2015-07-15



The Federal Reserve just released its latest Beige Book, outlining economic activity in the Fed’s 12 regions.

The report showed that while economic activity is growing at a modest to moderate pace in most regions, there was only “modest wage pressures” in the US economy.

The report indicated that residential and commercial real estate markets saw positive developments, while transportation activity was mixed across the country.

Consumer spending improvements varied by district, while tourism was strong in all regions but New York.

Here’s the complete report from the Fed:

All twelve Federal Reserve Districts indicated that economic activity expanded from mid-May through June. Activity in New York, Philadelphia, and Kansas City grew at a modest pace, while Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco saw moderate growth. Compared with the previous report, growth remained steady in Cleveland, and Boston reported conditions were stable or improving. Boston, Philadelphia, Atlanta, Kansas City, and Dallas reported that contacts were optimistic about future growth, while Chicago and San Francisco cited optimism coming from specific sectors.
Improvements in consumer spending varied by District. Some Districts indicated that low energy prices helped boost spending, while some border Districts noted weakness tied to the rising dollar. Automobile sales increased in almost all Districts. Tourism expanded in most regions, except New York where activity slowed.

Nonfinancial services experienced moderate growth since the previous report. Boston, Richmond, St. Louis, Minneapolis, and Dallas noted strength in professional and business services. Boston and Richmond saw growth increase for healthcare services.

Transportation activity was mixed across the country. Trucking was weak in Philadelphia but volumes held steady in Dallas. Ports in Richmond cited record volumes in freight. Reports on manufacturing activity were uneven across the country, but positive in Boston, Philadelphia, Richmond, Atlanta, Chicago, and St. Louis.

Reports on residential and commercial real estate markets were positive. Home sales increased for most Districts, although Philadelphia and Dallas reported sales were mixed, and New York reported a decline in sales volume. Most Districts noted home price appreciation. Residential construction activity varied across most of the country. Commercial real estate activity increased at a modest pace for several Districts, while non-residential construction, especially multifamily, was strong in many Districts.

Lending activity increased since the last report. Real estate lending was up in half of the Districts. Consumer lending, particularly auto loans, rose in several Districts. Districts that reported on delinquency rates indicated that they were low. Credit quality and credit standards were mostly unchanged since the previous report.

Among Districts reporting on agriculture, rainfall damaged crops in Chicago and St. Louis but helped improve growing conditions in Dallas. Oil and natural gas drilling declined in Cleveland, Minneapolis, Kansas City, and Dallas. Coal production was flat in Cleveland and down in Richmond. Energy related capital expenditures were down in some Districts.

Across Districts, employment levels increased or were steady in most sectors, although there were some reports of layoffs in manufacturing and energy industries. Labor market tightness was reported in Boston, Atlanta, Minneapolis, and Dallas.

Most Districts cited only modest wage pressures aside from positions that required specialized skills or were in high-demand. Prices for inputs and finished goods remained steady since the previous report.

Consumer Spending and Tourism
Consumer spending increased across all Districts since the previous reporting period, albeit at varying degrees. Philadelphia, Cleveland, and San Francisco noted that low energy prices were a contributing factor to improved consumer spending at some retail locations and restaurants. The strengthening dollar was cited by Minneapolis and Dallas as the cause of soft growth along border areas. Among Districts reporting on auto sales, sales were up except in St. Louis, where sales were mixed. Cleveland, Chicago, and Kansas City noted a shift in product mix from cars towards SUVs and light trucks. St. Louis reported increased activity in auto service and parts departments, with some contacts attributing this to customers investing in their own cars rather than purchasing new vehicles. Contacts in Chicago expect to record higher overall sales for 2015 due to further strengthening of new and used vehicle sales, and the outlook in Philadelphia, Cleveland, and Dallas remains optimistic.

Tourism improved in Districts reporting on the sector, with the exception of New York, where there were further signs of slowing. Richmond reported slightly stronger activity compared with a year ago, while Atlanta and Minneapolis indicated conditions were solid. Tourism strengthened somewhat in Kansas City but was lower than last year, and Philadelphia and San Francisco reported modest growth. Spending by tourists increased in Philadelphia, Richmond, and Atlanta. New tourist attractions opened in St. Louis. Hospitality contacts in Richmond and Atlanta noted strong advanced bookings for the summer season.

Nonfinancial Services
Overall, Districts reporting on nonfinancial business services, such as information technology, healthcare, and professional and business services, indicated moderate growth since the previous report. Boston, Richmond, St. Louis, Minneapolis, and Dallas all noted strength in professional and business services. Kansas City reported that sales increased, but at a slower pace, than the previous report. In addition, San Francisco said that activity in technology services remained strong. Boston, St. Louis, and Kansas City reported expansionary plans in the nonfinancial services sector. Growth in healthcare services continued according to reports from Boston and Richmond. In contrast, plans for layoffs in education and healthcare were reported by St. Louis. Boston, Philadelphia, Minneapolis, and Kansas City noted expectations for continued growth in the nonfinancial services sector.

Reports on transportation activity were mixed. In Philadelphia, trucking activity continued to show signs of weakness. Dallas indicated trucking volumes remained steady; Richmond cited faster growth rates; and New York described activity as brisk. Warehousing and storage companies in St. Louis noted plans for new hiring and expansion. Cleveland attributed increases in freight shipments to seasonal factors and a clearing of cargo backlogs at West Coast ports. Ports in Richmond reported record volumes in container freight along with higher shipments of autos, and Atlanta ports cited double-digit increases in container trade and break bulk cargo. However, Atlanta and Dallas reported lower volumes in ocean shipping since the last report. Atlanta noted year-to-date railroad shipments were flat compared with the same period last year, as well as a decline in overall air cargo tonnage. Contacts in Cleveland have a moderate outlook for growth over the short term; the outlook in Kansas City is positive going forward; and contacts in Dallas anticipate strong demand in the third quarter.

Manufacturing
Manufacturing activity was uneven across Districts from mid-May through June. Philadelphia, Richmond, Atlanta, and Chicago reported that business activity increased. Boston reported mostly positive conditions, and St. Louis indicated that plans for manufacturing activity were positive since the previous report. In contrast, Cleveland, Kansas City, and Dallas reported a decline in activity. Minneapolis indicated mixed business activity, while New York and San Francisco reported flat conditions. Boston, Cleveland, and Dallas noted the strong dollar was dampening export demand, and slowdowns in the oil and gas industry were said to be negatively affecting orders in Cleveland, Chicago and Dallas.

Auto manufacturers and industry suppliers in some Districts reported strong demand, with the exception of Cleveland, which reported year-over-year declines in production at auto assembly plants. Boston and San Francisco indicated that semiconductor manufacturing was either strong or on the upswing. With only a few exceptions, fabricated and primary metal producers cited strong demand and solid growth was reported in the aerospace, construction, and plastics and rubber industries. Mixed or flat growth was reported in the chemical, electronics, food, and high-tech industries.

Similar to current conditions, the outlook varied across Districts, with some expecting moderate improvements in demand and others expecting flat or weaker conditions.

Real Estate and Construction
Several Districts reported that residential real estate activity had increased during the reporting period, including Richmond, St. Louis, Minneapolis, and Kansas City. Additionally, New York indicated that housing markets continued to improve and Dallas noted that residential real estate activity generally remained solid. Home sales were reported as generally increasing across most markets in Boston, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City. Richmond cited improvement, and San Francisco reported continued growth in home sales. Philadelphia and Dallas indicated that home sales activity was mixed, and New York indicated that sales volume in some markets was down. Boston, New York, and Richmond reported low levels of inventory, and Minneapolis indicated that inventory had decreased from the year-earlier level in some markets; and Kansas City noted that inventories continued to fall. Most Districts indicated that home prices were generally up over the reporting period. Reports on residential construction activity varied by District. Richmond, St. Louis, and Minneapolis indicated that activity was mixed. Cleveland reported that single-family starts picked up across most of the District; Atlanta noted that construction was up from the year-ago level, and Kansas City indicated that residential construction expanded. Boston, Cleveland, Atlanta, Kansas City, Dallas, and San Francisco each reported contacts having positive residential real estate outlooks.

Several Districts, including Chicago, St. Louis, and Kansas City, indicated that commercial real estate activity was mostly positive and that it continued to increase at a modest to moderate pace. Low and declining vacancy rates were highlighted by several Districts, including Chicago, St. Louis, Kansas City, and Dallas. New York reported that availability rates varied by submarket and property type. Rents were noted as being up slightly, increasing, or rising in Philadelphia, Richmond, and Dallas. Some Districts, like Philadelphia and Cleveland, indicated that nonresidential construction activity continued at its previous pace, while other Districts such as Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, noted an increased level of nonresidential construction activity. Multifamily construction was described as strong, elevated, robust, and picking up by several Districts, including New York, Richmond, Atlanta, Dallas and San Francisco. Commercial real estate outlooks remained fairly favorable. Philadelphia was generally optimistic, Atlanta remained positive; Kansas City expected strengthening in the months ahead; and Dallas remained cautiously optimistic.

Banking and Financial Services
Overall demand for loans during the reporting period increased in New York, Richmond, Atlanta, and Dallas, and was stable in Kansas City. Consumer loan demand was steady in Chicago and Kansas City. Commercial loan demand increased in New York, strengthened in Richmond, and remained robust in San Francisco. Reports of commercial and industrial (C&I) loan growth were mixed, and ranged from strong in Philadelphia, to increased in New York and St. Louis, flat in Chicago, and slower in Dallas. Loan volume increased at a modest to moderate pace in Philadelphia, Cleveland, and St. Louis. Mortgage lending grew steadily in Chicago, Kansas City, and San Francisco. Cleveland noted seasonal increases in mortgage loans, and Richmond reported a modest increase. Real estate lending was flat in Philadelphia, and increased in St. Louis. Mortgage refinancing increased in Atlanta and held steady in Chicago. Several Districts including Philadelphia, Cleveland, Atlanta, and San Francisco, reported increased consumer lending, with particularly strong growth in auto loans. Competitive pricing for prime auto loans in Chicago led to further expansion of sub-prime auto lending. Revolving credit for consumers expanded in San Francisco. Home equity lending increased in Cleveland and Atlanta, where banks faced increased competition for loans from nonbank lenders.

Credit quality was unchanged in New York, Cleveland, and Kansas City, remained strong in Dallas, and improved in San Francisco. Richmond reported credit quality was stable with a slight decline in rural areas of the District. Delinquencies were lower in New York, remained at low levels in Cleveland and Chicago, and remained modest in San Francisco. Boston’s report noted low interest rates and generous terms for commercial real estate mortgages and construction loans. Credit standards were largely unchanged in other Districts including Cleveland, Kansas City, and Dallas, while there were mixed changes in Richmond. Deposit levels increased in St. Louis, Dallas, and San Francisco, and remained stable in Kansas City.

Agriculture and Natural Resources
Agricultural conditions were mixed. Significant rainfall affected several Districts, with crop damage reported by Chicago and St. Louis. Chicago also noted disruptions to grain shipping caused by high Mississippi River water levels. Kansas City reported that heavy rains resulted in lowered expectations for the winter agricultural harvest, although the rain also improved soil moisture for developing crops and pastures. Dallas reported that rainfall relieved drought and improved growing conditions. Drought continued in San Francisco, although agricultural output generally expanded over the reporting period. Atlanta reported soybean and cotton plantings were close to their five-year averages. Minneapolis indicated crop progress was ahead of schedule and saw no new outbreaks of avian flu among poultry stock. Chicago and San Francisco noted the avian flu outbreak resulted in higher prices for poultry and eggs. Kansas City said beef cattle production was lower than last year, holding cattle prices high. San Francisco also mentioned low cattle supply as ranchers replenished herds. San Francisco reported demand for forestry products remained flat as foreign demand slowed and domestic gains were limited.

Reports continued to reflect decreases in oil and natural gas drilling activity in Cleveland, Minneapolis, Kansas City, and Dallas. Coal production continued to decline in Richmond and St. Louis and was little changed in Cleveland. Natural gas production was unchanged in Richmond since the previous report and growth slowed in Kansas City. Steady withdrawals of crude oil inventories continued in Cushing, Oklahoma, as seasonal demand for petroleum products picked up and refinery utilization rates rose, according to reports from Kansas City. Refinery utilization rates also remained strong in Dallas. Reports of capital spending declines continued in Cleveland, Atlanta, and Dallas, resulting in some labor cutbacks in Atlanta and Dallas. Heavy machinery manufacturers in Chicago noted weak demand from the oil and gas industry for mining equipment. Accounting firms in Dallas reported growing activity in mergers and acquisitions among oil and gas related firms, while bankers in Atlanta continued to report a slowdown in lending tied to the energy sector.

Employment, Wages, and Prices
Employment levels picked up in various industries across Districts since the last reporting period. Service-related firms in particular experienced payroll expansion in Boston, Philadelphia, Richmond, St. Louis, and Dallas. New York and St. Louis noted increased demand for human resource professionals to recruit new employees. Reports from manufacturing firms were mixed, with Cleveland, Richmond, and St. Louis noting increased job openings and/or payroll gains, whereas manufacturers in Boston and Dallas cited layoffs. Although downsizing continued in the energy sector in Atlanta, Minneapolis, and Dallas, the pace abated in Dallas since the last report. Accounts of sustained labor market tightness spanned several Districts, including Boston, Atlanta, Minneapolis, and Dallas. Firms from several Districts continued to describe shortages for particular types of skilled labor, predominantly in the construction industry.

Wage pressures were modest across most areas of the country, outside of some specialized skill and high-demand occupations in sectors such as information technology, transportation, and construction. Reports from Kansas City and San Francisco were more robust, indicating intensifying wage pressure across a broader range of industries. Cleveland, Chicago, and San Francisco all highlighted a growing sense among business contacts that recent announcements of minimum wage hikes and pay increases at a number of large retailers could prompt broader wage pressure across other industries as firms compete to remain attractive employers.

Inflation pressures remained largely unchanged since the last report. Reports from Boston, New York, Cleveland, Atlanta, and Chicago indicated that retail price growth was subdued. Richmond reported that retail price growth slowed, while Kansas City saw an acceleration in retailers’ input and selling prices. Atlanta and San Francisco highlighted the dampening effect on the cost of imported goods and commodities from the appreciating dollar and softness in commodity prices.

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First District–Boston
Business conditions are stable or improving on balance in the First District. Retail contacts report sales increases that range from modest to large and they characterize their capital spending plans as aggressive. Revenue growth is moderate-to-strong among consulting and advertising contacts, with the exception of an economic analysis firm that posted flat sales. Manufacturers give mostly positive reports, although the stronger dollar weighed on some. No significant upstream pricing pressures are reported among either manufacturers or retailers, although one retailer raised its own prices to cover a wage increase. Labor market tightness is reported for experienced retail salespeople as well as for high-technology workers and various professional positions. Movements in headcounts are mixed, as two manufacturers report cutting jobs while business services firms are expanding payrolls. Boston’s commercial real estate market is seeing accelerating rent growth and aggressive bidding for investment properties. Commercial leasing activity held steady in Providence and Portland and slowed in Hartford. Sales of single-family homes increased in all New England states except Massachusetts, and median sales price increased in four of six states. Condominium sales and price movements are mixed across New England states. Inventories of both types of dwellings remain very low in Massachusetts and declined over-the-year in all of the District’s states. The outlook is mostly positive among retail contacts, stable or improving among most manufacturing contacts, and quite positive among business services contacts. Residential real estate contacts are optimistic in the face of perceived increases in buyer confidence, while the outlook among commercial real estate contacts ranges from newly pessimistic in Hartford to bullish in Boston and moderately optimistic elsewhere in the region. Several real estate contacts, both commercial and residential, expressed ongoing uncertainty over the impact of eventual interest rate increases.
Retail and Tourism
This round’s report is based on a limited sample. Contacts report same-store sales increases ranging from low single digits to low double digits. Demand for home improvement goods is strong and sales of big-ticket furniture items posted solid increases. Inventories are well managed and wholesale prices are steady or up by about 1 percent over one year ago. One contact reports having raised some prices in order to cover salary increases for a class of employees that had not seen a salary increase in five years. One firm finds that recently it has become more difficult to hire experienced salespeople. Capital spending plans among reporting contacts are fairly aggressive and are focused on investment in new stores and online sales channels. There is a general sense among contacts that the economy continues to improve and that consumer confidence is greater as a result. Contacts expect both the economy and consumer confidence to continue to strengthen through the end of 2015 and into 2016.

Manufacturing and Related Services
Of the nine firms contacted this cycle, only one reports declining sales. The firm in question attributes that decline to the strengthening U.S. dollar, a development that has rendered sales to Canadian customers only marginally profitable. The remaining 8 contacts report sales and demand levels that are either equal to or higher than their respective levels one year ago and generally in line with previous forecasts. A toy manufacturer says that the effects of the West Coast port strikes, which had earlier in the year made it difficult to deliver products, are by now largely played out. A second firm also notes that the strength of the dollar dampened its sales growth in foreign markets. A semiconductor manufacturer reports that this highly cyclical industry is on the upswing. Two firms are reducing their inventories for structural, rather than cyclical, reasons. Among contacts, pricing pressures are minimal in both upstream and downstream markets. Two contacts report that headcounts at their respective firms are being reduced. In one case the decline is being achieved through attrition rather than layoffs and reflects a secular decline in demand for the firm’s services. In the other case a firm is shifting jobs from the First District to the Midwest while achieving net layoffs. The outlook is stable or improved for all but one contact.

Selected Business Services
Consulting and advertising contacts report strong demand at their firms in the second quarter. However, an economic analysis firm reports that demand is flat because financial crisis-related litigation continues to wane. A marketing firm and a health care consulting firm both report moderate year-over-year growth to the second quarter. Contacts at two health care consulting firms note that profit margins at pharmaceuticals firms are getting tighter. Strategy consultants experienced double-digit revenue growth over the past twelve months and note a trend toward increasing consolidation in their industry. A government consultant posted moderate growth, driven by a welcome rebound in government contracts. Most contacts plan to give compensation increases that are in line with or slightly above the rate of general price inflation, but two contacts follow a profit-sharing model of compensation. All contacts either hired in the past quarter or plan to expand personnel by year’s end. Planned headcount increases for the year ranged from 1 percent to 10 percent, with upside potential in the case of the most optimistic firm. Openings for high-technology positions, MBAs and expert analysts are reportedly hard to fill. Contacts are generally quite bullish on the U.S. economy for the remainder of 2015 and identified fewer external risks than they did last quarter. Some contacts perceive the Greek debt situation to be a risk, if not a particularly worrying one, and some foresee an uptick in uncertainty as the U.S. enters a presidential election cycle.

Commercial Real Estate
Contacts report that office rent growth is accelerating in greater Boston, especially in urban submarkets. One contact describes Boston’s office leasing market as the strongest in 50 years. Prices for investment properties in greater Boston continue to rise and, despite accelerating rent growth, contacts remain concerned that recent sales prices embed overly optimistic rent growth assumptions. In Portland, commercial leasing activity is steady at a solid pace and a modest amount of build-to-suit construction activity is reported. In Providence, deal volume is steady in both the office and industrial leasing markets and office vacancy rates are expected to decline moving forward amid lack of construction activity. Also in Rhode Island, business sentiment is described as optimistic in the face of modest improvements in current economic conditions and passage of a state budget that is seen as favoring job creation. Hartford’s office leasing volume slowed in recent weeks, prompting one contact to downgrade his outlook for that market; however, Connecticut’s investment sales market remains quite strong. Bank lenders in greater Boston are reportedly offering very low interest rates and generous terms for commercial real estate mortgages and construction loans. A common concern among contacts in the First District is the potential impact on investment demand for commercial properties once short-term interest rates start to rise.

Residential Real Estate
Homebuyer confidence is up across the First District, according to contacts. Accordingly, completed sales of single-family homes increased over-the-year to May 2015 in every state except Massachusetts, which posted a decline in completed sales for the same period. The decline in Massachusetts’ completed sales is attributed in part to the state’s long and harsh winter, which deterred foot traffic even into April. Record-low inventory levels in Massachusetts are reportedly causing changes in the contracting environment, such as an increased willingness of sellers to let buyers out of pending sales contracts and a trend of sellers’ making a sale contingent on their finding a new home to purchase. Over-the-year to May 2015, supply of single-family homes decreased in every state in the First District while pending sales increased. Median Sales Price (MSP) of single-family homes increased over-the-year in four of six New England states, while in Connecticut MSP is flat and in Massachusetts MSP decreased. The latest decline in MSP is only the second for Massachusetts in 31 months and contacts insist that buyer demand remains strong. The condominium market saw mixed results. Completed condominium sales are down in Massachusetts, Connecticut, and Vermont and up in Rhode Island, New Hampshire and Maine. MSP for condos increased in all states except Vermont and Maine. Massachusetts currently has only 1.8 months’ supply of condominiums available, compared with 6 to 7 months’ supply in a balanced market. Condominium inventory is down and pending condo sales are up in all six states. Contacts are generally optimistic about regional demand for residential real estate moving forward, despite voicing some uncertainty about the impact of eventual increases in interest rates.

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Second District–New York
Economic growth in the Second District has continued at a modest pace since the last report. Businesses generally report that selling prices remain stable, despite ongoing upward pressure on input prices and wages. Labor market activity has picked up in recent weeks. Consumer spending has generally remained soft since the last report, though there were scattered signs of a pickup toward the end of June; tourism has weakened. Manufacturing activity has remained mostly flat since the last report. Housing markets showed further signs of improvement, while commercial real estate markets were mostly steady. Both commercial and multi-family residential construction have picked up noticeably. Finally, banks report stronger loan demand, and lower delinquency rates, with particularly widespread improvement on both these measures in the commercial segment.
Consumer Spending
Retailers report that sales continued to be sluggish and on or below plan in May and June. One major general merchandise chain reports that sales were below plan, while another characterizes sales as on plan. A major retailer of building materials reports a pickup in sales. A contact at a major upstate mall notes that discount retailers are performing better than higher priced stores. Retail inventories are generally said to be at satisfactory levels, though one chain indicates that West Coast port delays and the corresponding late arrival of some merchandise has elevated inventories a bit. Prices are reported to be generally steady, on balance.

Auto dealers across upstate New York indicate that new vehicle sales were mostly flat in May but showed some signs of picking up in June; sales are reported to be down somewhat from a year earlier but still at reasonably high levels. Sales of used autos are reported to have picked up somewhat. Dealers characterize wholesale and retail credit conditions as in good shape.

Tourism activity has shown further signs of slowing–particularly in New York City, where both hotels and Broadway theatres report slowing business and declining revenues, and a major retailer attributes recent weakness to reduced tourism. Buffalo area hotels also report lower occupancy rates but indicate that future bookings look promising. Despite the general softness in consumer spending and tourism, consumer confidence in the region (NY, NJ, Pa) surged in June, reaching its highest level since before the recession.

Construction and Real Estate
The District’s housing markets have been steady to somewhat stronger since the last report, while multi-family construction has picked up noticeably. Realtors in western New York report that, after a weak first quarter, the housing market continued to strengthen in June and in the second quarter overall; strong demand and lean inventories have driven up prices and made bidding wars increasingly common. Reports from Realtors across New York State more broadly also point to lean and declining inventories and steady home price appreciation. New York City’s co-op and condo market has been steady to somewhat stronger since the last report: selling prices of apartments rose moderately in Manhattan but were flat in Brooklyn. Sales volume declined citywide and was down noticeably from a year earlier–reportedly reflecting a combination of lean inventories, the stronger dollar, and the fact that 2014 sales levels were extraordinarily high.

Residential rental markets were steady to somewhat stronger. In New York City, rents were steady overall, drifting lower on larger apartments but rising modestly on smaller units. Rents have increased slightly in Manhattan, remained flat in Brooklyn and eased somewhat in Queens; the inventory of available rentals has risen but remains low across the city. Northern New Jersey’s rental market has tightened, with vacancy rates declining and rents rising fairly briskly. Across the rest of the District, both rents and vacancy rates were little changed.

Commercial real estate markets across the District have been steady overall. Office availability rates were steady in Manhattan, Long Island and across upstate New York; rates edged up in the Westchester-Fairfield market but declined in northern New Jersey, though they remain quite elevated. Asking rents for office space were little changed, except in Manhattan, where they continued to trend upwards. Retail rents in Manhattan also rose, but its retail availability rate has climbed to a multi-year high.

Office construction rebounded sharply in the second quarter–mainly in northern New Jersey and New York City–after a sluggish first quarter. Multi-family construction has also picked up considerably throughout the District, especially in New York City. A local real estate contact notes that new development, which has been predominantly rentals in recent years, is shifting back towards condos. New construction starts, as well as the amount of space under construction–for both office and apartment buildings–reached their highest levels in more than a decade.

Other Business Activity
Manufacturing firms report that business activity remained essentially flat in May and June, and contacts express somewhat less optimism than previously about the near-term outlook. Contacts in wholesale distribution, on the other hand, indicate some pickup in business, and a transportation industry contact reports that trucking activity remains brisk. Businesses indicate that selling prices have been flat to up slightly but continue to report moderate upward pressure on both wages and input prices.

The labor market has picked up since the last report. A major New York City employment agency reports that conditions have strengthened substantially across the board in recent weeks and notes that hiring activity is unusually brisk for this time of year. There is also reported to be increased demand for human resource professionals to recruit new employees–particularly in the finance and legal sectors. An upstate New York employment agency also reports strong labor market conditions and notes a shift from contract hiring to more direct hiring. Both contacts note some upward pressure on starting pay, as more job candidates have been receiving multiple offers. There continues to be excess demand for tech workers, as well as truck drivers. Manufacturers, on the other hand, have scaled back hiring plans somewhat.

Financial Developments
Small- to medium-sized banks in the District report that loan demand increased across all categories–particularly for commercial mortgages, as well as commercial and industrial (C&I) loans. Bankers also note an increase in demand for refinancing. Contacts report that credit standards were again unchanged across all loan categories. Bankers report that spreads of loan rates over cost of funds decreased, with narrowing most widespread on commercial mortgages and C&I loans. Finally, banks report that delinquency rates were unchanged on consumer loans but improved in all other loan categories.

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Third District–Philadelphia
Aggregate business activity in the Third District continued to grow at a modest pace during this current Beige Book period. Contacts continued to report modest growth in hiring and only slight increases in wages; price increases also remained relatively slight, with most contacts reporting little change. Moderate growth of economic activity is anticipated over the next six months.
Across sectors, general service-sector firms continued to report a moderate pace of growth; however, staffing firms indicated a somewhat more modest pace this period. Tourism contacts reported modest growth compared with a strong year-ago season, while auto dealers reported relatively flat sales against their record highs from the spring of 2014. Overall, nonauto retail sales continued to grow modestly, although contacts offered mixed reports. On balance, lending volumes also continued to grow at a modest pace. Manufacturing resumed a modest pace of growth, and nonresidential construction and leasing continued at a modest pace. Homebuilders reported little or no change in activity. Existing home sales reports were mixed, but this was against a backdrop of weak growth in the spring of 2014. Home prices continued to rise slightly.

Manufacturing
Third District manufacturers reported that overall activity picked up to a modest pace of growth during the latest Beige Book period. Contacts reported similar improvements in new orders and in shipments. Gains in activity appeared to be stronger among the makers of paper products, chemical products, rubber and plastic products, industrial machinery, and fabricated metal products; activity appeared weaker among the makers of food products, primary metal products, and electronics. Slightly more than half of the contacts indicated that underlying demand for their products had increased over the past three months, while one-fifth reported no change.

Expectations of business activity growth during the next six months, particularly for new orders and shipments, have improved somewhat since the last Beige Book report. However, firms indicated little change in their expectations of future employment while softening plans for future capital expenditures.

Retail
Retail sales rose moderately, but the reports were mixed. Contacts reported record sales at convenience store locations, moderate sales growth at area malls, but only modest growth at outlet stores. Convenience stores that sell gasoline continue to report stronger sales of nonfuel items due, in part, to the ongoing, relatively low price of gas. Contacts continued to state that customers remain value driven. A convenience store contact indicated that the very strong sales in May bode well for the stores’ summer season. Generally, contacts continued to expect modest growth throughout 2015.

Auto dealers reported strong sales in May. However, compared with last year when sales were hitting record-high levels, growth has been reported as flat or down. June sales are also expected to remain strong but may also not exceed last year’s robust pace. Auto dealers remained optimistic for continued strong sales in 2015, although outperforming 2014 may be in doubt.

Finance
Third District financial firms have continued to report modest overall increases in total loan volume since the previous Beige Book. Strong growth was reported for commercial and industrial lending and auto loans, while most real estate lending and other loans were relatively flat. Generally, banking contacts described a slow, steady pick-up in activity and remained optimistic for the remainder of the year.

Real Estate and Construction
Third District homebuilders have reported little or no change in activity since the last Beige Book. Contacts reported that economic and financial conditions remained challenging for contract signings on new homes. Activity remained inconsistent through the current time period. However, surviving smaller builders are generally meeting their plans and expect this year to be as good as, if not better than, last year. Brokers in the Philadelphia and Harrisburg areas reported continued year-over-year gains in home sales; however, the prior spring had been relatively weak. The Lehigh Valley and southern Jersey Shore markets reported decreases despite comparison with last year’s weak sales. Home prices continued to rise slightly. Neighborhoods in and around Philadelphia’s Center City remain a “hot spot,” with greater demand, more sales, and stronger price gains.

Nonresidential real estate contacts reported little change to the modest pace of construction and leasing activity seen earlier. Downtown Allentown and Philadelphia remain the focus of significant new construction for office and mixed-use developments. While most of the new office demand stems from firms moving around the region, contacts suggest that some demand is being driven by employment growth from existing firms and from new locations by out-of-market firms. Overall, commercial rents continued to increase slightly. Contacts generally remained optimistic for the ongoing growth of both new construction and leasing activity in 2015.

Services
Overall, Third District service-sector firms have continued to report moderate growth in activity since the previous Beige Book, and they remain even more optimistic about the next six months. More than one-third of the firms reported increases in employment–a higher percentage than the prior period. In contrast, contacts at staffing firms generally indicated that their activity had been somewhat slower and that their clients have been slow to make decisions to place orders and to hire recommended job placements. Trucking activity continued to show signs of weakness from the underlying economy, according to a transportation services analyst; however, the Third District remains a dominant location for warehouse distribution centers. Tourism contacts at shore destinations reported record levels of activity in Delaware and New Jersey–representing a modest improvement over a strong 2014. Early reports also suggest that tourists may be spending more, with high-end restaurants booking up on many nights. Atlantic City casino activity remains an exception, with the total take continuing its years-long slide unabated.

Prices and Wages
The overall price level has continued to increase slightly since the previous Beige Book period. About half of the nonmanufacturing contacts and three-fourths of the manufacturing contacts reported little or no change in the prices they pay for inputs and the prices received for their goods and services. Over one-third of the nonmanufacturing contacts reported increases. Among manufacturers, contacts reporting increases outnumbered those reporting decreases–a reversal from the prior period. Generally, contacts reported little change in wage pressures; some highly skilled and technical positions continue to be difficult to fill.

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Fourth District–Cleveland
Business contacts in the Fourth District reported a steady level of activity over the period, with little change in the pace of growth. Reports by industry sector were mixed. Production at manufacturing plants contracted slightly. Nonresidential building contractors characterized their backlogs as strong; the housing industry saw a pickup in construction starts and purchases of new and existing single-family homes. Sales at stores and restaurants were marginally higher than those of a year ago, while new-car sales fell slightly year over year. Drilling in the Marcellus and Utica Shales declined further. Reports on freight volume were mixed. The demand for business and consumer credit continued to move slowly higher.
Payrolls expanded slightly. Staffing firms reported a pickup in the number of job openings in healthcare and manufacturing; however, placements did not keep pace. Upward pressure on wages is limited mainly to technically-skilled personnel. Overall, input and finished-goods prices were steady. We heard reports about declines in prices for steel and some petroleum-based products.

Manufacturing
Factory contacts reported that overall demand contracted slightly over the period. Key factors tempering output include a strong dollar and the downturn in the oil and gas industry. That said, suppliers to the aerospace, motor vehicle, and construction industries continue to see strong or strengthening demand. Compared to that of a year ago, demand has strengthened to some extent by a pickup in the construction sector. The outlook for the second half of 2015 varied widely. The steel industry continues to experience stiff competition from imports, competition driven in part by the strong dollar. As a result, steel shipments fell more than expected over the period; industry utilization rates declined and now stand about 10 percent below normal. Demand for steel from the auto and construction industries is still relatively strong. Year-to-date auto production at District assembly plants through May fell 3 percent below the prior year’s level. This fall may be because of a sharp year-over-year decline in motor vehicle exports from domestic plants, a situation attributable to dollar appreciation.

On balance, capital budgets increased slightly over the period, mainly to take advantage of unforeseen opportunities. Spending was primarily for equipment (machinery and IT) and maintenance projects. Raw material prices were flat or lower. Contacts cited price reductions for steel and petroleum-based products. Final-goods prices were stable. Reports indicated a modest expansion in payrolls, mostly for general labor. Wage pressure was limited to high-skilled jobs.

Real Estate and Construction
Year-to-date sales through May of new and existing single-family homes were moderately higher as compared to those of the same time period in 2014. The average sales price rose about 6 percent. Single-family construction starts picked up across most regions of the District over the period. New-home contracts remain concentrated in the move-up price point categories. Prices are trending higher because of rising labor costs, more stringent building codes, and higher land development costs. Several builders commented that the market for spec homes exists, but is limited by supply side factors, including capacity constraints and difficulty obtaining construction financing. Despite this difficulty, homebuilders remain optimistic about industry prospects for the remainder of the year.

Nonresidential contractors reported continued strong activity over the period, with revenues rising above year-ago levels. The number of inquiries has expanded to the point that general contractors are becoming more selective when bidding. Backlogs were described as strong or strengthening. Several contacts mentioned that their backlogs are at the highest level since prior to the recession, with work booked one to three years out. Demand is greatest for commercial building, healthcare facilities, office space, industrial structures, and multifamily housing (including senior living). Financing is more readily available to successful developers than it has been in the recent past. Banks and non-bank lenders are becoming more proactive in working with developers.

Capital spending by general contractors was mainly for new equipment. Materials prices were stable during the past six weeks. Over the course of the year, builders anticipate that material prices will increase by about 3 to 5 percent, primarily for concrete and drywall. General contracting payrolls increased at a modest pace, mainly for field laborers and craft workers. The construction industry remains challenged by a labor shortage, though carpenters and drywallers are the most difficult to find. As a result, firms are attempting to boost participation in apprenticeship and co-op programs, with mixed results. Reports indicate continued wage pressure for the skilled trades.

Consumer Spending
General merchandise retailers reported that their revenues were flat over the period. Athletic apparel and home furnishings (including electronics) were in highest demand. Restaurateurs experienced an increase in customer visits, an increase which they attributed to lower gasoline prices and heightened promotional activity. Retailers and restaurateurs stated that revenues were marginally better than they were a year ago, and third-quarter sales are expected to be higher than those of last year. Vendor and shelf prices were stable. Hiring is limited to new store openings. Announcements of wage increases by some large chains are providing the impetus to raise compensation levels across the industry in order to remain competitive. One chain noted that its employees are more enthusiastic and turnover is lower as a result of an increase in the hourly wage rate. Another contact said that retail employees will readily change jobs for an additional 10 cents per hour. Capital spending remains on plan for the fiscal year. Expenditures were mainly for remodeling and new store construction.

Year-to-date sales of new motor vehicles through May were slightly below those of a year ago. A strong consumer preference for SUVs and light trucks continued. OEMs and dealers are reportedly increasing incentives on small cars. New inventory is close to matching demand, except for SUVs, where inventory is light. Looking forward, dealers expect unit volume will be on par with that of 2014; however, some voiced concern about the impact of potential interest rate increases. Year-to-date pre-owned vehicle sales are moderately higher compared to those of last year. Dealers are hiring for seasonal sales positions. Skilled service technicians are difficult to attract, a situation which is putting upward pressure on wages.

Banking
Bankers reported that rising confidence in the economy as a whole is not reflected in the pace of growth of their business loan portfolios. This situation was attributed to mounting competition from nonbank lenders and the regulatory environment. CRE lending is growing at a faster rate than C&I lending. The pipeline for M&A financing is strong. Consumer credit continues to expand at a moderate pace, mainly for auto loans and home equity products. Some pickup in installment loans was noted. Interest rates for business and consumer credit were stable. Almost all of our contacts noted a seasonal increase in their residential mortgage business, which was heavily weighted toward new-home purchases. The rapid rise in rental rates was cited as a motivating factor to purchase homes. Little change was reported in delinquencies (already at low levels) and loan-application standards. Core deposit balances remain strong. Capital investment by banks was primarily for technology and acquiring community banks. Payrolls increased on net. Most hires were commercial lenders and risk managers. The number of bank branches continued to trend lower.

Energy
Little change in District coal production was reported over the period. Some reduction is anticipated going forward because of decreased demand. Spot prices for steam and metallurgical coal declined. The number of drilling rigs operating in the Marcellus and Utica Shales trended lower over the period and is now 34 percent below its peak level in the fourth quarter of last year. Natural gas production through the first quarter of 2015 was at a higher rate compared to that of the same period a year ago. Wellhead prices for oil are trending slowly higher, while natural gas prices have stabilized at a low level. Capital budgets held steady or were adjusted downward. Spending is mainly for maintenance projects and equipment. Employment-reduction plans put into effect earlier in the year have been completed. Any new hires are for replacement. Reports indicated some additional cuts in wages and benefits.

Freight Transportation
Reports on freight volume were mixed. Contacts seeing increases attributed them to seasonal factors, higher demand for construction materials, and a dissipation of lingering effects of the West Coast port strikes. Softness in shipments of consumer products, including edibles, contributed to lower top-line growth. The outlook for the next few months is for volume to grow moderately along seasonal trends. Prices for fuel and maintenance items were fairly stable over the period. Fleets continue to replace older equipment aggressively. OEMs are currently working at capacity; tractor deliveries have reportedly lengthened to eight months. The labor shortage (drivers and service technicians) continued industry wide. Hiring over the period was more for replacement than to add capacity. One contact mentioned that in his segment of the industry, fleet owners are no longer attempting to expand labor capacity, but instead are seeking ways of operating more efficiently, including working cooperatively with competitors.

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Fifth District–Richmond
Economic conditions in the Fifth District strengthened moderately since the last Beige Book. Manufacturing activity increased, with a pickup in the volume of new orders and order backlogs. Retail sales strengthened, while non-retail revenues rose somewhat faster. Tourism moved into peak season with growth slightly above last year’s seasonal increase. In finance, residential loan demand increased modestly since our previous report. Commercial loan demand strengthened moderately. In real estate markets, residential home sales improved. Commercial real estate leasing and purchasing also increased. Energy production was little changed overall. Labor demand increased for various categories of workers, and average wages moved higher.
According to our most recent surveys, prices of manufacturing raw materials and finished goods rose at a slightly faster pace. Retail price growth slowed from the previous moderate pace, and non-retail price growth remained modest. Industry contacts reported that agricultural prices declined and energy prices were unchanged.

Manufacturing
Manufacturing activity increased moderately since our last report. Contacts reported a general pickup in the volume of new orders and an increase in order backlogs; shipments flattened, however. Some metals manufacturers (primary and fabricated) in North Carolina and South Carolina noted an uptick in demand resulting from strength in commercial construction and industrial infrastructure development. Several food manufacturers reported a strong peak season with higher production. However, a Virginia food manufacturer reported a decline in production due to higher egg prices. In addition, a Maryland machine manufacturer stated that sales and order backlogs decreased in recent weeks, and a North Carolina gasket manufacturer reported a broad-based slowdown in the volume of new orders. A West Virginia fabricated metal manufacturer reported that order volume flattened since the previous report. According to our most recent survey, prices of raw materials and finished goods rose at a slightly faster pace.

Ports
Activity at District ports picked up in recent weeks, with port officials reporting record volumes of loaded container shipments. In addition, very high volumes of light vehicles were moving through the ports. Growth in imports increasingly outpaced growth in exports, and retailers have notified ports that they expect a strong peak season this year. Outgoing shipments of empty containers have risen sharply at one port, partly as a result of operational incentives. New construction at port locations rose, notably for manufacturing.

Retail
Retail sales growth strengthened since the prior Beige Book, with grocers, building materials suppliers, and home and garden merchants reporting an acceleration in sales. A Virginia discount store manager said total receipts were up slightly despite a decline in customer traffic. Sales of cars and light trucks varied, with larger dealers continuing to describe robust growth in sales. However a large motorcycle dealer said the peak season has started but sales have declined by double digits. According to our most recent survey, retail prices rose at a slower pace in recent weeks.

Services
Non-retail services firms reported moderately faster growth in revenues since our last report. National trucking firms located in the Fifth District had slightly faster growth, although some of the strength was attributed to gains in market share. Professional, scientific, and technical firms reported continued revenue strength. Executives at healthcare systems described steady to stronger demand. A financial services executive in Virginia stated that business was “slowly inching up,” while a West Virginia CPA firm had no change in customer demand. Services prices continued to rise at a modest pace.

The peak season for tourist activity began on a slightly stronger note this year. Contacts in North Carolina representing the mountainous areas and the Outer Banks, said that bookings were up compared to a year ago as the summer season got underway. A similar report was shared by an executive at a resort in Virginia, who also noted particular strength in online advance bookings. The Outer Banks executive added that tourists were spending more money in local shops and restaurants, even though higher food costs have pushed up menu prices. The improvement was not universal, however. A hotel executive near a military base reported that demand had softened. There were few reports of room rate changes.

Finance
Loan demand strengthened since our previous Beige Book. On the residential side, a banker in North Carolina said that lending improved, but noted that an above-average portion of activity was coming from investors, causing home prices to rise. A lender in Maryland reported that loan growth was “healthy,” although net interest margins were shrinking. Commercial loan demand increased moderately across most of the District. Lenders in North Carolina and Virginia reported greater demand and growing pipelines for commercial loans, but added that regulations and excessive paperwork were delaying loan closings. A lender in West Virginia, however, said that demand for commercial loans was tepid. Reports on credit standards were mixed. The West Virginia lender reported some tightening for commercial loans. He added that guarantees and historical relationships had little influence on underwriting decisions. Conversely, lenders in Maryland, Virginia, and North Carolina said that competition for loans was leading to aggressive pricing, loan structures, and covenant-type lending. Credit quality was largely reported as stable with some slight declines in rural areas. Deposit growth increased in Maryland (particularly for small businesses) and West Virginia. Interest rates moved slightly higher, according to contacts in North Carolina and West Virginia.

Real Estate
District housing market activity continued to increase at a moderate pace since the previous report. Realtors reported steady buyer traffic in the past six weeks, but expect a typical seasonal slowdown heading into the summer vacation months. Average sale prices rose slightly in several markets, while days on the market varied. Housing inventories remained low across the District. A broker in Greensboro, North Carolina stated that sales were very strong and he expects continued strength through August, but that inventory remains low. Additionally, a business contact in Charlotte, North Carolina reported strong demand for new homes, with short supply. A Realtor in Baltimore reported an active market for homes below $500,000, noting that properties in excellent condition sell quickly. Residential construction reports were mixed. Multifamily leasing and construction activity remained strong, with continued increases in rental rates.

Commercial real estate activity increased modestly overall since the previous report, with a pickup in activity in the industrial sector and reports of slower growth in the office sector. Vacancy rates and rental rates varied across submarket and region. A business contact in Baltimore reported increased demand for industrial space since the previous report, and a Columbia, South Carolina broker reported a very active class B warehouse market. A Realtor in Columbia, South Carolina reported a surge of retailers looking for land sites, noting accelerating land prices and limited supply. A Greensboro, North Carolina source said the office market was soft, with an abundant supply of class B and class A space. In contrast, a Columbia, South Carolina Realtor reported a shortage of office space. Brokers in the District of Columbia and in Maryland reported a slight increase in the demand for office space, and said that that concessions had tightened up somewhat. A Richmond broker said that sales are “rolling in” and there are a lot of properties under contract right now. An hotelier in western North Carolina stated that there were several new hotels under construction and in the pipeline in the mountains of North Carolina. A Realtor in the District of Columbia reported softer commercial sales since the previous report. Commercial construction increased slightly in Richmond; Asheville, North Carolina; and in Columbia, South Carolina.

Agriculture and Natural Resources
Agriculture contacts reported modestly stronger business conditions since our last report. Growers said that seasonal planting of corn, soybeans, and cotton is nearly over. A farmer in western Virginia reported large yields of hay and higher hay prices. Sales of his other agricultural products declined, however. A nursery executive in Virginia Beach stated that sales flattened seasonally. A farmer in North Carolina reported he had replanted crops that had been damaged by dry weather. However some farmers had to destroy crops due to extremely low yields, with insufficient time to replant. Since the previous report, commodity prices remained low, with the exception of hay prices. Input prices increased slightly.

Natural gas production was unchanged overall since our previous report, while prices declined slightly. Coal production continued to decline and prices were unchanged.

Labor
Since our previous report, the demand for labor increased moderately for many skill sets, including entry level, semi-skilled, and highly skilled. Shortages were reported for warehouse workers, forklift operators, construction workers, health care technicians, engineers, chefs, managers, biotech and IT professionals, and especially cybersecurity specialists. A staffing agent in Virginia noted difficulty finding warehouse workers and laborers who could pass background checks and drug tests. Temporary workers were becoming permanent employees at a slightly faster rate. An executive at an online agency stated that many job seekers were already employed and looking for a better, higher paying job. Wage increases were reported for some hospitality workers, architects, health care technicians, and textile workers. However, several sources said that merit-based bonuses and other benefits, rather than wage increases, were being used to compensate employees. According to our most recent surveys, employment in the service sector expanded at a slightly slower pace while manufacturing employment grew marginally faster; average wages rose for both service sector and manufacturing employees.

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Sixth District–Atlanta
Reports from Sixth District business contacts indicated that economic activity expanded at a moderate pace from mid-May through June. The outlook among businesses remained positive as most anticipate higher growth in the near term.
District merchants noted a modest improvement in sales activity since the previous report. Vehicles sales remained strong. The tourism sector continued to experience solid activity. Reports from residential brokers and builders indicated home sales increased from year earlier levels. Real estate contacts also noted that home prices modestly appreciated since the previous report. Commercial real estate contacts continued to cite improved demand for properties and construction increased from a year ago. Overall, manufacturing activity continued to expand. Bankers noted increased loan demand. District firms reported continued tightness in the labor market. On balance, businesses reported subdued wage and input cost pressures.

Consumer Spending and Tourism
Some District retailers indicated a slight rebound in sales from the weather- and West Coast port-disruptions experienced earlier this year. Apparel and general merchandise retailers noted the pace of sales growth was, at best, slow year-over-year. Expectations are for improved activity as the next major holiday falls on a weekend. Auto sales continued to experience robust sales activity.

On balance, travel and tourism contacts continued to report positive activity from mid-May through June. Contacts in Georgia, Florida, and Louisiana reported strong occupancy numbers and an increase in consumer spending from a year ago. Year-to-date Mississippi casino gaming revenues increased compared with the same period last year. Advanced bookings in the hotel and conference segments were noted as being strong for the summer season.

Real Estate and Construction
Most residential brokers indicated that home sales met or exceeded their plan from mid-May through June. More than half of contacts reported that home sales had increased from the year earlier level. The majority of brokers indicated that inventory levels had remained the same or fallen from the prior year’s level. Further, most contacts noted that buyer traffic was up compared with a year earlier. Brokers continued to report modest home price appreciation, and noted that they expect home sales activity to increase slightly over the

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