WASHINGTON (MNI) – The following is the text of the latest Beige
Book survey of economic conditionw in the Federql Reserve’s Seventh
District, published Wednesday:
THIRD DISTRICT — Philadelphia
Aggregate business activity in the Third District has continued to
improve — growing modestly — since the previous Beige Book. A couple
of sectors grew faster than the average, while a few declined slightly.
Manufacturing activity declined somewhat, although a slight increase in
new orders may presage a turnabout. Retail sales growth has continued at
a modest pace since the last Beige Book, while auto sales have continued
to increase at a strong pace. Lending volumes at Third District banks
have continued to grow modestly, and credit quality has continued to
improve. Sales of new homes have slowed since the previous Beige Book
period, while brokers report strong growth in sales of existing homes
(from previously low levels). Commercial real estate contacts reported
less leasing activity and continued weak demand for new construction.
Service-sector firms reported mixed results with stronger tourist
visitation, a slowing defense sector, and modest growth across most
other service sectors. Price pressures have changed little since the
last Beige Book.
The overall outlook appears somewhat more optimistic relative to
the views expressed in the last Beige Book, as contacts are beginning to
look beyond the pending election and looming fiscal cliff. Expectations
among manufacturers improved significantly for overall activity over the
next six months, while plans for capital spending and hiring were mixed.
Auto dealers and real estate firms are more optimistic, as their
positive trends gain traction. Holiday sales expectations are strong
among many general retailers. Financial- and service-sector contacts
express a mix of views regarding the future generally positive with
varying degrees of caution.
Manufacturing
Since the last Beige Book, Third District manufacturers have
continued to report overall declines in shipments, but a slight increase
in new orders. Makers of lumber and wood products; stone, clay, and
glass products; fabricated metal products; and instruments have reported
gains since the last Beige Book. Lower activity was reported by makers
of primary metals, industrial machinery, and electronic equipment. One
manufacturer summarized the broad economic climate as a summer slowdown
with sequential improvement, marked by a definite increase in August.
Optimism among Third District manufacturers that business
conditions will improve during the next six months has grown
significantly since the last Beige Book and is evident across most
sectors. Plans were recently announced to restart the third of three
District refineries that were all at risk of closing one year ago; the
other two were previously rescued. Firms have raised their overall
expectations of future hiring, but plans for capital spending have
softened since the last Beige Book.
Retail
Overall, Third District retailers reported little change between
the modest year-over-year sales growth in August compared with July,
although one contact stated that his store experienced the strongest
Labor Day weekend in years. This years sunny weather certainly helped
compared with last years storms. One department store manager reported
that back-to-school sales did well, cold-weather clothing is moving
better than last year, and discretionary fun items are selling well.
Retail contacts are bullish for the upcoming holiday season, speculating
that people will be primed to respond to upbeat holiday advertising
after the long, negative political campaign season. An expectation of
greater seasonal hiring has been widely discussed. And the holiday
calendar provides a 32-day shopping season the longest possible.
There has also been little change in the pace of auto sales since
the last Beige Book. Pennsylvania dealers reported ongoing moderate
growth in August; New Jersey dealers recorded a third consecutive strong
sales month in August and described September sales as good. The
outlook among dealers remains positive. One contact stated confidence
is back, credit is back, and leasing is back. However, dealers remain
somewhat cautious through this political season regarding consumer
uncertainty.
Finance
Overall, Third District financial firms have reported continued
growth since the previous Beige Book. Loan volumes grew modestly across
most categories. Contacts describe fierce competition for small business
loans from large and small banks. Despite high charge-off rates and
ongoing household deleveraging, credit card outstandings have been
virtually flat since the last Beige Book. Most contacts report that the
financial health of households, businesses, and financial institutions
continues to improve. The overall outlook among lenders remains
positive.
Real Estate and Construction
Residential builders reported a drop-off in traffic and slower
sales in August and early September a disappointing conclusion to
their primary sales season. Builders lament that people are choosing to
rent rather than buy even when local rents exceed the total cost of
owning a home. Residential brokers reported somewhat stronger
year-over-year sales growth in August than expressed in the last Beige
Book and continued strength into September. Inventory levels of real
estate listings remain at lower levels than one year ago with no signs
of a large emerging shadow inventory. Multiple bids are reported for
homes priced between $250,000 and $400,000; more very high-end listings
are beginning to appear and test the market. Builders and brokers remain
cautiously optimistic.
Nonresidential real estate contacts reported a big slowdown in
August and a disappointingly small rebound in September. However,
conditions remain better than one year ago, with more prospects, faster
decision-making, and few downsizings outside of southern New Jersey.
There is very little demand for new office/commercial buildings, but the
industrial market remains strong, especially in the Lehigh Valley and
central Pennsylvania markets. Center City Philadelphia and adjacent
areas in West Philadelphia and the Navy Yard are an exception, with very
busy design/build work for higher education, hotels, and multifamily
apartments and condominiums. However, many professional architects and
engineers experienced and novice remain out of work or
underemployed. Nonresidential real estate contacts retain an outlook of
slow, steady growth.
Services
Third District service-sector firms have reported mixed growth
since the last Beige Book. Tourist areas along the Delaware and New
Jersey shores, in the Poconos, around Philadelphia, and throughout
central Pennsylvania have reported strong visitation and/or lodging
numbers relative to recent years. Atlantic City casinos and some
neighboring shore areas were exceptions. Jersey shore businesses
expressed considerable disappointment over cautious tourist spending;
Delaware shore business also noted some caution. However, the tourist
season concluded on a high note as the Labor Day weekend benefited by
comparison to last year when severe weather disrupted end-of-summer
plans. District staffing firms reported little change in orders, hiring
mix, and wages. One firm continued to report extremely busy orders for
manufacturing workers better than in recent years but expects a
seasonal decline beginning in October. Demand for professional/business
and health-care staff remains slower. Defense-related firms reported
that there are fewer large contracts on which to bid and that they have
continued to lower their expectations for 2013 and 2014 as sequestration
or an alternative budget deal nears. Overall, other service-sector firms
report a modest but positive outlook for six months out.
Prices and Wages.
Price levels have continued to show little overall change since the
previous Beige Book. Once again, cost factors have risen slightly among
manufacturing firms but the increase is less than it was during the
previous Beige Book; prices received by manufacturers fell. Homebuilders
and retailers indicated few significant changes in their cost pressures
or prices they charge. One homebuilder attempted to raise prices but
couldnt make them stick. Real estate contacts continue to report that
lower-cost homes have reached a price floor in most markets and are
beginning to rise slightly in some neighborhoods. Leasing agents have
been unable to charge higher leasing rates in nearly all markets, except
for industrial space along the corridor from Carlisle, PA, to the Lehigh
Valley. Contacts from all sectors report little or no wage pressures,
other than for medical benefits.
** MNI Washington Bureau: 202-371-2121 **
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