The Federal Reserve says workers across much of the United Sates are seeing modest wage gains, according to its Beige Book released on Wednesday.
The Beige Book is a compilation of anecdotes on the economies in the Fed's 12 districts.
This document is the Fed's first in-depth look at the economy since the Federal Open Markets Committee raised rates for just the second time since the financial crisis at the conclusion of its December 13-14 meeting. The Boston Fed prepared this edition.
More to come...
Here's the full text:
Overall Economic Activity
Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest pace across most regions from late November through the end of the year. Manufacturers in most Districts reported increased sales with several citing a turnaround versus earlier in 2016. Growth in the energy industry was mixed; two Districts reported weakness in coal production but others reported improvements in coal, oil, or gas activity. Most Districts said that non-auto retail sales had expanded, but several noted that sales over the holiday season were disappointing and reports in more than one District suggested that growth in e-commerce had come at the expense of bricks-and-mortar retailers. All Districts reported varying degrees of growth in employment and a majority described their labor markets as tight. Residential construction and sales were generally mixed, although San Francisco reported strong real estate market activity throughout the 12th District. Financial conditions were stable. Firms across the country and industries were said to be optimistic about growth in 2017.
Employment and Wages
Labor markets were reported to be tight or tightening during the period. Employment growth ranged from slight to moderate and most Districts indicated that wages increased modestly. A couple of Districts mentioned layoffs, but even in those Districts, as in other regions, most responding firms were said to have added employment, on net. District reports cited widespread difficulties in finding workers for skilled positions; several also noted problems recruiting for less-skilled jobs. Wages in some Districts were pushed up a bit by increases in the states' minimum wages and most Districts said wage pressures had increased. Many Districts said contacts expect labor markets to continue to tighten in 2017, with wage pressures likely to rise and the pace of hiring to hold steady or increase.
Prices
Pricing pressures intensified somewhat since the last report. Eight out of twelve Districts saw modest price increases and the remainder experienced slight increases, or flat prices in the case of the Atlanta District. Increases in input costs were more widespread than increases in final goods prices. Cost increases were reported for coal, natural gas, and selected building and manufacturing materials. Retailers' selling prices were mixed, but on balance were flat or down amidst competitive discounting. Prices of most agricultural commodities stayed flat at very low levels. Home prices were stable or up modestly. Businesses in several districts reportedly expect further modest increases in input costs and selling prices in 2017.
Highlights by Federal Reserve District
Boston
Economic activity in the First District expanded at a modest to moderate pace in the final weeks of 2016. Firms undertaking hiring cited difficulties finding employees; a contact in the restaurant industry, in particular, noted worker shortages. At the same time, most employers said they were not raising wages substantially. Business contacts remained optimistic about 2017.
New York
Economic activity has held steady. Labor markets remained tight and wages continued to grow moderately. Input cost increases have become increasingly widespread, and selling prices have increased at a somewhat faster pace. Housing markets have continued to weaken at the high end, while commercial real estate markets have slackened.
Philadelphia
Overall economic activity appeared to pick up to a modest pace of growth in the Third District with nonauto retail sales, nonfinancial services, and manufacturing providing the boost from the prior period of slight growth. Hiring also rose to a modest pace, and tightening labor markets sustained modest pressure on wages and prices.
Cleveland
Economic activity in the Fourth District grew slightly. Labor markets showed signs of tightening. Upward pressure on selling prices increased. Retail sales disappointed, while motor vehicle unit sales increased. Residential and commercial construction activity remains elevated. Activity in the energy sector edged higher, and manufacturing output was little changed.
Richmond
Economic activity increased at a moderate pace on balance, with strengthening in the manufacturing sector. Retail sales also grew at a faster pace since the previous report. Real estate agents reported strong industrial leasing, with more e-commerce tenants looking for large facilities. Stronger multi-family construction was reported in Washington, D.C., Charlotte, North Carolina, and Charleston, South Carolina.
Atlanta
Economic activity expanded modestly. Retailers cited an increase in sales. Home prices increased modestly. Commercial real estate contacts continued to indicate improving demand. Manufacturers noted an increase in new orders and production. The labor market remained tight and wages were stable. Non-labor input costs remained relatively unchanged.
Chicago
Growth in the Seventh District continued at a modest pace. Manufacturing production grew at a robust rate, business spending grew at a moderate rate, consumer spending increased modestly, and construction and real estate activity edged up. Financial conditions improved some, prices increased modestly, and farm incomes were little changed.
St. Louis
Economic conditions in the Eighth District continued to expand at a modest pace. On a positive note, District contacts anticipate an uptick in consumer spending activity in early 2017. Conversely, low commodity prices continue to put many agricultural parts of the District under financial stress.
Minneapolis
Economic activity in the Ninth District grew modestly. Consumer spending was lower than expected through the holidays, though winter tourism started well. Manufacturing activity picked up, and the outlook for the sector appeared more optimistic. Commercial construction held steady at high levels, but heavy and residential construction lagged. Homes sales were strong in most regions.
Kansas City
Economic activity in the Tenth District expanded modestly in late November and December. Consumer spending increased, and contacts expected moderately higher sales in the months ahead. Manufacturing production, shipments, and new orders grew at their fastest pace in over two years. The energy sector expanded further, and higher energy prices led to continued optimism in the sector.
Dallas
Economic activity grew moderately in the Eleventh District, and outlooks were more optimistic than the previous report. The energy sector noted improved demand and an uptick in employment, following depressed activity for nearly two years. Manufacturing activity expanded, although job growth remained weak. Retail sales continued to be weak in energy-related and peso-sensitive areas.
San Francisco
Economic activity in the Twelfth District continued to expand at a moderate pace. Holiday retail sales picked up, and activity in the services sector remained strong. Conditions in the agricultural sector were mixed, while activity in the manufacturing sector was stable. Contacts reported strong activity in the housing market and moderate growth in overall lending activity.Return to top
Federal Reserve Bank of Boston
Summary of Economic Activity
Business activity continued to expand in the First District at the close of 2016. Both retailers and manufacturers cited modest to moderate increases in revenues in recent weeks compared with a year earlier. Software and information services firms reported strong order increases in the fourth quarter. Commercial real estate markets were mostly steady in the region; in the Boston area office rents increased and sales prices for commercial properties were stable. Residential real estate markets across the region continued to experience increases in both sales and prices. Although none sought substantial additions to headcount, a number of firms reported difficulty finding workers to fill openings. Prices were largely stable. Most responding firms cited a positive outlook, expecting end-of-year growth rates to continue in 2017.
Employment and Wages
Contacts in multiple sectors mentioned tightening labor markets. For example, one retailer reported that their firm's labor costs went up 5 percent in 2016 because they had to pay more to attract workers and they faced state-mandated minimum wage increases. A majority of manufacturing contacts reported that they were actively recruiting and half indicated that they were struggling to find workers. Manufacturers' mentions of hiring difficulty extended across both skilled and unskilled workers and appeared to be an issue all across the region, including western Massachusetts, central Connecticut, and Rhode Island, as well as the Boston area. Software and IT services respondents kept headcounts relatively stable this past quarter and raised wages by mid-single digit percentages.
Prices
Retailers reported that input and selling prices remained generally steady. Manufacturing contacts similarly did not report exceptional pricing pressure from either customers or suppliers. A global supply glut of selected chemicals reduced prices of both those chemicals and products made with them. A supplier to the auto industry expressed concern that high levels of inventory in the auto business would lead to discounting and, in turn, price-cutting pressure on suppliers as occurred in the mid-2000s.
Retail and Tourism
Retail contacts consulted for this round reported that sales growth was generally good between mid-November and early January. In one case, this more positive recent trend made up for lower-than-expected sales earlier in 2016, which were partly driven by weather. Apparel sales were up, but demand for hardware items was reported to be down. Two respondents concluding their fiscal years on December 31 reported 2016 sales increases ranging from 1 percent to just over 3 percent. Another contact cited preliminary 2016 sales increases in the mid-single digit range. Continued modest sales growth is expected for 2017.
A contact in the restaurant industry reported that sales in December were generally good, which he indicated serves as a positive predictor for the next couple of months, as customers spend gift cards purchased during the holiday season. Locally owned restaurants were said to be doing better than the larger publicly-traded chain outlets. This respondent expected that overall restaurant sales will be up 1 to 2 percent for 2016. Looking forward, there was concern that a tight labor market combined with increases required by minimum wage laws will stifle restaurant expansion and job growth over the next few years, and some sense that this trend has already started. Restaurant expansion may also be limited by rising real estate costs.
Manufacturing and Related Services
All eight manufacturers contacted this cycle reported higher sales versus the same period a year earlier. A sporting goods manufacturer reported robust year-over-year sales increases in the fall but does not expect that pace to continue. A manufacturer and retailer of furniture reported that sales slowed in mid-November but recovered in the balance of the year and were up slightly versus the year-earlier period. A toy maker reported exceptionally strong sales in the fourth quarter. A manufacturer of components for capital goods said that the second half of 2016 was better than the first half.
Most respondents reported higher capital expenditures but none reported major revisions to spending plans. Information technology remained a major area of capital expenditure for several firms. A manufacturer of components for capital goods said that new technologies were allowing firms to get more out of existing equipment and that this was depressing capital expenditures.
All the contacted manufacturers cited a positive outlook notwithstanding some uncertainty about the impact of possible policy changes by the new administration.
Software and Information Technology Services
Contacts in software and IT services--with a very limited number of respondents--reported mixed revenue results near the end of 2016, but strong demand in Q4. A healthcare software firm reported a slight decline in 2016 revenue from 2015, though they attributed this to accounting changes more than a real decline in business. They experienced a "huge" Q4 for new orders, and thus were gearing up for a strong 2017. The contact identified uncertainty surrounding the future of the Affordable Care Act as a possible headwind for their hospital clients. An IT firm selling to manufacturers summed up 2016 as "a stable year after a rocky 2015." They reported high single-digit growth in bookings in Q4 over last year. The contact was hopeful that manufacturing will continue to recover in the coming year, possibly including tailwinds from the incoming administration. However, they expressed concern about a resurging U.S dollar.
Commercial Real Estate
Conditions in commercial real estate markets across the First District were stable in recent weeks. Office leasing activity was steady or modestly slower in the region's major metro areas. Investment sales activity and sales prices for prime commercial properties in Boston were also stable, as foreign investors were undeterred by higher interest rates and a stronger dollar. One contact estimated that office rents in greater Boston increased 10 percent on average in 2016. Apartment construction activity slowed in recent months in both Boston and Portland, while office construction was stable at a slow pace in Boston and minimal in the rest of the region.
The outlook among contacts was cautiously optimistic, with significant uncertainty related to domestic politics. Contacts across the District expected capitalization rates to increase in 2017 to keep pace with rising interest rates, noting that such increases imply that rents will have to increase and/or valuations will have to decrease. On balance, contacts anticipated that property values will remain flat in 2017. Apartment construction activity was expected to slow further in coming months as borrowing costs continue to rise and lending terms continue to tighten, but prospects for new office construction appeared brighter for 2017 in light of rising office rents and low office vacancy rates around the region.
Residential Real Estate
Continuing recent trends, residential real estate markets in the First District showed robust increases in sales and prices relative to last year. Closed sales for single-family homes and condos increased in all six First District states as well as in the Boston metro area (five of the six First District states and Boston reported changes from November 2015 to November 2016; Maine reported on October 2015 to October 2016). Massachusetts recorded the most closed sales on record for the month of November. As usual, many contacts cited falling inventories as an issue: inventories decreased year-over-year in every reporting region. A contact in Massachusetts reported that "with such little inventory, buyers needed to be quick with their best offers from the start."
Home prices also rose year-over-year. For single-family homes, the median sales price increased in every reporting region. The same was true for condos, except in Vermont where prices decreased slightly.
Overall, contacts were optimistic about the outlook for the end of the year and into 2017. Many said rising interest rates would stimulate buyers to make offers at the end of 2016, but they did not expect further moderate increases in interest rates to restrain the region's consistently strong buyer demand.Return to top
Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District has held steady since the last report, while labor markets have remained fairly tight. There have been increasingly widespread increases in input costs and scattered signs of a pickup in selling prices. Manufacturers indicated that business rebounded following an autumn slump, while service-sector contacts reported steady to moderately expanding activity. Consumer spending has been mixed, even as consumer confidence climbed to a multi-year high. Housing markets have been mixed, with weakness continuing at the high end, and commercial real estate markets were steady to somewhat slacker. Residential construction was sluggish, while there has been some pickup in office and especially industrial construction. Banks reported that both loan demand and delinquency rates were steady to moderately improved.
Employment and Wages
The labor market has remained fairly tight, while hiring activity has been mixed. Businesses in most service industries reported that they have been hiring, on net, while manufacturers indicated that they are keeping headcounts steady. On balance, contacts said they plan to increase headcounts in the months ahead, particularly manufacturers. Contacts at employment agencies remained fairly upbeat about the job market, though they said it was hard to judge during this typically slow season. Still, an upstate New York agency noted that hiring remained fairly strong longer into December than usual and a New York City agency reported that hiring has picked up surprisingly early in January.
Contacts generally reported only a very modest pickup in wage growth, though contacts in service industries indicated that they anticipate rising wages in the months ahead--particularly in education and health, retail, wholesale and distribution industries. Though New York State raised its minimum wage structure on January 1, it is too early to assess its effects.
Prices
Business contacts reported some pickup in both input prices and selling prices. Manufacturing contacts noted particularly widespread price increases, while most service sector contacts noted only scattered increases. Both manufacturers and service firms also said they anticipate increasingly widespread cost increases in the months ahead. Retailers generally maintained that selling prices were steady to down slightly. Broadway theaters reported that ticket prices have increased by considerably more than the seasonal norm during this past holiday season.
Consumer Spending
Retail merchandise sales were mixed but generally sluggish in November and December. Two major chains reported that same-store sales were down moderately from 2015 levels and below plan, though one noted that its on-line sales were up by double-digit percentages. By contrast, business picked up for upstate New York retailers. Cold weather reportedly boosted sales of winter apparel and outerwear. Despite the disappointing sales performance, inventories were said to be at reasonably satisfactory levels. Retail contacts were generally not very optimistic about the near-term sales outlook.
Auto dealers in upstate New York reported that sales of new and used vehicles picked up in the final two months of the year. Inventories of new vehicles have remained on the high side. Retail and wholesale credit conditions were reported to be in good shape.
Consumer confidence in the Middle Atlantic States (NY, NJ, PA) surged in December, reaching its highest level in more than nine years.
Manufacturing and Distribution
Manufacturers reported that business activity has picked up noticeably since the last report and expressed increased optimism about the near-term outlook. Similarly, businesses in the wholesale trade and transportation industries reported widespread improvement in business activity and were increasingly optimistic about future business conditions.
Services
Service-sector businesses reported steady to slightly improving business conditions since the last report. Looking ahead, these businesses were generally optimistic about the outlook--particularly those in the information and professional & business services sectors. Tourism activity has remained sluggish, as hotel business and Broadway theater attendance were flat to down from a year earlier.
Real Estate and Construction
Housing markets have been mixed across the District since the last report, with weakness continuing at the high end. New York City's rental market has weakened noticeably, as rents for smaller units have leveled off, while rents of larger units have declined. Apartment rents elsewhere have been mostly flat of late, but still up modestly from a year earlier. Rental vacancy rates have increased in New York City, as well as across upstate New York, while they have edged down in northern New Jersey.
New York City's co-op and condo resale market has also weakened. Both sales activity and prices have slipped, except on small and moderately priced units. Bidding wars have become considerably less prevalent than earlier in the year. Elsewhere across the District, conditions have been more mixed. Home sales in the suburbs around New York City picked up considerably, though prices have remained fairly stable. In upstate New York, the market is still characterized as quite strong. Sales activity has been fairly robust for this time of year, inventories have remained tight, prices have continued to climb and sellers have continued to see multiple offers above the listing price. In contrast, home prices have remained generally flat in northern New Jersey, though activity has picked up somewhat.
Commercial real estate markets were steady to somewhat slacker in November and December. Office availability rates rose modestly in upstate New York, Long Island, Westchester and Fairfield counties, while rates remained steady in New York City and Northern New Jersey. Asking rents for office space were flat to up modestly in most of the District, though they declined in upstate New York. In contrast, the market for industrial space has shown continued strength. Across the New York City metro area, industrial vacancy rates have declined further and rents have risen fairly sharply. In upstate New York, though, vacancy rates have been mostly flat, and rents have edged lower.
New multi-family development has been weak in most of the District, except in northern New Jersey where it has held steady at a strong level. Single-family construction has remained sluggish across the District. Office construction has picked up somewhat in Manhattan but has been flat to down modestly across most of the District.
Banking and Finance
Small- to medium-sized banks reported strengthening demand for commercial mortgages but little change in demand for consumer loans, residential mortgages, and commercial and industrial (C&I) loans. Bankers reported that credit standards were unchanged across all loan categories. No change was reported in spreads of loan rates over cost of funds across all loan categories except C&I, for which banks reported wider spreads. Bankers indicated lower delinquency rates for commercial mortgages and C&I loans but no change in delinquency rates for the remaining loan categories.
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Federal Reserve Bank of Philadelphia
Summary of Economic Activity
Aggregate business activity in the Third District grew at a modest pace during the current Beige Book reporting period--a bit faster than the prior period. Notable shifts in activity included nonfinancial services and existing home sales, which improved to a moderate pace of growth. Four sectors--nonauto consumer spending, manufacturing, and nonresidential construction and leasing--improved to a modest pace of growth. Employment growth also picked up to a modest pace. This pickup included manufacturing firms, which had been reporting job losses for much of the year. Contacts continued to report that wages rose modestly as the labor market continued to tighten. On balance, general prices also continued to grow at a modest pace. Overall, firms continued to expect moderate growth over the next six months.
Employment and Wages
Employment has picked up notably to a modest pace of growth since the prior report. Manufacturing firms noted an increase in employment for the first time in a year, while average hours worked lengthened for the second consecutive month. Employment indicators from nonmanufacturing firms improved, as contacts reported increases in the use of full-time workers and part-time hires and in workweek hours.
However, descriptions from staffing firms were mixed, with Pennsylvania firms noting some quieter-than-normal lulls around the holiday season, while a New Jersey firm reported finishing strong through year-end.
On balance, wage pressures continued to be modest although the labor market has tightened for many occupations, according to banking and staffing contacts. One staffing contact described the labor market as tightening, with wages trending up and more turnover in mid-market placements; the contact also noted that small businesses will have to raise wages to remain competitive. Manufacturing contacts estimated that wages and nonhealth benefits would increase 2.0 percent to 2.5 percent in 2017 and that total compensation, including health benefits, would rise 3.5 percent to 5.5 percent.
Prices
On balance, price levels continued to rise modestly. Although about 70 percent of the firms reported no change at all in prices paid and prices received, more of the remaining firms reported increases than decreases. The differential was similar to last period for prices paid but diminished for prices received.
Retail analysts used the term "price deflation" to depict the deep discounting of many retailers throughout the holiday sales period. Overall, home prices continued to rise slightly, although this varies across markets and price categories. Both residential and commercial developers have noted the high cost of developable land.
Manufacturing
Overall, manufacturing firms reported modest growth--noting improvements in general activity and shipments, for which over one-third of the firms reported increases. New orders also continued to grow, but with somewhat fewer firms noting increases compared with the prior period.
The makers of paper products, chemicals, and primary metal products noted overall gains in activity from the prior period, while the makers of lumber products noted weaker activity. Fabricated metals, industrial machinery, and electronics firms reported mixed results.
More than half of the manufacturing contacts were optimistic that orders, shipping, and general activity would grow over the next six months. Firms also expressed broader optimism for future capital expenditures and employment.
Consumer Spending
Nonauto retail sales grew modestly over the holiday sales period, according to several analysts. They also noted that retailers offered heavy discounts on many items even before Black Friday and maintained these bargains throughout the season. Our contacts anticipate that while some retailers succeeded in clearing their shelves and creating the opportunity to restock with new inventory, they may have constrained their profits. Customers were described as "more savvy with technology" and as spending more money per trip.
Auto dealers described light vehicle sales as holding steady at high levels through year-end. Annual sales figures were estimated to finish slightly above those of 2015. For New Jersey, this meant a second consecutive sales record. Generally, dealers do not expect an increase in 2017 but hope sales will remain at or near 2016 levels.
Tourism contacts generally indicated a continuation of modest growth relative to the high levels of the prior year. Philadelphia area hotels set records for a third consecutive year. A shore location contact boasted an all-time record December--the third record month in the past year. Mild winter weather helped boost traffic at shore locations over the holidays, filling restaurants and retail shops. However, casino revenues in Atlantic City continued to decline against prior-year levels.
Nonfinancial Services
Overall, Third District service-sector firms reported that activity picked up to a moderate pace of growth. Contacts also noted that the pace of sales and new orders improved. However, reported expectations of future growth have outpaced reports of current growth, though falling shy of many other reports over the past six years.
Financial Services
Third District financial firms reported modest growth of total loan volume, a bit off the moderate pace of the prior Beige Book period. However, the significant seasonal increase in credit card volumes anticipated for the recent holiday period was much larger in 2016 than in 2015.
Commercial real estate loans and commercial and industrial loans continued to be two of the fastest growing loan categories; however, both grew at a slower pace than during the same period one year ago. Volumes of home mortgages, home equity loans, auto loans, and other consumer loans were mostly unchanged over the current Beige Book period.
On balance, banking contacts continued to report healthy loan portfolios and improving customer credit quality. In addition, several contacts noted holding the line on their own credit standards against more lenient terms and conditions offered by competitors.
Several contacts noted that the recent optimism and enthusiasm expressed by Main Street firms and Wall Street investors have not yet translated into tangible business investment. Overall, banking contacts continued to express cautious optimism for slow, steady growth, and are not yet convinced of potentially greater growth.
Real Estate and Construction
On balance, homebuilders continued to report little change in activity. However, reports were mixed: Pennsylvania builders of mid-priced homes noted a pause in activity, while a South Jersey builder of higher-priced homes reported a pickup at year-end with strong backlogs going into January.
Brokers in most major Third District housing markets reported an upsurge in home sales to a moderate pace but noted that this season accounts for a relatively low percentage of annual sales volume. Moreover, sales continued to be constrained by very low inventory levels.
Nonresidential real estate contacts covering much of the Third District reported that slow, steady incremental growth was supporting leasing (and pre-leasing) activity, falling vacancy rates, rising rents, and new construction. Industrial/warehouse space is in greatest demand throughout the District. The market for office space is tightest in Philadelphia's central business district, while most suburban office markets are still strengthening.
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Federal Reserve Bank of Cleveland
Summary of Economic Activity
Economic activity grew slightly on balance across the Fourth District since our last report. Labor markets continue to show signs of tightening. Upward pressure on selling prices increased. Retailers reported disappointing same-store sales through the early part of the holiday shopping season, while motor vehicle unit sales increased. Production at manufacturing plants was stable. The housing market improved, with higher unit sales and higher prices. Commercial builders reported some pull back in inquiries and backlogs. Reports indicated a healthy increase in upstream shale gas activity. Coal production rose. Freight volume expanded over the period, but volume was flat compared to that of the same time period a year ago.
Employment and Wages
Payrolls were little changed on balance since our last report. Job gains in banking were offset by losses in construction and freight hauling. Staffing firms reported a slight improvement in the number of job openings and placements; healthcare professionals were in highest demand. Job losses in manufacturing since late summer have been stemmed. While not creating new positions, manufacturers are replacing employees who leave voluntarily. Homebuilders and commercial contractors reported temporary seasonal layoffs. The construction industry continues to experience some wage pressure, especially from high-skilled workers. Staffing levels at banks increased on net. Many bankers noted wage pressure at the entry level and for high-skilled jobs, citing competition from within and outside their industry.
Prices
Upward pressure on selling prices increased over the period. Manufacturers reported widespread increases in finished goods prices in response to rising raw-material costs, primarily for steel. Increasing wellhead prices for natural gas were attributed to the cold weather and storage withdrawals. Coal prices rose in response to drawdowns of domestic power plant coal inventories, the strengthening gas prices, and a firming in export prices that was supported by continued tightness in international coal supplies. Shortages of homebuilding materials have been driving up prices, especially for concrete, drywall, and framing lumber. Commercial building contractors saw rising prices for structural steel and rebar. A few retail chains reported reassessing their shelf prices because of intensifying price competition. New motor vehicle average transaction prices have risen about 1 percent in the past year, but that number hides distinct trends for cars and light trucks. Car prices have declined because of rising dealer and OEM incentives. In contrast, light truck prices increased because of larger sticker price increases and lower incentives. Upward pressure on freight hauling rates is expected during 2017 because implementing regulations associated with the new electronic logging requirements may lead to a temporary reduction in freight capacity.
Consumer Spending
Retailers reported disappointing same-store sales through the early part of the holiday shopping season. The unusually warm weather was cited as driving down purchases of cold-weather items. An apparel chain noted significant price competition from several competitors who are in the process of liquidating. Another chain reported that although foot traffic has increased, price declines for select product lines has resulted in flat sales in those lines. Going forward, traditional retailers expect little change in sales because of intensifying price competition, especially from Internet sellers. Several contacts reported cutting capital budgets because of weakening sales. However, investment in e-commerce remains strong. Year-to-date unit sales through November of new motor vehicles declined 1 percent when compared to the year-earlier period. Light trucks continue to dominate transactions. Used motor vehicle transactions have increased about 3 percent.
Manufacturing
Factory output was little changed over the period, though several contacts cited a seasonal downturn in new orders. Activity for suppliers to the motor vehicle and construction industries remains elevated. Factors tempering output growth for other manufacturing industries include a general malaise in the industrial products market and weakness in the energy sector. Year-to-date production through November at District auto assembly plants fell 5 percent when compared to that of the same time period during 2015. Car inventories remain significantly higher than those for light trucks. Steel producers reported rising volumes, a situation which they attributed to lower imports. Capital spending increased slightly over the period, but a large share of the monies was allocated for maintenance projects. Spending on new equipment and product development fell. Post-election confidence has buoyed the outlook of many contacts; however, it remains uncertain how potential changes in the regulatory environment ultimately will affect capital investment.
Real Estate and Construction
Year-to-date unit sales through November of new and existing single-family homes increased 5 percent compared to those of a year earlier. The average sales price rose 4.5 percent. Homebuilders are concerned about rising interest rates and the affect they will have on consumers' willingness to purchase new homes. First-time-buyer and first-move-up contracts moved higher, whereas sales of high-end homes slowed. Year-to-date estimates of single-family construction starts were much higher in Ohio and Kentucky, but lower in Pennsylvania, compared to a year earlier.
Although overall activity remains elevated, nonresidential contractors reported a slowing in the number of inquiries and a decline in backlogs, a situation which they attributed to seasonal factors and uncertainty leading up to the presidential election. General contractors are expecting to see an increase in spending on infrastructure projects and for warehousing and distribution centers. Many general contractors reported raising billing rates to cover higher material costs, especially for steel.
Banking
Bankers reported that lending pipelines are relatively strong, but there is little organic growth. Several contacts reported seasonal slowing in select product lines, especially on the retail side. The outlook is more positive since the presidential election because some clients are expecting regulatory relief. One banker noted the first round of federal funds rate increases is unlikely to be passed through to savers. However, future increases will likely result in higher interest rates paid on savings accounts. Credit quality remains strong, and little change was reported in loan-application standards. On the commercial side, the strongest demand was for CRE loans. Reports from retail banking indicated that the highest demand was for auto loans and home equity products. Core deposit balances continued to increase.
Energy
Reports showed a healthy increase in the number of permits issued and the number of drilling rigs operating in the Marcellus and Utica Shales during the past couple of months. Nonetheless, upstream activity is below levels seen two years ago. Natural gas output remains at historic highs. Coal production continued to move higher as customers respond to their low inventories and improving market conditions for their products.
Freight Transportation
Freight volume expanded over the period on balance and was attributed to a slowly improving economy. However, volume was flat compared to that of the same time period a year ago and was characterized as sluggish. As a result, some carriers reduced staffing through attrition. Freight shipping rates were relatively stable, other than select increases in the fuel surcharge. Capital spending was primarily for new equipment.
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Federal Reserve Bank of Richmond
Summary of Economic Activity
Fifth District economic activity grew at a moderately faster pace since the previous Beige Book report. Reports were strongly upbeat in early December, while assessments reported later in the month and in the surveys were more restrained. Demand for labor increased at a moderate pace, and reports of wage pressures were more common than earlier. Price changes were generally mild, except at retail and services firms where prices received rose at a slightly faster pace. The manufacturing sector strengthened and producers indicated moderate growth in new orders. Retail sales rose briskly, while tourism at winter resorts strengthened to seasonal levels. Residential real estate activity was little changed at seasonal levels. Commercial real estate leasing rose moderately and sales increased modestly. Residential and commercial loan demand was flat to slightly stronger in the weeks since the previous report. Revenue growth at non-financial services firms remained modest. Indicators for agricultural and natural resource production were mixed.
Employment and Wages
Labor demand increased at a moderate pace since the previous Beige Book. District businesses reported modest increases in wages, with more contacts reporting increased wage pressures. The supply of well-qualified workers, especially in the skilled trades, continued to be a problem. A Virginia recruiter reported slightly stronger demand for employees in customer service, health care, legal, and government positions. Staffing firms reported that the volume of worker conversion from temporary to permanent remained at normal levels. A contact in Charleston, South Carolina said companies there were doing more direct hiring in recent weeks. Also a staffing firm in West Virginia reported increased placement of temporary workers due to high demand from manufacturers, especially in the automotive sector.
Prices
Manufacturers reported that average input prices rose modestly in recent weeks, with the exception of copper and stainless steel, which advanced more rapidly. Average manufacturing output prices increased only slightly. Services and retail prices continued to rise moderately and at a slightly faster pace than reported in our previous Beige Book. Cotton prices were unchanged while peanut and corn prices remained low. Natural gas prices rose modestly in recent weeks, and Northern and Central Appalachian coal prices edged slightly higher.
Manufacturing and Construction
More manufacturers reported a rise in shipments and growth in backlogs since the previous report, as well as moderate growth in new orders. In addition, increased capacity utilization was more widespread. Producers of paper products, batteries, and office furniture reported stronger overall business conditions. Manufacturing executives expected further strengthening during the next six months.
Ports and Transportation
The volume of container traffic rose moderately at two of the District's ports since the previous report. At another port, container traffic increased by double digits every month in the fourth quarter, in part because of calls from larger, post-Panamax vessels. Imports of autos remained strong at one major port in recent weeks, while both imports and exports of farm and construction machinery remained very weak. In addition, exports of autos declined.
A couple of national trucking firms in the District reported that demand for dedicated freight services increased moderately, as businesses locked in services to ensure their freight needs will be met when an electronic log mandate becomes effective in late 2017.
Retail, Travel, and Tourism
Retail sales rose briskly in recent weeks, with strong shopper traffic and big-ticket sales. A sporting goods store manager said his sales to large-scale customers, such as schools, were particularly strong. A wholesaler of construction equipment and a chain store in the home and garden business also reported that sales increased.
Contacts generally indicated that tourist activity strengthened to normal seasonal levels at winter resorts. In addition, a source on the outer banks of North Carolina said tourist stays were above year-ago levels. However, an hotelier in western North Carolina reported a softer market in his area.
Real Estate and Construction
Residential real estate sales were flat since the previous report, with typical low levels of buyer traffic for the winter months. Inventories remained low, while days on the market were generally unchanged. However, a contact in Roanoke, Virginia stated that demand for more expensive homes improved while noting that smaller down payment requirements contributed to increased sales of modestly priced homes, particularly for first-time home buyers. Residential builders reported that home starts and closings were steady at modest levels, while one contact said that seasoned builders finished another good year. However, many sources continued to report a lack of lots and limited new home inventories.
On balance, commercial real estate leasing rose moderately in recent weeks. Rental rates rose moderately in both retail and industrial markets. The retail sector remained the most active in terms of leasing, with continued demand for fast casual restaurants and grocery stores. Real estate agents reported strong industrial leasing, with more e-commerce tenants looking for large facilities. Office leasing was generally unchanged at low levels, although some contacts reported tightening in the Class A market. Commercial real estate sales increased modestly for retail, industrial, and multifamily properties, with slightly improved sales prices. Commercial construction remained steady at modest levels, except in Washington, D.C., Charlotte, and Charleston, South Carolina, where multi-family construction was reported to be stronger.
Banking and Finance
Loan demand was reported as stable or increasing slightly in recent weeks. On the residential mortgage side, demand for new originations was unchanged while demand for refinancing rose modestly. A banker in West Virginia attributed the rise in refinance demand to anticipated interest rate increases. Commercial loan demand was described as stable overall, with reports of strength in D.C., while West Virginia's coal regions continued to be depressed. Business lending was unchanged; however lenders' outlooks improved. One banker said there was an increase in optimism although most business owners were in a 'wait and see mode.' Reports on core deposit growth were mixed. A Virginia banker reported strong growth in core deposits while a West Virginia banker reported a slight decline. Credit standards were unchanged or slightly tighter while credit quality was stable. In West Virginia, however, quality declined slightly and past-due payments rose marginally.
Non-Financial Services
Most services firms reported that revenue growth remained modest since the previous report. However, legal and accounting services providers indicated that revenues rose more quickly.
Agriculture and Natural Resources
Reports on agricultural activity in recent weeks were mixed. A South Carolina farmer indicated that improved weather conditions after Hurricane Matthew allowed crops to dry out enough to be harvested; yields, however, were down markedly from historical averages. A Maryland contact said that the fall harvest finished early, which allowed grain farmers to get moderately better prices than growers in the Midwest. Dairy farm consolidation continued and milk production was stable due to technology enhancements. Agriculture investments rose slightly for light equipment while large equipment sales remained weak.
Coal production declined slightly in the southern part of West Virginia but rose in the northern part. Natural gas extraction rose modestly in recent weeks.
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Federal Reserve Bank of Atlanta
Summary of Economic Activity
Sixth District business contacts indicated that economic activity expanded at a modest pace since the previous report. The outlook among most contacts for first half of 2017 remains optimistic. Businesses continued to report a tightening labor market and steady wage growth. Non-labor input costs remained relatively unchanged since the previous report. District merchants and automobile dealers cited an increase in sales. Tourism reports were mixed. Residential real estate contacts indicated that December new home sales were flat to slightly up from a year earlier and that existing home sales were mixed. Home prices increased modestly since the last report. Commercial real estate contacts continued to indicate improving demand. Manufacturers noted an increase in new orders and production.
Employment and Wages
Contacts reported continued tightening in the labor market since the previous report. Firms and staffing agencies had difficulty filling positions for certain professional jobs, craft labor jobs, and low-skill jobs. For professional positions in particular, employers noted that they were being more selective than they were prior to the recession. Manufacturers reported moderate increases in payroll levels, while retailers encountered the typical seasonal uptick in payrolls. In order to fill vacancies for low-skill positions, a number of firms and staffing agencies reported that they had reduced job qualification requirements. Businesses continued to report investing in technology to automate certain positions as a way to address the challenges of finding workers. Firms continued to engage in partnerships with community colleges and workforce development organizations to develop customized training programs, apprenticeship programs, and internship opportunities. Most contacts reported relatively stable wage growth, despite continued upward pressure for select high-skill or high-demand positions.
Prices
Contacts reported little change in input costs and prices. Exceptions were reports from purchasing managers of continued increases in commodity prices, downward pricing pressure in trucking and maritime shipping due to excess capacity, and lower refined gasoline and diesel prices due to excess supply. According to the Atlanta Fed's Business Inflation Expectations survey, year-over-year unit costs were up 1.7 percent in December. Survey respondents indicated they expect unit costs to rise 2.1 percent over the following twelve months.
Consumer Spending and Tourism
Most District retail contacts reported that sales levels rose modestly since the last report. Early reports from merchants for holiday sales indicated that levels appeared to have been slightly above expectations. Automobile dealers noted that incentives, such as cash bonuses and discounts, boosted overall vehicle sales in November.
Reports from tourism and hospitality contacts across the District continued to be mixed. Contacts in Georgia reported continued growth in business, leisure, and group travel; while contacts in Florida reported a slight decrease in tourism activity since the last report. The outlook among most contacts for the first quarter of the year remains optimistic.
Construction and Real Estate
Overall, reports from District residential real estate contacts continued to note slow but steady growth in December. The majority of builders noted that construction activity was up from the year-ago level. Many builders indicated that home sales were flat to slightly up relative to the year-earlier level, while brokers indicated home sales were mixed over the same period. Most builders and brokers noted that buyer traffic was equal to or higher than the previous year's level. Brokers reported that inventory levels were mixed relative to the year-earlier level, while most builder reports indicated that inventory levels were flat or rising. Builders and brokers continued to note modest gains in home prices in December. Home sales expectations improved a bit since the previous report, with many brokers and builders anticipating sales to remain flat or increase slightly over the next three months relative to the year-earlier level. Most builders anticipate construction activity will hold steady at the current pace or increase slightly over the next three months.
Most commercial real estate contacts noted improvements in demand resulting in rent growth and increased absorption, but continued to caution 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, with many reporting backlogs greater than one year. Reports on the pace of multifamily construction were mixed, with roughly half indicating that the pace had increased from the year-earlier level and the rest suggesting that the pace had leveled off or slowed. Looking forward, most District commercial real estate contacts expect the pace of non-residential construction activity to increase slightly over the next quarter while many anticipate the pace of multifamily construction to continue to level off in the coming quarters.
Manufacturing
Manufacturing contacts reported that overall business activity increased since the last report. Purchasing managers indicated that new orders increased and production activity continued to rise at a firm pace. Supplier delivery times were reported to be slightly longer, while inventory levels of finished goods rose notably compared to the previous report. Expectations for future production remained fairly consistent with the previous report, with almost half of firms anticipating an increase in production levels over the next six months.
Transportation
District transportation contacts reported mixed levels of activity. Ports cited substantial growth in containerized cargo, which was attributed to a strengthening in export demand and a busy peak season. Year-over-year total rail traffic fell further since the last report due to significant declines in the shipments of petroleum and petroleum products, metallic ores, coal, and farm products. Intermodal traffic was also down. Trucking companies reported a continued slowdown in truckload freight; however, holiday e-commerce shipment volumes far exceeded expectations, placing constraints on capacity and negatively impacting on-time delivery rates. The majority of transportation contacts forecast higher levels of activity over the next year.
Banking and Finance
Credit remained readily available for most qualified borrowers. However, some small businesses continued to have difficulty obtaining credit.
Energy
Contacts continued to report weak demand and an over-supply in the oil and gas sectors. Contacts among a growing global liquefied natural gas export market along the Gulf Coast noted that they are positioned to meet demand and capacity. Utility industry contacts noted that investment in windfarm projects continued to expand, and that changing customer behaviors and energy efficiency improvements in end-use technologies continued to challenge growth in electricity demand.
Agriculture
Agriculture conditions across the District were mixed. By the end of November, much of the District was categorized as experiencing severe to exceptional drought conditions. December rains brought some relief, although parts of Alabama and Georgia remained classified in severe or extreme drought categories and dry conditions expanded through most of Florida. The USDA again designated many counties in the District as natural disaster areas due to damages and losses attributed to the drought. Florida's December orange forecast was unchanged from November, remaining below last season's production. On a year-over-year basis, prices paid to farmers in November were up for cotton, soybeans, and broilers, but down for corn, rice, beef, and eggs. In light of poor pasture conditions caused by the drought, livestock producers using corn for feed benefited from low corn prices.
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Federal Reserve Bank of Chicago
Summary of Economic Activity
Growth in economic activity in the Seventh District continued at a modest pace in late November and December, though contacts expected it to move up to a moderate pace over the next six to twelve months. While manufacturing production grew at a robust rate and business spending grew at a moderate rate, consumer spending increased modestly and construction and real estate activity edged up. Financial conditions improved some, prices increased modestly, and farm incomes were little changed.
Employment and Wages
Employment growth slowed to a modest rate over the reporting period, though contacts expected growth to pick up to a moderate rate over the next six to twelve months. Contacts continued to indicate that the labor market is tight and that they are experiencing more difficulty filling positions at all skill levels. One manufacturing contact reported such difficulty finding high-skilled workers that they had traded in expensive, sophisticated machinery for cheaper, less sophisticated equipment that was easier to operate. A staffing firm reported no change in billable hours and ongoing difficulty filling orders at the wages employers were willing to pay. That said, overall, wage growth picked up to a moderate pace. Some contacts reported larger wage increases for high-skilled occupations, while a number of contacts indicated that they raised wages equally for all employees. Many contacts also reported rising healthcare costs.
Prices
Prices again rose modestly in late November and December. Retail prices increased only slightly. Contacts reported rallies in energy and metals prices and that these had led to higher steel prices. Higher transportation costs continued to weigh on agricultural returns, particularly for milk producers.
Consumer Spending
Growth in consumer spending picked up to a modest pace over the reporting period, and most contacts expected that pace to continue in 2017. Contacts reported stronger sales in the food and beverage, general merchandise, hardware, and personal services sectors. Sales of new light vehicles strengthened further, supported in part by even more aggressive incentives. Many dealers reported record sales for the calendar year and expected similar sales levels in 2017. Used light vehicles sales increased as well, as the high number of new vehicles coming off lease helped push down prices.
Business Spending
Growth in business spending remained at a moderate pace overall in late November and December. Retailers largely indicated that inventories were at comfortable levels, though many auto dealers reported that inventories were uncomfortably high in spite of strong sales. Manufacturing inventories were generally at desired level