|Skip to content
Since the last Beige Book, business activity in the Third District has been more mixed and somewhat weaker overall. Several sectors have continued to report slow, steady growth, and a few sectors have grown faster, while others have shifted to reporting slower growth, no growth, or declines. Manufacturing activity has declined since the last Beige Book. Year-over-year sales fell slightly for general retailers and increased slightly for auto dealers. On balance, bank lending has remained mostly flat. Residential real estate and construction was perhaps most impacted by stock market volatility--showing signs of strength at July's end, then slowing to an unseasonably quiet August. Commercial real estate contacts have reported steady to slightly improved market conditions in most parts of the Third District since the previous Beige Book. Generally positive results were reported by service-sector firms. Upward price pressures from food, energy, and other commodities have lessened somewhat. The ability to pass along costs remains mixed, and there is little evidence of wage pressure.
In response to ongoing uncertainty, Third District business contacts have slightly lowered their expectations, with most firms projecting slow to flat growth for the remainder of the year. Manufacturers forecast a small rise in shipments and orders during the next six months. Retailers are hopeful for stronger sales; auto dealers are uncertain. Bankers have lowered their expectations, as have most residential real estate contacts. Commercial real estate contacts and service-sector firms have continued to expect slow growth; however, uncertainty has increased.
Since the last Beige Book, the percent of Third District manufacturers reporting decreases in new orders and shipments has risen substantially, while the percent reporting increases has fallen slightly. The general decline in activity was not uniform across sectors. The makers of food products, fabricated metals, and electronic equipment reported declining product demand. However, growing product demand was reported by printers and publishers, by makers of instruments, and by lumber and wood products manufacturers. Shipments increased, but orders fell for firms reporting in the primary metals and industrial machinery sectors. Firms experiencing growth cited foreign markets, growing market share, and product shifts as positive factors. Declining demand was attributed to sluggish residential construction, softening domestic consumption, and the falloff in public infrastructure spending. One industrial supply firm indicated steady growth overall but noted some softness in sales to those manufacturers most sensitive to business cycles.
Although the outlook among Third District manufacturers remains somewhat optimistic, it is not as promising as was reported in the last Beige Book. Among firms contacted, two-fifths expect increases in new orders and shipments over the next six months, while one-fourth expect decreases. About one-fourth of the firms polled project increases in capital spending over a six-month planning horizon--a slightly lower proportion than in the last Beige Book.
Auto dealers in the Third District continue to report some supply disruptions for Japanese-related vehicles and parts, leading to softer sales in July. Early reports for August were a little better than July, and better than last year. However, one dealer reported a customer backing out of a luxury car sale amidst the early August market volatility. Continued tight supply favors dealers with higher pricing and fewer promotions. Uncertainty clouds dealers' outlooks.
Third District retailers reported that sales were generally flat to down compared with a year earlier, although results were more varied among individual stores across the District. Heavy promotions and markdowns have been deployed to counter what one retail manager described as "not a great August." Retailers are looking forward to the extended holiday shopping season with hopeful optimism.
Third District banks contacted in August indicated soft loan demand, although some bank contacts cited strengths in small business lending, and in lending to development projects for apartment rentals, hotels, and commercial retail. More generally, commercial and industrial loan volumes grew, while consumer and commercial real estate loan volumes shrank. On balance, total credit extended by banks in the Third District has been generally flat since the last Beige Book. Most banks report improving credit quality, while credit standards have changed little. Bank contacts report lowering their expectations for the remainder of the year--anticipating little growth for all of 2011.
Real Estate and Construction
Residential real estate activity in the Third District has slowed slightly since the previous Beige Book. Agents reported little traffic and have revised their plans downward for the remainder of the year. A backlog of foreclosures, the volume of which was especially large in New Jersey, and flat to slightly falling house prices continue to dampen demand for new and used homes. Some builders reported signs of strengthening from mid-July to August, then as financial market volatility increased, a few deals unwound and traffic ground to a halt. "You could hear the crickets for two weeks," said one builder, reflecting on the anemic growth even for a typically slow August. An uptick in refinances was reported; however, little of the resulting consumer savings is expected to impact housing.
Commercial and industrial real estate contacts have offered mixed reports in the Third District since the previous Beige Book. Few reported any interruption in the normally slow August activity due to financial market volatility. Slow, steady growth was observed with vacancy rates generally falling, rents steady or occasionally rising, and concessions steady or occasionally falling. Demand for residential rental properties has been generating the most new business as reported by architecture, engineering, and property management firms. Several contacts also noted activity finally re-emerging from the life sciences sector. The outlook expressed by market participants is for continued slow growth in nonresidential real estate.
Reports from Third District service-sector firms remain generally positive, but with greater expressions of uncertainty. A logistics firm described business as surprisingly strong--improving since the last Beige Book and better than last year. Staffing firms noted an increase in temporary hiring to fill permanent positions--indicating increased uncertainty among their customers. In addition to the impact from anticipated troop reductions, defense-related firms noted concerns stemming from the debt-ceiling agreement. While growth remains generally steady, greater uncertainty has crept into the generally positive outlook of service-sector firms.
Prices and Wages
Since the previous Beige Book, the percent of manufacturers reporting increases in prices paid for inputs has continued to fall slightly from one-third to one-fourth. Over the same period, the percent reporting decreases in prices received for their own products rose slightly from one-sixth to over one-fifth. Since the last Beige Book, commodity price pressures have lessened somewhat on retailers, service-sector firms, and builders; however, margins remain very tight. But for a few business sectors or a few scattered rental markets, there are scant reports of upward pressure on rents and wages.