January 13, 2010
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Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before January 4, 2010. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report. Ten Districts reported some increased activity or improvement in conditions, while the remaining two--Philadelphia and Richmond--reported mixed conditions. The last Beige Book reported eight Districts with increased activity or improving conditions and four Districts showing little change and/or mixed conditions.
Most Districts reported that consumer spending in the recent 2009 holiday season was slightly greater than in 2008, but still far below 2007 levels. Retail inventory levels remain very lean in nearly all Districts. Auto sales held steady or increased slightly since the last Beige Book in most Districts. Reports on tourism were mostly flat or weak, but for two Districts whose ski resorts enjoyed early season snowstorms. Nonfinancial services activity generally improved in Districts that reported on this sector. Of five Districts reporting transportation services, volumes were slightly up or mixed. Manufacturing activity has increased or held steady since the last report in most Districts. Among Districts reporting on near-term expectations, the manufacturing outlook was optimistic, but spending plans remain cautious.
Toward the end of 2009, home sales increased in most Districts, especially for lower-priced homes. Home prices appeared to have changed little since the last Beige Book, and residential construction remained at low levels in most Districts. Commercial real estate was still weak in nearly all Districts with rising vacancy rates and falling rents. Since the last report, loan demand continued to decline or remained weak in most Districts, while credit quality continued to deteriorate. Cold weather at the end of the year adversely affected some late crops and stressed livestock, but above-average yields for early crops were reported by some Districts. Energy-related production has risen moderately since the last Beige Book.
Although some hiring was reported in a few Federal Reserve Districts, labor market conditions remained generally weak with modest wage increases appearing in just a few Districts. Price pressures remained subdued in nearly all Districts, though increases in metals prices were reported and agricultural prices have been mixed.
Consumer Spending and Tourism
Auto sales were flat or up slightly for some dealers since the last Beige Book in the Atlanta, Chicago, Cleveland, and Philadelphia Districts. Dealer incentives boosted year-end inventory clearance according to Chicago District contacts. In the Dallas, Minneapolis, New York, and San Francisco Districts auto sales held steady or were mixed across states. The Kansas City and Richmond Districts reported lower auto sales since the last report. Some dealers in the Cleveland and New York Districts cited difficulties securing floor-plan financing. Difficulties securing customer financing was a concern cited by some Kansas City District dealers, while Philadelphia District dealers credited easier financing for supporting their recent sales.
Early-season snowstorms gave ski resorts a big lift in the Richmond and Minneapolis Districts; otherwise travel and tourism reports were mostly flat or weak in these and other Districts. One Minnesota-based travel services firm shut down due to lack of demand, and Richmond's tourism contacts reported consumers searching for deeply discounted packages and dining out less despite special offers. The New York, Atlanta, and Kansas City Districts also reported flat or weaker tourism. New York City's Broadway theaters reported weaker attendance this past holiday season than in 2008. Atlanta reported sluggish tourism throughout their District, but expected a boost from hosting upcoming National Football League events, and from strong 2010 cruise line bookings--a result of deep discounting. Kansas City and San Francisco noted sluggish business travel, placing downward pressure on airline passenger volumes, while Dallas reported airline demand recovering and fares stabilizing. The San Francisco District reported greater visitor volumes in Hawaii and Las Vegas, while occupancy rates in Seattle and Southern California were down.
Among the five Districts reporting on transportation services, activity was mostly up slightly, or mixed. Freight shipping volumes were up slightly in the Atlanta, Cleveland, and Dallas Districts, while Kansas City reported a slight slowdown in activity. The Richmond District's port activity gained from increased international trade, especially imports of high-end vehicles, but intermodal firms in the Dallas District reported that imports dropped and exports flattened producing no increase in cargo volumes. Dallas also reported continued declines in rail cargo volume.
Three Districts reported mixed results for manufacturing. Food products, furniture, and chemical firms reported slight increases in the Philadelphia District while other manufacturing sectors continued to decline. Dallas reported strength in high-tech and corrugated packaging, seasonal increases in food producers, little change in fabricated metals and petrochemicals, seasonal decreases in aircraft components, and weaknesses in emergency vehicles and construction-related manufacturing. The Minneapolis District reported manufacturing activity up in Minnesota, but down in the Dakotas based on a recent survey of new orders.
Manufacturing activity was weak in the other Districts. Richmond reported widespread weakness across shipments, new orders, and employment within its manufacturing sector and Atlanta saw orders and production drop back after an increase in November. The St. Louis District reported a continued decline in activity, persistent weakness in employment, and plant closings, on net.
Manufacturers' expectations for the near future as reported from the Boston, Chicago, Cleveland, Kansas City, New York, and Philadelphia Districts were all optimistic, although Kansas City firms were less optimistic than the last report. Capital spending plans remained more cautious. Only Boston and Philadelphia reported that firms were planning to increase capital spending in the current year. Cleveland, Chicago, and Kansas City reported expectations of continued modest spending.
Real Estate and Construction
Nonresidential real estate conditions remained soft in nearly all Districts. New York, Philadelphia, Kansas City, and San Francisco reported further weakening in demand for commercial and industrial space. Boston received mixed reports on sales and leasing activity from commercial real estate contacts in the District, and Minneapolis reported some increases in sales of commercial buildings. Richmond reported that sales of nonresidential properties remained slow, but that leasing of office and retail space has picked up. Vacancy rates were rising and rents were declining in most Districts. Several Districts reported that landlords were focused on tenant retention and that slack demand was allowing tenants to negotiate lease extensions at low rents and with favorable allowances. San Francisco reported that lower rents appeared to be supporting an upturn in leasing in some parts of that District, although vacancy rates continued to rise. Nonresidential construction activity was generally weak in all Districts, although St. Louis reported some gains in construction of education facilities and Cleveland reported a recent increase in nonresidential contracting.
Banking and Finance
A number of Districts reported that credit quality continued to deteriorate. Financial institutions in the New York District reported ongoing increases in delinquencies for all types of loans. Banks in the Philadelphia District reported that delinquencies and defaults continued to rise for all types of loans, although less sharply than at the time of the previous Beige Book. Cleveland received reports of steady consumer credit quality but high and rising commercial loan delinquencies. Kansas City noted year-over-year declines in credit quality among financial institutions in the District, and Dallas and San Francisco reported continued deterioration at financial institutions in their Districts.
Agriculture and Natural Resources
Production of energy-related materials has risen moderately since the last Beige Book. Atlanta reported that oil production has continued to increase. Minneapolis reported an increase in oil and gas exploration, and Kansas City and Dallas reported increases in drilling. San Francisco noted an increase in extraction of natural gas but a continued low rate of oil extraction. In contrast to generally rising oil and gas production, coal production was reported to have declined by Cleveland and St. Louis, and falling iron mining activity was reported by Minneapolis.
Employment, Wages, and Prices
Price pressures remained subdued in nearly all Federal Reserve Districts, although increases in metals prices were noted in Boston, Cleveland, Minneapolis, Dallas, and San Francisco. Raw materials prices, other than metals, were reported to be mostly steady, although firms in the New York, Philadelphia, and Chicago Districts noted some increases in the cost of the inputs they use. Agricultural commodity prices were reported on the increase by Chicago, Kansas City, and Dallas. Most Districts reported that retail prices have been steady.