The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed July 28, 2010

Federal Reserve Districts

Third District--Philadelphia

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Economic activity has moved up slightly in the Third District since the last Beige Book, overall, although several sectors of the regional economy remained soft. Manufacturers, on balance, reported an increase in shipments but a slight decline in new orders in July. Retailers posted year-over-year increases in sales of general merchandise for the month, but motor vehicle dealers indicated that sales have decreased since the spring. Third District banks reported steady loan volume outstanding. Residential real estate agents and home builders said that home sales decreased sharply with the expiration in April of the federal tax credit for purchases and that sales have continued to be soft since then. Contacts in the commercial real estate sector said vacancy rates have been nearly level, but rents have been flat to down. Construction contacts continued to report low levels of activity. Service-sector companies generally reported just slight gains in activity. Business firms in the region indicated that prices of most goods and services have been steady, although there were increased reports of rising prices for some metals and construction-related products. Firms also reported increases in costs for employee health insurance.

The outlook among Third District business contacts is guardedly positive, but the level of optimism has waned somewhat since the last Beige Book. Manufacturers forecast a rise in shipments and orders during the next six months, although the balance of positive over negative views has declined since the previous report. Retailers expect sales to expand slightly but believe consumer confidence remains fragile. Auto dealers expect the sales rate to be steady in the months ahead, retreating from their previous view that sales would increase. Bankers expect slow growth in lending. Contacts in both residential and commercial real estate expect mostly flat activity during the rest of the year. Service-sector companies expect slow and uneven improvement.

Third District manufacturers reported a modest increase in shipments but a slight decline in new orders from June to July, on balance. Order backlogs also fell, overall. Among the major manufacturing industries in the region, producers of wood products, chemicals, and basic materials reported increases in orders; but orders were unchanged or declined in a majority of manufacturing sectors. In general, manufacturers continued to describe the increase in demand for their products as slow and uneven. One manufacturer said, "It has been very choppy. We seem to be getting some traction, then orders dry up."

Third District manufacturers expect business conditions to improve during the next six months, on balance, although the margin of positive opinions over negative opinions has declined since the previous Beige Book. Among the firms surveyed in July, about 40 percent expect increases in new orders and shipments, and 20 percent expect decreases. Capital spending plans among area manufacturers remain positive, on balance, but are not strong overall. About one-third of the firms polled in July plan to increase expenditures for new plant and equipment, but nearly one-half plan to maintain level spending, and nearly one-fourth expect to reduce spending.

Third District retailers reported that sales in June increased slightly compared with June of last year and that year-over-year growth continued at around the same modest pace in July. Most retailers said warm weather boosted sales of summer apparel, and some noted increases in sales of jewelry, but many reported that sales of home goods, especially big-ticket appliances, remained weak. Store executives continued to caution that much of the year-over-year improvement in sales was a consequence of last year's poor results and that this easy comparison will also affect the upcoming back-to-school and year-end holiday period. Most retail contacts agreed with the evaluation of a store official who said, "The consumer is still cautious and looking for value."

Third District auto dealers reported a drop in sales from May to June, with continued slowness in July. Although dealers said there continue to be shortages of popular models, they said overall demand for cars and light trucks has not been as strong recently as it was earlier in the year. Dealers have trimmed expectations since the last Beige Book; they now anticipate little change in the sales rate during the rest of the year.

Total outstanding loan volume at most of the Third District banks contacted for this report has been flat since the last Beige Book, and commercial bank lending officers said there has been little change in loan balances in any credit category. Some bankers reported that demand for business loans has increased, but demand for residential real estate and consumer credit has eased. Commercial bank officers indicated that credit quality has continued to improve slightly, but delinquencies and defaults remain above historical norms.

Looking ahead, Third District bankers expect slow loan growth, at best. They generally expect slight gains in business lending but continued softness in consumer and residential mortgage lending. Bank lending officers said credit standards remain more restrictive than they had been in the past few years. For business borrowers, one banker said this means a firm "must have stable relationships with customers and vendors and show reasonable expectations about cash flow" to be considered for new or renewed credit facilities.

Real Estate and Construction
Contacts in residential real estate markets reported sharp decreases in sales of new and existing homes after the expiration of the federal income tax credit for home purchases in April. The sales pace continued to be slow in July, according to real estate agents and builders. Residential real estate contacts expect sales during the rest of the year to be weak. One agent, whose remarks echoed many others', commented that "There was a lot of front loading to take advantage of the tax credit, and it remains to be seen how much activity there will be going forward." For both new and existing homes, contacts reported little change in prices, although in some parts of the region where foreclosures and short sales have been common, real estate agents said existing house prices continued to be under downward pressure.

Nonresidential real estate firms indicated that vacancy rates in commercial and industrial buildings have been nearly steady or have moved up slightly in most parts of the Third District in the past few months. Leasing activity has been flat, and effective rents have been about level for Class A space but have moved down for Class B space. Construction activity has been weak. Some contacts reported that projects financed by federal stimulus funds are near completion or have been finished and that there are no immediate prospects for more major infrastructure construction. Commercial real estate contacts expect market conditions to show little change in the second half of the year. One said, "We're stabilizing, but if companies cut space needs the market will be dragged down."

Service-sector firms generally reported slight improvement since the last Beige Book. Transportation companies reported increases in freight volume, and some information technology service providers have had slight recent increases in business. However, firms providing services to the construction industry continued to report low levels of activity. Looking ahead, most of the services firms contacted for this report expect growth to be slow and irregular for the rest of the year. One contact noted, "Demand from customers is coming only on a project basis."

Prices and Wages
Reports on input costs and output prices indicate little change since the last Beige Book. Most of the manufacturing firms polled in July reported no change from June in the costs of the commodities they use or the products they make. However, producers of primary metals raised prices. Home builders noted some increases in prices for lumber and drywall. Retailers generally noted that both wholesale costs and retail prices have been mostly steady. Across industries, firms reported increases in health-care costs as they negotiate new insurance contracts.

Business firms in the region reported little or no upward movement in wages, and most indicated that they have had no difficulty in filling open positions. Employment agencies reported that client companies have been cautious in adding employees or replacing those who have left, although they have increased use of temporary workers on an as-needed basis. Labor markets remain slack, according to employers and employment agencies, who report that they generally get large numbers of applicants for permanent positions; however, they also noted that they get smaller numbers of applicants for temporary positions.

Return to topReturn to top

Previous New York Cleveland Next

Home | Monetary Policy | 2010 calendar
Accessibility | Contact Us
Last update: July 28, 2010