WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey from the Philadelphia district, published
Wednesday:
THIRD DISTRICT PHILADELPHIA
Business conditions in the Third District have improved somewhat
since the last Beige Book. Manufacturers, on balance, reported increases
in shipments and new orders in December. Retailers achieved moderate
year-over-year increases in sales during the holiday shopping period.
Motor vehicle dealers also posted year-to-year sales increases as 2010
came to a close. Third District banks reported slight increases in loan
volume outstanding since the last Beige Book, mainly in personal loans.
Residential real estate agents and homebuilders indicated that sales
have been seasonally slow. Contacts in the commercial real estate sector
said leasing and construction activity have remained at low levels since
the last Beige Book. Service-sector firms reported that activity has
been moving up slowly. Business contacts reported more instances of
price increases for inputs recently than they did in the previous Beige
Book, and several said they expect output price increases to become more
common in 2011 than they were in 2010.
Most Third District business contacts foresee improving economic
conditions in 2011, but they do not expect strong growth. Manufacturers
forecast a rise in shipments and orders during the next six months.
Retailers expect sales to continue to move up on a year-over-year basis.
Bankers expect modest growth in lending. Contacts in residential real
estate expect activity to increase slightly. Contacts in commercial real
estate expect only marginal strengthening in market conditions.
Service-sector companies expect continued slow growth in the early
months of 2011.
Manufacturing
Third District manufacturers reported increases in shipments and
new orders from November to December, on balance. However, gains were
not spread among all of the regions major manufacturing industries.
Increases in demand for their products were common among producers of
furniture, chemicals, testing and measuring instruments, and food
products. In contrast, producers of metals, other industrial materials,
lumber products, electrical equipment, and machinery generally had
month-to-month declines in orders, and other manufacturing sectors
reported no change. Overall, the regions manufacturers continued to
report that the flow of new orders has been erratic. Several used the
words hand to mouth and choppy to describe the recent trend in
orders.
Third District manufacturers expect business conditions to improve
during the next six months, on balance. Among the firms surveyed in
December, slightly more than half expect increases in new orders and
shipments, and less than one-tenth expect decreases. Capital spending
plans among area manufacturers have been increasing since mid-year, and
in December one-third of the manufacturers polled said they planned
higher capital outlays in the next six months, and less than one-tenth
planned cutbacks.
Retail
Third District retailers generally reported year-over-year
increases in line with plans for the year-end holiday shopping period.
On balance, stores posted moderate increases in sales without
significant unscheduled price reductions. Sales of winter outerwear and
jewelry rose fairly well from year-ago levels, but sales of big-ticket
electronic items were not strong. A snowstorm on the day after Christmas
deterred some shoppers and forced some store closings, but merchants
said sales picked up in subsequent days. The shoppers came. We still
did well, one merchant said. Looking ahead, most of the retailers
surveyed for this report said they expect continued year-over-year
increases in sales, although they also noted that consumer confidence
remains fragile.
Third District auto dealers reported rising sales as 2010 came to a
close. Dealers said that inventories were increasing as they took
delivery of new models, but dealers generally considered their stocks of
new and used vehicles appropriate for the current sales rate. Dealers
expect sales to be somewhat higher in 2011 than in 2010, although
several expressed concern that rising gasoline prices could restrain
sales of less fuel-efficient models.
Finance
At most of the Third District banks contacted for this report,
total outstanding loan volume has increased slightly since the last
Beige Book. In general, banks reported increases in lending on home
equity lines and credit cards but indicated that other types of lending
were practically flat. Some bank lending officers noted that usage of
credit lines by business firms continued to be low. Commercial bank
officers generally indicated that credit quality measures have been
slowly improving. The outlook among Third District bankers surveyed for
this report is that lending to both consumers and businesses will move
up slowly in 2011. Bankers foresee gradual increases in consumer lending
if employment moves up, little or no gain in real estate lending, and a
slight increase in commercial and industrial lending.
Real Estate and Construction
Third District residential real estate activity has slowed
seasonally since the last Beige Book. Both homebuilders and residential
real estate agents generally indicated that the usual winter lull in
construction and sales had taken hold. In contrast, some real estate
agents reported an increase in rental activity of single-family homes.
Real estate agents attribute the rise in home rentals to several
factors: relocated owners unable to sell their houses at their asking
prices, buyers unable to obtain mortgages, and tightening of credit
qualifications for renters of apartments. Sales of higher-priced homes
have continued to be slower than sales of lower-priced homes in most
parts of the region. Home prices have been flat to down in most markets.
Residential real estate contacts expect sales to remain sluggish until
economic conditions, especially employment, improve. However, several
contacts noted that sellers have recently become more willing to reduce
asking prices, and this appears to be giving some lift to the sales
trend. As one agent remarked, When sellers get realistic, buyers
respond.
Nonresidential real estate firms indicated that there has been
little change in commercial and industrial markets since the last Beige
Book, although some noted a few signs of improvement. Contacts said that
vacancy rates and rents have been nearly steady, but more tenants have
signed long-term leases recently compared with most of 2010, during
which short-term leases were more common. Several contacts in commercial
construction reported that building owners have recently shown more
interest in renovation and new construction, although the contemplated
projects are not large. Commercial real estate contacts expect market
conditions to improve gradually in 2011. One contact said, The outlook
is considerably less bearish, although its not bullish, and another
noted that the lack of new construction underway will support the
beginning of a recovery in leasing.
Services
Service-sector firms generally reported slightly rising activity
since the previous Beige Book. Contacts said that the health care sector
continued to have relatively better gains than other sectors and that
service-sector activity related to construction continued to be weak.
The outlook for the services sector as a whole is modestly positive. One
contact said, We see some slight improvement in the near term, but it
will be well into 2011 before there is stronger growth.
Prices and Wages
Reports from manufacturers since the last Beige Book indicated
spreading increases in input costs, but mostly steady output prices.
Goods mentioned as rising in price were food products, chemicals,
petroleum products, metals, and electrical equipment. Several
manufacturers noted evidence of upward price pressure developing in
their industries and said they expect more widespread price increases
for finished products during 2011. Retailers generally noted more signs
of rising costs since the last Beige Book. They cited increases for food
products, textile products, shipping charges, and energy. However, many
said that competition among stores was limiting increases in retail
prices.
Business firms in the region reported mostly steady wages since the
last Beige Book. Staffing firms and employment agencies said they have
recently seen some growth in demand for temporary workers and slight
increases in permanent hiring, but no significant changes in wages or
salaries.
** Market News International Washington Bureau: 202-371-2121 **
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