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Fourth District Beige Book

The Beige Book—officially known as the Summary of Commentary on Current Economic Conditions by Federal Reserve District—is produced eight times each year prior to Federal Open Market Committee (FOMC) meetings. The information in the Beige Book is gathered primarily through interviews with business people in each District, as well as from Federal Reserve Bank and Branch directors. The publication’s original purpose was to supplement official statistics with more current anecdotal accounts of the economic environment in order to assist policymakers during FOMC deliberations.


Summary of Economic Activity

Growth in economic activity across the Fourth District slowed to a modest pace during the reporting period. Labor markets continued to expand, with wage pressures noted primarily for high-skilled workers. Upward pressures on prices paid and received eased slightly. Contacts facing higher input prices experienced little pushback from customers when raising their selling prices. Consumer spending at brick-and-mortar establishments remained stable, while new motor vehicle sales rose. Production increased at manufacturing plants, although at a slower pace than in the previous reporting period. Nonfinancial services firms experienced moderate revenue growth overall, but demand was strong for IT and management consulting. Housing market activity picked up as year-to-date unit sales remained above year-ago levels and selling prices were higher. Activity in the commercial real estate market remains elevated. Lending pipelines were satisfactory, but contacts noted softer loan demand in select categories.

Employment and Wages

District payrolls continued to expand, although at a slightly slower pace than in the previous reporting period. Increases were notable in the construction and nonfinancial services industries. Brick-and-mortar retailers again noted decreases in staffing levels. Banking contacts mentioned tight labor market conditions and wage pressures for skilled workers, including personnel in compliance and statistical modeling positions. Building contractors experienced difficulty hiring workers in skilled trades, especially drywallers. Construction contacts also noted increased hiring for management and office staff positions. Freight haulers mentioned difficulty recruiting enough qualified drivers despite increasing driver wages recently. Manufacturing contacts experienced little change in hiring, which was mostly replacements or normal turnover. Staffing firms noted an increase in the number of listings for both temporary and permanent positions, especially for occupations requiring specific skills or advanced degrees, while workforce development officials observed rising job placements for workers with less than four-year degrees.

Prices

Upward pressures on prices paid eased during the period. Some manufacturers remarked that changes in input costs were modest. Construction contacts mentioned higher prices for lumber and other materials such as copper and steel, and several contacts saw rising construction subcontractor prices. Freight haulers saw rising tire prices. Similar to observations made in the previous period, contacts in the manufacturing and construction sectors noticed they were able to pass on increased costs to customers. Freight haulers reported improved pricing ability, and some contacts cited rising rates because of tightening capacity. Retail contacts observed little change in shelf prices except for some declines in food items. Similarly, retailers saw little change in vendor prices except for lower prices for some raw food ingredients.

Consumer Spending

Consumer spending at District brick-and-mortar retailers remained largely unchanged from that of the previous reporting period. Sales of fresh food items were doing well, whereas electronics were selling poorly. Sales of apparel items at large chain retailers were soft. Retail inventories were generally in good shape. Year-to-date sales of new motor vehicles through May increased more than 3 percent compared to those of the same period a year ago. Dealers saw higher-than-usual inventories because of lower demand for passenger cars.

Industrial Production

Manufacturing output grew at a slight pace during the reporting period, somewhat slower than earlier. The small pickup in demand from energy-related companies was more than offset by a decline in the motor vehicle and consumer packaged-product industries. Demand from the construction sector remains strong. Year-to-date production through May at District auto assembly plants fell about 9 percent when compared to that of the same time period during 2016. The large majority of manufacturing contacts were allocating capital spending budgets toward maintenance, although some contacts were also allocating monies toward new equipment and technology.

Reports through May indicate that the number of drilling rigs operating in the District continued to increase compared with that of a year ago. A contact remarked that investment in regional oil and gas is up, and both pipelines and mid-stream plants are being built. Contacts credited increases in natural gas demand in part to additional demand in gas-fired power generation. Contacts indicated that coal production declined during the reporting period because of reduced demand, but they anticipate higher output in the coming months.

Real Estate and Construction

Year-to-date unit sales through May of new and existing single-family homes increased 2 percent compared to those of a year earlier. The average sales price rose 5 percent. Homebuilders described the housing market as improving at a steady pace, with higher unit sales compared to a year ago. One builder attributed strong sales to a strengthening labor market. Another builder observed that although demand is quite adequate, it is difficult to meet demand across price points because of rising costs for land, lot development, and construction.

Nonresidential real estate activity remains strong at elevated levels. Nonresidential contractors report strong demand for education and healthcare related buildings and for commercial buildings for ecommerce distribution. In contrast, contacts noted low demand for retail space in both enclosed malls and shopping centers. Contacts reported little change in overall inquires and backlogs from the previous reporting period.

Financial Services

Bankers generally reported that loan demand for the first half of 2017 is below expectations. Businesses and consumers may be looking for more clarity on potential changes to the tax code and regulatory reform before proceeding with spending plans. While most lending categories are slowing, CRE loans and residential purchase mortgages are performing relatively well. While most contacts cited stable consumer loan demand, some contacts noted softer demand, especially for credit cards, and indicated that consumers are deleveraging. Some contacts stated that credit standards for consumer loans, including credit cards, have eased somewhat. There has been some credit tightening for financing multifamily and retail developments and for subprime auto loans. Bankers noted generally improving loan quality for both commercial and consumer loans.

Nonfinancial Services

Activity in the nonfinancial services sector grew at a moderate pace during the period. Strongest demand was for IT, management consulting, and logistics services. IT consulting contacts noticed opportunities among retailers that are incorporating ecommerce into their business models.

The pickup in freight volume seen during the past few months has diminished; however, the volume remains above year-ago levels. Freight haulers saw increased demand from oil and gas and strong demand from construction material producers.