December 1, 2010
Federal Reserve Districts
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Business activity in the Third District has been varied across sectors since the last Beige Book. Manufacturers, on balance, reported increases in shipments and new orders in November. Retailers have been making year-over-year gains in sales. Motor vehicle dealers have also posted year-to-year sales increases. Third District banks reported practically unchanged loan volume outstanding since the last Beige Book. Residential real estate agents and homebuilders indicated that the recent sales trend has been downward. Contacts in the commercial real estate sector said market conditions remain soft. Service-sector firms reported that activity has been roughly steady in the past month. Business contacts indicated that prices of most goods and services have shown no change, although retailers noted recent increases in prices for goods ordered from foreign suppliers.
Most Third District business contacts foresee slow improvement ahead. Manufacturers forecast a rise in shipments and orders during the next six months. Retailers expect sales for this year's holiday shopping period to exceed sales for the same period last year. Bankers expect just slow growth in lending in the next few months. Contacts in residential real estate expect activity to move up slowly, at best, but contacts in commercial real estate do not anticipate a meaningful change from current soft conditions in the near future. Service-sector companies expect slow growth from now into next year.
Third District manufacturers expect business conditions to improve during the next six months, on balance. Among the firms surveyed in November, about half expect increases in new orders and shipments, and about one-fifth expect decreases. Capital spending plans among area manufacturers have increased somewhat in recent months, although many noted that implementation of new plant or equipment is primarily to replace obsolete equipment, increase efficiency, or meet pollution control requirements. Several firms said they will not expand production facilities until they get orders they are unable to fill with their current capacity.
Third District auto dealers reported rising sales and improved profitability since the last Beige Book. Inventories were generally described as appropriate for the current sales rate. Dealers expect sales to rise until the end of the year, but some expressed concern that the sales pace might slip during the first quarter of 2011, after the better than expected results of 2010.
According to the Third District bankers surveyed for this report, the outlook is that there will be only slow growth in lending to both consumers and businesses in the months ahead. Although bankers in most parts of the District believe economic conditions are improving gradually, they do not expect a parallel rise in loan demand. And one banker expressed concern that economic recovery will come too slowly to reverse deteriorating financial conditions among some local firms.
Real Estate and Construction
Nonresidential real estate firms indicated that there has been little change in conditions in commercial and industrial markets since the last Beige Book. Contacts said that vacancy rates and rents have been nearly steady, although there have been increased reports of landlord concessions. Several contacts reported that tenants have been taking advantage of lower effective rents, resulting in increased leasing activity and relocations, but no increase in leased space. Some contacts noted recent signs of growing investor interest in apartment buildings and some Class A office buildings, but retail buildings continued to be out of favor. The pace of commercial construction remains slow, although there have been some recent increases in renovation and remodeling activity. Commercial real estate contacts expect current market conditions to persist. "Next year will be a lot like this year," one contact said. Building owners and agents agree that a significant increase in demand for commercial and industrial space will not take hold until employment begins to grow more strongly.
Prices and Wages