WASHINGTON (MNI) – The following is the Federal Reserve’s Beige
Book summary of economy activity in the Third District, published
Wednesday:
THIRD DISTRICT — PHILADELPHIA
Business activity in the Third District has been varied across
sectors since the last Beige Book. Manufacturers, on balance, reported
increases in shipments and new orders in November. Retailers have been
making year-over-year gains in sales. Motor vehicle dealers have also
posted year-to-year sales increases. Third District banks reported
practically unchanged loan volume outstanding since the last Beige Book.
Residential real estate agents and homebuilders indicated that the
recent sales trend has been downward. Contacts in the commercial real
estate sector said market conditions remain soft. Service-sector firms
reported that activity has been roughly steady in the past month.
Business contacts indicated that prices of most goods and services have
shown no change, although retailers noted recent increases in prices for
goods ordered from foreign suppliers.
Most Third District business contacts foresee slow improvement
ahead. Manufacturers forecast a rise in shipments and orders during the
next six months. Retailers expect sales for this year’s holiday shopping
period to exceed sales for the same period last year. Bankers expect
just slow growth in lending in the next few months. Contacts in
residential real estate expect activity to move up slowly, at best, but
contacts in commercial real estate do not anticipate a meaningful change
from current soft conditions in the near future. Service-sector
companies expect slow growth from now into next year.
Manufacturing
Third District manufacturers reported increases in shipments and
new orders from October to November, on balance. However, the
improvement was uneven among the region’s major manufacturing
industries. Increases in demand for their products was more common among
makers of furniture, industrial materials, and testing and measuring
instruments, but makers of construction-related goods continued to see
flat or declining demand for their products. Manufacturers in general
continued to report that the flow of new orders has been variable. One
said, “You don’t know from one week to the next what the workload will
be.” Another said, “Conditions continue to be choppy.”
Third District manufacturers expect business conditions to improve
during the next six months, on balance. Among the firms surveyed in
November, about half expect increases in new orders and shipments, and
about one-fifth expect decreases. Capital spending plans among area
manufacturers have increased somewhat in recent months, although many
noted that implementation of new plant or equipment is primarily to
replace obsolete equipment, increase efficiency, or meet pollution
control requirements. Several firms said they will not expand production
facilities until they get orders they are unable to fill with their
current capacity.
Retail
Third District retailers generally reported small-to-moderate
year-over-year increases in sales in October and early November. Gains
appeared to be relatively greater for apparel than other product lines,
according to area merchants. Store executives said discounting has been
widespread to stimulate sales of fall and holiday merchandise, and the
recent sales pace has mostly met expectations. “Consumers are definitely
responding to low prices,” one contact said. Looking ahead, most of the
retailers surveyed for this report said they expect sales to continue to
move up through the end-of-year shopping period, but some noted that,
due to discounting, they will have to sell more merchandise than last
year to meet dollar-sales targets.
Third District auto dealers reported rising sales and improved
profitability since the last Beige Book. Inventories were generally
described as appropriate for the current sales rate. Dealers expect
sales to rise until the end of the year, but some expressed concern that
the sales pace might slip during the first quarter of 2011, after the
better than expected results of 2010.
Finance
Total outstanding loan volume at most of the Third District banks
contacted for this report has been flat since the last Beige Book, with
practically no change in any credit category. Bankers continued to
report low demand for both consumer and business loans. Commercial bank
officers generally indicated that credit quality measures have been
roughly steady. However, one noted that “there is continued stress in
the commercial real estate and construction portfolio.”
According to the Third District bankers surveyed for this report,
the outlook is that there will be only slow growth in lending to both
consumers and businesses in the months ahead. Although bankers in most
parts of the District believe economic conditions are improving
gradually, they do not expect a parallel rise in loan demand. And one
banker expressed concern that economic recovery will come too slowly to
reverse deteriorating financial conditions among some local firms.
Real Estate and Construction
In most parts of the Third District, residential real estate
activity has slowed since the last Beige Book. Residential real estate
agents generally indicated that sales of existing homes have been
declining and that inventories have edged up. Most of the residential
builders contacted for this report also said sales have been on a
downward trend. Sales of higher-priced homes have been slower than sales
of lower-priced homes in most areas. Home prices have been flat to down
in most markets, although contacts noted that the rate of price decline
has eased recently. Residential real estate contacts expect sales to
remain slow until economic conditions improve. The widely shared view
among agents is that “the real estate market will not come back until
there are more jobs,” as one contact said.
Nonresidential real estate firms indicated that there has been
little change in conditions in commercial and industrial markets since
the last Beige Book. Contacts said that vacancy rates and rents have
been nearly steady, although there have been increased reports of
landlord concessions. Several contacts reported that tenants have been
taking advantage of lower effective rents, resulting in increased
leasing activity and relocations, but no increase in leased space. Some
contacts noted recent signs of growing investor interest in apartment
buildings and some Class A office buildings, but retail buildings
continued to be out of favor. The pace of commercial construction
remains slow, although there have been some recent increases in
renovation and remodeling activity. Commercial real estate contacts
expect current market conditions to persist. “Next year will be a lot
like this year,” one contact said. Building owners and agents agree that
a significant increase in demand for commercial and industrial space
will not take hold until employment begins to grow more strongly.
Services
Service-sector firms gave mixed reports, but on balance activity
has been roughly steady since the previous Beige Book. Contacts said the
health care and information technology sectors were showing some growth,
but service-sector activity related to real estate, construction, and
finance was flat to down. Also, some firms that provide services to
governments indicated that their clients were making less use of their
services as part of overall budget tightening. Looking ahead, most of
the service firms contacted for this report expect only slow growth. One
said, “We don’t expect much improvement next year.” Another said, “We
will have to look to new markets for growth.”
Prices and Wages
Reports from manufacturers since the last Beige Book indicated some
increases in raw material costs, but mostly steady output prices. Goods
mentioned as rising in price were food products, metals, and electrical
equipment. Retailers generally noted that most wholesale costs and
retail prices have been steady, but some contacts reported that foreign
suppliers, especially in Asia, have raised the prices of many products
being ordered now for delivery next year.
Business firms in the region reported no major changes in wages
since the last Beige Book. Employers generally reported that they were
not having difficulty filling positions at current compensation levels.
However, some said they were becoming somewhat concerned that sufficient
numbers of qualified workers will be more difficult to obtain when they
do decide to increase staffing levels.
** Market News International Washington Bureau: 202-371-2121 **
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