September 8, 2010
Federal Reserve Districts
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Business conditions in the Third District have been mixed since the last Beige Book. Manufacturers, on balance, reported slight decreases in shipments and new orders in August. Retailers posted seasonal increases in sales as well as year-over-year gains. Motor vehicle dealers also generally posted year-over-year gains but indicated that sales have been only steady in recent weeks. Third District banks reported steady loan volume outstanding in the past few weeks. Residential real estate agents and homebuilders said that there has been no rebound from the sharp drop in home sales that followed the expiration of the federal tax credit for purchases. Contacts in the commercial real estate sector said there has been practically no change since the last Beige Book in the generally weak market conditions around the District. Service-sector firms reported mostly flat or very slight increases in activity since mid-summer. Business firms in the region indicated that prices of most goods and services have been steady, although there continued to be reports of increased prices for some metals and wood products. Several retailers said they were receiving indications from suppliers that wholesale prices will be increased toward the end of the year.
The outlook among Third District business contacts is positive but not strong. Manufacturers forecast a rise in shipments and orders during the next six months. Retailers expect sales to expand slightly but see no signs that the pace of growth will quicken. Bankers expect little or no growth in lending in the near term. Contacts in both residential and commercial real estate expect flat activity during the rest of the year. Service-sector companies expect slow growth for the rest of the year.
Third District manufacturers expect business conditions to improve during the next six months, on balance. Among the firms surveyed in August, about 40 percent expect increases in new orders and shipments, and about 20 percent expect decreases. Capital spending plans among area manufacturers remain positive, overall, but are not strong. About one-third of the firms polled in August plan to increase expenditures for new plant and equipment, and about one-fifth expect to reduce spending. Several manufacturing executives indicated that uncertainties about economic conditions and policies were deterring advances in business activity. One noted that, "There is no sign of sustainable improvement in demand, so we remain cautious about inventories, capital spending, and hiring." Another said, "Investment spending is not increasing because of concern about tax increases on business owners."
Third District auto dealers reported roughly steady sales during July and August at a rate somewhat above the year-ago pace. Dealers expect sales to continue to run at about the current rate for the rest of the year. However, some dealers said manufacturers' incentives are supporting sales of current model-year vehicles, and sales could slip when that supply is depleted and replaced by new model-year vehicles.
Tourism officials and industry executives in the region generally reported increased activity compared with last year, although most noted that overall business remained below the levels of 2007 and 2008. Contacts indicated that travel and tourism revenue was only modestly above the year-ago level as lower spending per person partially offset increased numbers of people visiting the region's tourist attractions.
Looking ahead, Third District bankers expect little, if any, growth until both consumer and business confidence strengthen. Some bankers said business lending could begin to move up in the near term, but the consensus was that loan growth overall will be slight until there are clear signs that economic conditions are improving.
Real Estate and Construction
Nonresidential real estate firms indicated that there has been little change in commercial and industrial markets since the last Beige Book. Contacts reported that purchases of income-producing properties by investors have picked up somewhat, but they said that commercial construction activity remains very slow, and there are few, if any, indications that new projects will be started in the near future. Commercial real estate contacts expect market conditions to show little change for at least the rest of the year. They believe that recent increases in available space are likely to restrain lease rates and, as one said, "Put a damper on future construction."
Prices and Wages
Business firms in the region reported no significant change in wages. Employment agencies reported that client companies have begun to fill positions that have been open but do not appear to be adding employees. Some staffing firms said client companies are looking to rely more on temporary and contract workers to meet variable and uncertain workloads, rather than hiring permanent employees.