proceeds to refinance or expand their business.

Energy

Many District commercial real estate contacts reported

improvements in demand that resulted in rent growth,

but they cautioned that the rate of improvement varied

by metropolitan area, submarket, and property type. The

majority of commercial contractors indicated that the

pace of nonresidential construction activity had increased from one year ago, but a growing share noted

that activity was down slightly. Most contacts reported

healthy backlogs. While several reports indicated that

the pace of multifamily construction matched or exceeded the year-ago level, some continued to report that

activity was down from one year earlier. Looking forward,

District commercial construction contacts’ expectations

for the pace of nonresidential construction over the third

quarter was mixed, while their outlook for the pace of

multifamily construction continued to level off.

Contacts indicated that liquefied natural gas exports, on

average, continued to increase from the Gulf Coast.

Reports from energy contacts noted that completion of

pipeline projects continued to add growth in capacity to

the Gulf Coast. Utility contacts indicated residential

usage continued to decline while overall commercial and

industrial usage increased slightly.

Agriculture

Agriculture conditions across the District were mixed.

Significant rainfall throughout much of the District eliminated drought conditions but resulted in many areas

experiencing abnormally moist to excessively wet conditions. These heavy or frequent rains caused some crop

damage and delayed planting and harvesting in parts of

the District. Forecasts still indicate that the District will

exceed last year’s production in cotton, soybeans, and

peanuts, but lower rice and corn production is expected.

With harvesting completed for the current season, Florida’s orange production forecast was significantly lower

than last year’s production. On a year-over-year basis,

prices paid to farmers in June were up for cotton, beef,

broilers, and eggs but were down for corn, rice, and

soybeans. ■

Manufacturing

District manufacturers indicated that overall activity

expanded, but at a slower pace since the last reporting

period. While overall manufacturing activity expanded,

contacts reported slower growth in new orders amid

modest gains in production and more tepid job gains.

Supply delivery times were reported to be getting shorter, while finished inventory levels decreased. Contacts’

outlook for production was relatively unchanged from the

For more information about District economic conditions visit:

www.frbatlanta.org/economy-matters/regional-economics

F-2

Federal Reserve Bank of

Chicago

The Beige Book ■ August 2017

Summary of Economic Activity

Growth in economic activity in the Seventh District slowed to a modest pace in July and early August, and contacts

expected growth to continue at that pace over the next 6 to 12 months. Employment, consumer spending, business

spending, and manufacturing production all grew at modest rates, while construction and real estate activity increased

slightly. Wages and prices rose modestly. Conditions were little changed in the financial sector and worsened some in

the agricultural sector.

Employment and Wages

Consumer Spending

Employment growth slowed to a modest rate over the

reporting period, and contacts expected it to continue at

that pace over the next 6 to 12 months. Contacts indicated that the labor market was tight and reported difficulty

filling positions at all skill levels. Hiring was primarily

focused on professional and technical, sales, and production workers, though there was an increase in the

number of contacts hiring management and administrative workers. A staffing firm that supplies firms with IT

workers said growth was strong, while a staffing firm that

primarily supplies manufacturers with production workers

reported a slight decline in billable hours. Wage growth

was modest overall, with wage increases more likely for

high-skilled occupations. Many contacts said that the

cost of health insurance had increased.

Consumer spending increased modestly over the reporting period. Non-auto retail sales rose slightly, led by

improvements in the furniture, building materials, food

and beverage, and health and personal care segments.

Grocery store sales were little changed overall, though

contacts reported that there was growth in delivery and

pickup services. Auto dealers across the District reported

a moderate increase in sales. The vehicle mix continued

to shift from cars to light trucks, led by increased sales of

crossover vehicles. The pace of used vehicle sales was

up modestly on balance.

Business Spending

Growth in business spending slowed to a modest pace in

July and early August. Retail inventories were slightly

higher than desired. Manufacturing inventories were at

comfortable levels overall, though a surge in steel imports led to elevated inventories at service centers.

Growth in capital spending slowed to a modest pace,

and contacts expected growth to continue at that pace

for the next 6 to 12 months. Outlays were primarily for

replacing industrial equipment, IT equipment, and renovating structures, though there was an increase in the

number of contacts reporting spending for expansion.

Prices

Overall, prices again rose modestly in July and early

August. Retail prices increased slightly, with the exception of grocery prices, which were flat after a period of

steady declines. There were multiple reports of rising

prices for older used cars. Many manufacturers noted an

increase in raw materials costs. One manufacturing

contact indicated that persistent rail delivery delays were

forcing them to use more costly modes of transportation.

G-1

Federal Reserve Bank of Chicago

Construction and Real Estate

Agriculture

Construction and real estate activity increased slightly

over the reporting period. Residential construction increased modestly, with growth concentrated in the single

-family segment and suburban locations. Home sales

increased modestly overall, with contacts across the

District indicating that low inventories of single-family

starter homes were holding back growth. Growth varied

by price point, with a slowdown in sales of homes under

$250,000 and a pickup in sales of homes over $250,000.

Growth also varied by location, with reports of a moderate increase in the Chicago area and a slight slowdown

in the Detroit area. Home prices were up slightly overall.

Nonresidential construction was little changed, though

one contact noted decreasing demand from automotive

suppliers for building new manufacturing facilities. Commercial real estate activity remained strong, edging up

further on balance over the reporting period. Commercial

vacancy rates declined slightly and both commercial

rents and the availability of sublease space changed

little.

A lack of rainfall in July and early August hurt crops in

much of Iowa and parts of Illinois and Indiana. Crop

conditions and maturity lagged that of last year’s bumper

crop, to the point that contacts expected the corn harvest

to be below trend and the soybean harvest to be at

about trend. Corn and wheat prices fell, while soybean

prices were flat. Given current prices, some operations

will be able to make crop insurance claims and take

advantage of government support programs. Dairy prices moved higher, reportedly easing losses for dairy

operations. Hog and cattle prices were down, but prices

were still high enough for many operations to be able to

turn a profit. In addition, contacts expected that the

opening of a pork processing plant in Michigan would

lead to greater demand for hogs in the region. ■

Manufacturing

Manufacturing production growth slowed to a modest

pace in July and early August. Steel production grew

modestly (with increases in both domestic and international demand), and heavy machinery picked up some

as well, with contacts from both sectors reporting increased demand from the energy sector. Sales for specialty metals manufacturers increased a bit, with contacts highlighting growth in the energy, aerospace, and

defense sectors. Manufacturers of construction materials

reported slow but steady growth in line with the pace of

improvement in the construction sector. Demand for

heavy trucks increased moderately, while demand for

autos declined slightly.

Banking and Finance

Financial conditions were little changed on balance over

the reporting period. Financial market participants noted

that equity prices remain high and volatility remains low.

Business loan demand slowed some, particularly from

middle-market firms. The slowdown led to reports of

increased competition between banks for customers and

greater pressure on loan pricing and terms. In spite of

lower volumes overall, contacts reported increased

demand for capital equipment loans. Consumer loan

demand increased slightly on balance. Demand for

home and auto loans increased slightly and quality for

both was little changed.

For more information about District economic conditions visit:

chicagofed.org/cfsbc

G-2

Federal Reserve Bank of

St. Louis

The Beige Book ■ August 2017

Summary of Economic Activity

Economic conditions have improved at a modest pace since our previous report. District labor market conditions continue to improve, although employment growth has leveled in recent months as contacts report difficulties filling open

positions. Price pressures remain modest, although fewer contacts reported increasing prices charged to customers in

recent months. In general, business contacts surveyed in mid-August continued to hold an optimistic outlook for growth

during the remainder of 2017. On net, 53 percent of contacts expect District economic conditions in 2017 to be better or

somewhat better than last year. This outlook was generally unchanged since contacts were surveyed in mid-May.

Employment and Wages

Employment has increased modestly since the previous

report. Of the business contacts surveyed in mid-August,

on net, 29 percent reported that third-quarter employment was higher or slightly higher than a year ago. Contacts in a variety of industries continued to report difficulties finding skilled or qualified employees. Construction

contacts across the District reported shortages of both

skilled and unskilled workers. In addition, manufacturing

contacts in Louisville noted that difficulties in finding

qualified labor have led to longer lead times and an

inability to fill additional orders.

Reports on construction costs were mixed. Contacts in

St. Louis and Louisville noted rising construction costs;

however, several Little Rock contacts reported declines

in construction costs. In particular, multiple contacts in

the wood products sector in Arkansas reported that

excess supply continues to drive down input prices.

Commodity price pressures have been mixed. Since the

previous report, coal prices in Illinois, Indiana, and Kentucky have been flat. In the agricultural sector, corn

prices increased modestly, while sorghum prices are

unchanged. In Little Rock, cash prices of rice increased

moderately. A Little Rock contact reported that soybean

and wheat prices also increased. Prices of cottonseed in

Memphis fell slightly, and soybean and wheat prices in

St. Louis decreased moderately.

Contacts reported moderate wage growth since the

previous report, as tightness in the labor market has

resulted in upward pressure on wages. On net, 61 percent of contacts reported wages were higher or slightly

higher than a year ago, and a similar share reported

increases in labor costs.

Consumer Spending

Reports from general retailers, auto dealers, and hoteliers portray a mixed picture of consumer spending activity. Although July real sales tax collections increased in

Arkansas relative to a year ago, they declined in Kentucky, Missouri and Tennessee. Multiple auto dealers

across the District reported a decrease in sales, which

have failed to meet their expectations during 2017. St.

Louis dealers indicated a shift in demand toward low-end

vehicles.

Prices

Price pressures have increased modestly since our

previous report. Business contacts surveyed reported

that prices charged to consumers and non-labor input

costs increased modestly. On net, 22 percent of contacts

reported that prices were higher than a year ago and 35

percent reported that non-labor input costs were higher

than a year ago. Although prices continue to move upward, growth has slowed during the third quarter.

H-1

Federal Reserve Bank of St. Louis

Hospitality contacts in Missouri reported that business

activity has increased since our previous report, whereas

hoteliers in Kentucky and Arkansas indicated a decline in

hotel occupancy rates.

Residential construction activity has been flat since the

previous report. July permit activity dropped slightly

relative to the previous month. However, most contacts

reported an increase in residential construction compared with a year ago. Expectations are slightly less

optimistic for the fourth quarter.

Manufacturing

Manufacturing activity has increased modestly since our

previous report, although the pace of growth slowed

across the District. On net, about one-third of contacts

reported that production, new orders, and capacity utilization increased in the third quarter relative to one year

ago. The results are down from our previous survey,

when more than half of contacts reported improvements

in these areas. More contacts reported increases in

capital expenditures than in the previous survey. Several

companies reported new capital expenditure and facility

expansion plans, including firms that manufacture food

products, transportation equipment, and metal products.

Contacts are less optimistic about the next quarter than

in our previous report, with fewer than half expecting

improvements, down from two-thirds last quarter. Some

contacts expressed concerns about political uncertainty

and a slowdown in the auto industry.

Commercial real estate activity has improved modestly

since the previous report. Contacts reported relatively

strong demand for most property types, particularly office

and industrial. However, contacts indicated a decrease

in multifamily demand relative to a year ago.

Commercial construction activity remained strong. Multiple contacts reported an optimistic outlook for the rest of

2017. Planning and development of new hotels continued throughout the District, particularly in Louisville and

Memphis. Multifamily construction activity also remained

robust.

Banking and Finance

Banking conditions in the Eight District have improved at

a modest pace since the previous report. Loan demand

rose at a moderate rate with continued signs of slight

tapering. District contacts reported that commercial and

industrial loan demand grew moderately relative to yearago levels, while year-over-year auto loan demand experienced an unexpected and sharp decline. Delinquencies

rose modestly across all loan categories and are expected to continue rise next quarter. Contacts reported

that competition from other banks and credit unions has

increased moderately, while competition from non-bank

financial service providers has remained generally unchanged.

Nonfinancial Services

Reports of plans in the service sector have been positive

since the previous report. More than two-thirds of transportation and service contacts reported that sales met or

exceeded expectations in the current quarter. More than

half of contacts reported higher dollar sales in the current

quarter than this time last year, and slightly less than half

expect sales to be higher in the next quarter than they

were last year. Firms that provide transportation and

information technology services reported plans to expand facilities and hire employees, particularly in the St.

Louis region. Reports from healthcare firms remain

mixed, but are more positive than earlier this year.

Agriculture and Natural Resources

District agricultural conditions were mixed in this reporting period. The conditions of the District’s cotton and rice

crops have improved since our previous report and are

better than the same time last year. Although rice conditions have improved, early-season flooding pushed

acreage down 25 percent from last year. The lost acreage will hurt rice farmers this year, but some of these

farmers are optimistic that a recent trade agreement with

China will boost profits. Meanwhile, corn and soybean

conditions declined from the previous period.

Real Estate and Construction

Residential real estate sales activity has been mixed

since the previous report. Seasonally adjusted home

sales for July ticked up slightly from the previous month

in the District’s four major MSAs. Year-to-date sales

were generally in line with those from a year ago. Local

real estate contacts continued to report that significant

shortages in inventory have hindered sales, and, on net,

nearly 40 percent of survey respondents indicated that

sales fell short of expectations halfway through the third

quarter. One industry contact noted that mortgage rates

have been lower than expected, providing a positive

impact on business.

Natural resource extraction conditions declined slightly

from June to July, with seasonally adjusted coal production declining 3 percent. However, July production was

10 percent above a year earlier. ■

For more information about District economic conditions, visit:

www.research.stlouisfed.org/regecon/

H-2

Federal Reserve Bank of

Minneapolis

The Beige Book ■ August 2017

Summary of Economic Activity

The Ninth District economy grew modestly overall since the last report. Employment grew modestly, despite tight labor

conditions. Wage pressure was moderate, while price pressure was modest overall. The District economy showed

growth in services, real estate, manufacturing, residential construction, tourism, and energy. But consumer spending

and commercial construction were mixed, and agriculture remained weak.

Employment and Wages

Wages grew moderately since the last report. A South

Dakota contact said there was pressure to boost wages

and companies “seem to be willing to pay a bit more” for

talent. A staffing contact said that the recently passed

$15-per-hour minimum wage in Minneapolis—being

implemented over five years—was rippling across wage

expectations of workers earning below or near that level.

Some wage sentiment was softer, however. The

aforementioned poll of ag bankers found that two-thirds

believed 2017 wage increases would be between 1 and

3 percent. A Minnesota construction company said that

office personnel wages “had very modest increases this

year for some, and none for others.”

Employment grew modestly since the last report, despite

continued tight labor conditions. Seasonally adjusted

employment in July grew in a majority of District states;

Minnesota added 7,700 jobs, and June job growth was

also revised significantly higher. But South Dakota and

Montana saw total employment dip slightly in July, due at

least in part to constrained labor supply. Montana

workforce development offices saw one-third fewer

active job seekers in July compared with a year earlier.

District-wide, initial unemployment claims dropped by 14

percent over the most recent six-week period compared

with a year earlier, and continuing claims dropped 12

percent; every District state saw significant declines in

both categories. In Mankato, Minn., labor is “the number

one concern,” according to a business source. A

Minneapolis-St. Paul staffing firm said that “lots of needs

go unfulfilled” and business was being turned away

because of tight labor. Labor retention continued to be a

problem. A South Dakota human resources consultant

said most businesses were hiring, but more often “to

replace turnover and retirements than to increase

headcount.” An ad hoc poll of ag bankers in

southwestern Minnesota found that 60 percent were

hiring, but the large majority were doing so because of

labor turnover; 90 percent said they were having

difficulty finding qualified labor.

Prices

Price pressure remained modest since the last report.

Retail fuel prices in District states increased slightly. A

commercial contractor reported that construction

materials prices were steady, but he was budgeting for a

2 percent increase in construction costs largely due to

labor costs. Rental rates for apartments in MinneapolisSt. Paul have increased 4 to 5 percent over the last 12

months, according to industry sources, while increases

in other commercial segments have been more modest,

especially of late. Prices received by farmers for wheat,

hay, milk, hogs, cattle, chickens, and eggs increased in

June compared with a year earlier; prices for corn,

soybeans, and turkeys decreased.

I-1

Federal Reserve Bank of Minneapolis

Consumer Spending and Tourism

developer said his company could have built 40 to 45

homes this year, but was on track to build just 32 due to

a lack of available labor.

Consumer spending was mixed since the last report. The

most current data on statewide gross retail sales showed

a decline in recent summer months in South Dakota and

Wisconsin compared with a year earlier; however, sales

tax revenue in North Dakota increased in July. While

store closures grabbed headlines, retail expansions were

also seen in many metro markets in the District. A mall

manager in Minnesota reported that business was “good

overall,” despite the loss of an anchor tenant.

Commercial real estate grew modestly since the last

report. Industrial vacancy rates were at very low levels in

Minneapolis-St. Paul, though rental rates were flat.

Office vacancy rates were flat to slightly lower. Despite

continued strong multifamily construction, vacancy rates

in Minneapolis-St. Paul and Missoula, Mont. remained

low. Residential real estate sales slowed in July

compared with a year earlier. Though increases were

seen in a few markets (northern Wisconsin; Missoula

and Bozeman, Mont.), most markets saw declines,

including a 5 percent drop across Minnesota, which was

widely attributed to low inventory.

Summer tourism has been generally positive. South

Dakota’s annual Sturgis Motorcycle Rally saw an uptick

in attendance of almost 5 percent over last year. Most

regional and state fairs have seen increased attendance.

Glacier National Park summer visits were up 25 percent

over last year’s record attendance. But attendance at

other District national parks was spotty. Minnesota hotel

occupancy rates in July were strong overall compared

with a year earlier, but some weakness was seen in St.

Cloud and northern Minnesota.

Manufacturing

Activity in the professional services industry increased

moderately since the last report. Providers of data

analytics for agriculture reported a jump in demand this

year as farmers sought to control input costs through

more precise application of fertilizer and chemicals. A

Minnesota accounting and professional services firm

said it was seeing “pretty significant growth” among

clients looking for one-stop services. A provider of telehealth services reported that demand was increasing

from rural areas.

District manufacturing activity increased moderately

since the last report. An index of manufacturing

conditions indicated increased activity in July compared

with a month earlier in Minnesota and the Dakotas. An

annual survey of Montana manufacturers indicated a

positive outlook among respondents for production,

sales, profits, and employment over the next year. A

producer of precast concrete products announced a

large new plant in South Dakota, and a pipe

manufacturer announced a new plant in Minnesota.

Several suppliers to the wind power industry described

demand as strong. Contacts in agricultural equipment

said that activity remained slow overall, but conditions

have improved from a year ago, as demand for some

types of equipment picked up and inventories dropped.

Construction and Real Estate

Agriculture, Energy, and Natural Resources

Construction was mixed since the last report. Industry

data suggested that spending has slowed for commercial

and heavy construction in the District compared with a

year ago. A southern Minnesota contractor said the

company’s commercial construction volume was down

one-quarter from last year due to delays for several

projects. However, commercial permits in July—

suggestive of future activity—were higher in a majority of

the District’s larger cities, with the notable exception of

Minneapolis. Residential building, on the other hand,

saw modest but widespread growth since the last report.

Increases in the number of permitted, single-family

homes in July were seen in a majority of larger cities,

while the Minneapolis-St. Paul region was flat but saw

strong multifamily permitting. Labor shortages were

reportedly holding back more construction. A Minnesota

District agricultural conditions remained weak overall

since the previous report. In spite of recent rains, severe

drought conditions persisted in the Dakotas and

Montana. Farmers in many areas were cutting failed

cereal crops for hay, while livestock producers were

selling off parts of their herds due to a lack of feed.

Meanwhile, crop conditions remained much better in

eastern parts of the District, and sugar beet growers in

Minnesota and North Dakota were anticipating a

potential record crop. Activity in the energy and mining

sectors increased slightly since the last report. Montana

coal production increased in recent months compared

with a year earlier. District oil and gas exploration as of

mid-August was flat compared with the previous report.

Regulators approved a major expansion at a natural gas

processing plant in the Bakken oil patch. ■

Services

I-2

Federal Reserve Bank of

Kansas City

The Beige Book ■ August 2017

Summary of Economic Activity

Economic activity in the Tenth District increased modestly in late July and August, and most sectors expected moderate

growth in future months. Professional, high-tech, and wholesale trade firms reported a strong increase in sales, and

manufacturing activity expanded at a moderate pace. District energy activity expanded modestly compared to the previous survey period, and bankers reported steady to improving overall loan demand, stable deposit levels, and unchanged loan quality. District real estate activity continued to increase at a slight pace, while consumer spending contacts indicated growth was unchanged since the previous survey period. Agricultural conditions weakened but at a

slower pace, with subdued farm income and slightly lower farmland values. In addition, transportation contacts indicated

slightly lower sales than the previous survey period. Employment and employee hours rose slightly in late July and

August, and contacts in most sectors reported moderate wage growth. Input prices were up moderately over the previous survey period, while selling prices increased modestly in most sectors.

Employment and Wages

reported moderately higher input and selling prices, with

both expected to continue to rise moderately moving

forward. Restaurant input prices grew at a moderate

pace, while selling prices edged up. Selling prices in the

transportation sector declined slightly, while input prices

were up moderately after falling in the previous survey.

Construction prices continued to expand modestly with

slight increases anticipated in the coming months. Manufacturers reported slight growth in prices for finished

goods, and raw material costs continued to edge higher.

Manufacturers expected moderate increases in both

finished goods and raw material prices over the next few

months.

Employment and employee hours across the District

rose slightly in late July and August over the previous

survey period, and modest increases were expected in

coming months. Contacts in the wholesale trade, professional and high-tech services, real estate, education,

health services, and manufacturing sectors reported an

increase in employment, while contacts in the retail

trade, auto sales, transportation, restaurants, and tourism and hotels sectors noted a decline. All sectors except the auto sales and tourism sectors expected an

increase in employment in the months ahead. Since the

previous survey period, average employee hours rose

for all sectors except the retail trade, auto sales, and

health services sectors, which experienced declines.

Respondents noted a shortage of commercial drivers,

salespeople, and service workers.

Consumer Spending

Consumer spending was mostly flat in late July and

August, while expectations for future growth increased at

a modest pace. Retail sales decreased slightly over the

previous survey period, but remained above year-ago

levels. Several retailers noted an increase in sales for

apparel and discounted items, while higher-priced products sold poorly. Contacts anticipated sales to rise moderately in the next few months, and inventory levels were

expected to increase modestly. Auto sales fell moderately, but were slightly above year-ago levels. Dealer contacts anticipated a further slowdown in sales for the

months ahead. Auto inventories were expected to rise

Contacts in most sectors reported moderate wage

growth, and expectations in the coming months were for

strong wage growth.

Prices

Overall, input prices were up moderately compared to

the prior survey period, while selling prices increased

modestly and contacts expected additional price increases in the months ahead. Respondents in the retail sector

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Federal Reserve Bank of Kansas City

slightly heading forward. Restaurant sales increased

strongly and were well above year-ago levels. Contacts

expected a moderate increase in activity heading forward. District tourism activity decreased slightly in late

July and August, and was lower than a year ago. Tourism contacts expected activity to fall further heading into

the fall months.

Banking

Bankers reported steady to improving overall loan demand for the month of August. A majority of respondents indicated a stable demand for commercial and

industrial, commercial real estate, agricultural, and consumer installment loans. Demand for residential real

estate loans was mixed among respondents. Most bankers indicated loan quality was unchanged compared to a

year ago. In addition, most respondents expect loan

quality to remain essentially the same over the next six

months. Credit standards remained largely unchanged in

all major loan categories. Finally, a majority of respondents reported stable deposit levels.

Manufacturing and Other Business Activity

Manufacturing activity expanded at a moderate pace in

late July and August, and the majority of other business

contacts reported moderate sales increases. Manufacturers reported sustained moderate growth in production,

particularly for metals, aircraft, and electronics products.

Shipments, new orders, and order backlog grew at a

solid pace, and activity was higher than a year ago.

Manufacturers’ capital spending plans rose moderately,

and firms’ expectations for future activity remained favorable.

Energy

Energy activity rose at a modest pace since the last

survey period, and expectations for future activity remained positive. The number of active oil and gas drilling

rigs increased modestly across the District, particularly in

Oklahoma. With rising rig counts and relatively stable oil

and gas prices, oil and natural gas production is projected to continue to increase in the District’s Niobrara and

Anadarko shale regions through September. Natural gas

activity has picked up modestly since the last survey

period, particularly in the Arkoma basin in Oklahoma.

Outside of manufacturing, professional, high-tech, and

wholesale trade firms reported strong sales increases,

while transportation contacts indicated slightly lower

sales than the previous survey. All firms expected a

strong improvement in sales in the next six months.

Professional, high-tech, and wholesale trade firms reported strong capital spending plans, while transportation firms anticipated a slight decrease in capital expenditures heading forward.

Agriculture

The District farm economy continued to soften since the

previous reporting period, but the pace of the decline

slowed somewhat. Crop prices decreased modestly in

late July and August due to an increase in production

expectations for the year. Livestock prices also declined

modestly and some cattle feedlots reported modest

losses. Although District contacts continued to report a

decrease in farm income and loan repayment rates, the

pace of the decline was slower than in recent periods.

The continued decline in farm income again pushed

farmland values lower, but only slightly, as values also

appeared to stabilize in some parts of the District. In

general, agricultural credit conditions continued to weaken and were expected to decline further in coming

months. ■

Real Estate and Construction

Overall District real estate activity continued to increase

at a slight pace in late July and August. Residential

home sales were flat since the previous survey period,

and contacts anticipated no change in the coming

months. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Residential

home prices and inventories were modestly higher than

the previous survey period. Residential construction

activity continued to expand at a slight pace, as construction supply activity remained flat while new home

starts and traffic of potential buyers rose. Expectations

for overall residential construction activity were for a

modest increase in the months ahead. Commercial real

estate activity continued to expand modestly, as absorption, completions, construction underway, sales, and

prices rose, while vacancy rates declined. Commercial

real estate activity was expected to continue to increase

at a modest pace moving forward.

For more information about District economic conditions visit:

www.KansasCityFed.org/Research/RegionalEconomy

J-2

Federal Reserve Bank of

Dallas

The Beige Book ■ August 2017

Note: The information included in this report was collected before Hurricane Harvey made landfall in Texas.

Summary of Economic Activity

The Eleventh District economy continued to expand at a moderate pace over the past six weeks. Manufacturing output

strengthened, and activity in nonfinancial services increased. Growth in retail sales accelerated, in part due to a rebound

in auto sales. Home sales rose slightly, but office leasing activity was mixed. Loan volumes expanded, while demand for

oilfield services was flat. Crop conditions remained mostly favorable. Employment, wages and prices increased. Outlooks remained positive, although several contacts expressed concern that policy-related uncertainty would impact the

broader economy.

Employment and Wages

cerns for producers, and cotton prices were at breakeven levels. Gasoline and diesel prices rose over the

reporting period following the increase in oil prices.

Overall employment rose, and wage pressures were

similar to or up slightly from the previous reporting period. Reports of labor shortages were widespread across

sectors, particularly for skilled workers. Manufacturers

added to payrolls, with some contacts noting that labor

shortages were pushing up wages. The construction

labor market generally remained tight. Hiring in the services sector continued, but employment in retail was flat.

Hiring in the upstream energy sector slowed, and some

firms were considering reducing staff in the second half

of the year. Airlines also noted a slower pace of hiring.

Two staffing firms cited wage pressure for lower-level

manufacturing positions, and one contact noted wage

pressure for higher-level IT and engineering workers.

Manufacturing

The pace of expansion in the manufacturing sector

picked up over the reporting period. Output growth

strengthened for durable goods, led by increases in

transportation equipment, machinery, and computer and

electronic product manufacturing. Demand for fabricated

metal manufacturing edged up, however, a few producers cited seasonal or energy-related weakness. Among

nondurables, food manufacturers saw continued strength

in demand. Exports remained a source of weakness for

some manufacturers who sell internationally. Overall,

outlooks were positive, although some expressed concern about political uncertainty.

Prices

Selling prices increased at a faster pace than in the prior

report, and contacts noted upward pressure on input

costs. Staffing firms said pricing was flat, although one

contact noted renegotiating certain contracts at lower

rates. Airlines said ticket prices were stable in the domestic market, but increased for South American routes.

New home prices were flat, but there were several reports of incentives and/or discounts being offered, particularly on speculative inventory. Grain and cattle prices

fell during the reporting period, prompting financial con-

Refinery utilization rates increased along the Gulf Coast.

Chemical producers noted healthy global and domestic

demand and higher year-over-year production. Outlooks

for chemical manufacturers remained optimistic due to

expectations of persistent feedstock cost advantages

over their international counterparts.

Retail Sales

Retail sales expanded at a markedly faster clip than in

the prior period. One contact noted that the tax-free

weekend stimulated sales. Sales of building materials

K-1

Federal Reserve Bank of Dallas

and garden equipment rose. Auto sales rebounded

following weakness in the prior reporting period; however, there were a few reports of softening demand in

Houston and Central Texas. Contacts said margins have

improved due to increased purchases of larger vehicles.

Outlooks among retailers were mixed.

Activity in Dallas-Fort Worth remained strong, although

contacts expect growth to moderate. Apartment demand

firmed up in Houston following earlier weakness, and

outlooks were positive, with contacts expecting continued, gradual improvement.

Office leasing activity stayed sluggish in Houston and

vacancy rates were elevated, putting downward pressure

on rents. Fundamentals in Houston’s industrial market

were healthy given near-record-low vacancy rates. One

contact noted that investor interest has picked up in

Houston. Office and industrial leasing activity continued

to be solid in Dallas-Fort Worth.

Nonfinancial Services

Demand for nonfinancial services expanded moderately

over the past six weeks. Demand for staffing services

increased at a moderate pace. Activity in Dallas-Fort

Worth increased, while one contact noted an unexpected

decline in demand from oil and gas firms in Houston.

Professional and technical services firms saw revenue

gains during the reporting period, although firms tied to

the energy sector cited continued sluggish demand.

Accommodation and food services contacts noted slight

increases in revenues, while revenue at healthcare firms

fell during the reporting period. Airlines said passenger

demand was stable over the past six weeks. Domestic

travel remained solid, and activity along South American

routes improved.

Financial Services

Loan demand increased at a somewhat faster pace than

the previous reporting period. Growth in commercial and

industrial loan volumes ticked up. Commercial and residential real estate loan balances grew at a slower pace

than in the previous reporting cycle, while consumer

lending declined. Both core deposit volumes and the

interest paid on them expanded slightly. Sentiments

about future business activity and loan demand remained largely positive.

Transportation and warehousing firms noted higher

revenues and an increase in cargo volumes since the

last report. Rail cargo rose due to persistent strong gains

in shipments of fracking sand, although shipments of

petroleum products and motor vehicles declined further.

Parcel shipments were flat over the reporting period but

up from year-ago levels. Year-over-year growth in demand was driven by increases in shipments of nondurable goods, particularly food, apparel, petroleum and

coal products, and plastics and rubber products. Outlooks among nonfinancial services firms were cautiously

optimistic, with some contacts expressing concern about

the impact of the current political environment on the

broader economy.

Energy

Demand for oilfield services held steady during the reporting period. Drilling activity expanded further in the

Permian Basin, but has tapered off, on net, in the Eleventh District. Most contacts expect the rig count to remain flat or fall slightly through yearend, and some firms

noted reducing capital expenditures for the remainder of

the year. Outlooks were less optimistic compared with

the previous report, as firms expect lower oil prices in the

first half of 2018 and many firms have lowered their

capital expenditure projections for next year.

Agriculture

Above-average moisture levels and cooler-than-normal

weather boosted crop conditions. Sorghum and corn

crop yields were better than average. However, grain

prices fell below typical breakeven prices during the

reporting period, and contacts noted it will take wellabove-average yields to offset the low prices. Cattle

prices also trended lower, prompting some financial

concerns for ranchers after several months of profitability. Agricultural producers were concerned about the

renegotiation of NAFTA, as many rely on export markets

to sell their products. ■

Construction and Real Estate

Home sales were flat to up slightly over the reporting

period. Contacts noted ongoing strength in sales of

moderately-priced new homes; sales at the higher-price

points softened, however. Buyers remained pricesensitive and were shopping more for deals. One contact

said that some master-planned communities are adjusting lot sizes downward in future phases, to cater to the

solid demand for moderately-priced product.

Apartment leasing remained active in Austin, but rent

growth has moderated and incentives were being offered

at the high end in submarkets, where competition was

intense among new properties in the leasing phase.

For more information about District economic conditions visit:

www.dallasfed.org/research/texas

K-2

Federal Reserve Bank of

San Francisco

The Beige Book ■ August 2017

Summary of Economic Activity

Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of July

through mid-August. Overall price inflation was flat, while upward wage pressures intensified and labor market conditions tightened further. Sales of retail goods were unchanged, and growth in the consumer and business services sectors remained strong. Manufacturing activity picked up at a moderate pace, and activity in the agriculture sector expanded modestly. Contacts reported robust activity in residential real estate markets, and conditions in the commercial sector

strengthened. Lending activity grew at a modest pace.

Employment and Wages

modities. Mounting competitive pricing pressures in the

retail grocery sector pushed prices lower.

Labor market conditions tightened further, and upward

wage pressure intensified in most parts of the District.

Shortages of software engineers, particularly those with

experience in cloud computing, boosted wages in the

technology industry. Robust labor demand in the online

retail sector boosted hiring in the Seattle area. Shortages

of skilled labor somewhat restricted production in the

manufacturing sector. While employee levels were unchanged in the pharmaceutical industry, contacts noted

that some large companies began to move some production facilities to lower cost locales outside of the

District. Wages in the construction sector continued to

climb due to shortages of qualified contractors. Investments in automation in the agriculture sector picked up

further, as labor shortages persisted and businesses

sought to increase production efficiency. Legalization of

cannabis increased demand for low-skilled workers in

parts of the District.

Retail Trade and Services

On balance, the pace of retail sales was largely unchanged from the previous period, but many contacts

reported increasing competitive pressures from online

retailers. Demand for automobiles grew at a similar pace

to that of late summer last year. However, contacts

reported that inventories of used vehicles remained

elevated, particularly for sedans, as low fuel prices

boosted demand for trucks and sport utility vehicles.

Overall sales at grocery retail outlets were largely unchanged from the prior reporting period, but contacts

reported that traditional retailers faced growing competitive pressure from multinational chains. Sales of apparel

products declined modestly, and contacts reported continued competitive pressure from online retail outlets.

Additionally, foot traffic at large shopping centers declined further.

Prices

Activity in the consumer and business services sectors

grew at a strong pace. Domestic and international flight

arrivals continued to increase at a robust pace, and

contacts reported that airports were running at or above

capacity. Activity in the hotel industry remained robust in

Southern California, although contacts expect the strong

pace of growth to slow somewhat at the start of next

year. While the health-care industry faced some uncer-

Overall, price inflation was flat over the reporting period.

Strong demand from the construction sector boosted

prices of raw materials and steel products. Strong demand in the hospitality sector pushed up food and beverage prices at restaurants and hotels. Inflation remained

low for branded pharmaceuticals, while prices of generic

drugs continued to decline modestly. Continued elevated

production reduced prices for some agricultural com-

L-1

Federal Reserve Bank of San Francisco

Real Estate and Construction

tainty around federal policy, demand for services

strengthened, and investments in medical information

technology picked up after a soft first half of the year.

Demand for restaurant services continued to be strong.

Sales of information technology services increased

modestly, as declining sales of legacy product lines were

more than offset by increased investment in cloud computing and big data solutions.

Real estate market activity continued to grow at a robust

pace. Residential construction activity remained strong

throughout the District, particularly in urban centers. New

construction activity was slowed only by shortages of

available land. Supply constraints pushed inventories to

very low levels and slowed home sales somewhat. Prices continued to rise at a brisk pace, and contacts reported that affordable housing shortages in Southern California remained a serious concern. Overall, commercial

real estate activity picked up to a moderate pace. Declining foot traffic at large shopping centers continued to

push up vacancy rates. Rents for commercial property

edged up slightly.

Manufacturing

Manufacturing activity expanded at a moderate pace

over the reporting period. Conditions in the steel sector

improved, as global growth continued to strengthen and

competitive pressures from abroad eased. Production of

semiconductors rose modestly, while new orders rose

strongly; contacts expect overall sales for 2017 to grow

by nearly a double-digit pace. Production of pharmaceuticals picked up over the first half of the year. Deliveries

of commercial aircraft over the first seven months of the

year grew at around the same pace as the prior year,

while new orders increased substantially.

Financial Institutions

Lending activity grew at a modest pace over the reporting period. Loan demand expanded modestly. Deposit

growth weakened slightly due to increased competition

from nonbank institutions. Credit quality remained unchanged, and delinquency rates continued to be low.

Contacts noted that regulatory costs continued to constrain profitability at community banks in some regions. ■

Agriculture and Resource-Related Industries

Activity in the agriculture sector picked up at a modest

pace. Harvest yields of grain were strong. Dealers reported that demand for used agricultural equipment

picked up, while sales of new equipment were soft.

Overcapacity in the energy generation industry hindered

profitability somewhat, and contacts expect capital investments over the next few years to slow from historically high levels.

L-2