The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed October 19, 2011

Federal Reserve Districts

Third District--Philadelphia

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Business activity in the Third District has remained mixed, with more positive sectors than negative ones compared with the previous Beige Book. In late August and early September, Hurricane Irene and Tropical Storm Lee left dozens of people injured or dead, damaged or destroyed thousands of homes, and cost hundreds of millions of dollars in disruption and damage throughout much of the Third District. Since the last Beige Book, manufacturing activity has declined further, but at a slower rate. Retailers reported flat to slightly down year-over-year sales. Motor vehicle dealers provided a bright spot with stronger year-over-year sales. Third District banks have reported little overall change in loan volume outstanding since the last Beige Book. On balance, residential real estate and construction activity have been slightly stronger since the last Beige Book, which was released soon after the debt-ceiling turmoil. Commercial real estate contacts have continued to report steady to slightly improved market conditions in most parts of the Third District. Service-sector firms reported generally flat to modest growth. Price pressures have moderated for many sectors but continue to strain profit margins.

Most Third District business contacts had already lowered their expectations over the past few months--projecting slow to flat growth through year-end. Ongoing uncertainty since the previous Beige Book has not significantly altered their outlook. Manufacturers still expect a modest rise in shipments and orders during the next six months. Retailers are hopeful for stronger sales, and auto dealers are uncertain; both have lean inventory plans. Most banking and residential real estate contacts had lowered their expectations before the last Beige Book. Commercial real estate contacts and service-sector firms continue to plan for slow growth; however, uncertainty has increased.

Since the last Beige Book, Third District manufacturers reported further decreases in new orders and shipments; however, the rate of slowdown has lessened and is less widespread. The makers of primary metals, fabricated metals, and electronic equipment reported declining product demand. However, growing product demand was reported by makers of food products, lumber and wood products, industrial machinery, and instruments, and by printers and publishers. Hurricane Irene and Tropical Storm Lee were mentioned positively (as a source of increased demand for cleanup, repairs, and emergency equipment) and negatively (for flooding, harvesting problems, and shipment delays) by almost equal numbers of firms. However, most firms were unaffected. Two key firms that supply or service manufacturers and other broad sectors have reported steady modest growth since the last Beige Book. Both anticipate stable growth from most of their clients (except defense-related firms) for the remainder of the year.

Third District manufacturers expect business conditions to improve during the next six months, despite expressing significant uncertainty. Since the last Beige Book, the general outlook has improved substantially, with nearly one-third more firms expecting an improvement and one-third fewer firms expecting a decline. Capital spending plans among area manufacturers remain slightly positive; however, significant uncertainty has been expressed.

For most of August and September, Third District retailers reported that sales were flat to down compared with a year earlier. However, "October started off with a bang," said one department store chain manager. Low consumer confidence and rising uncertainty were widely cited as reasons for maintaining low inventory levels as the holiday season approached. Missed profit opportunities may result if the holiday sales prove stronger than last year, but a flat to down season could force further retail store closings.

Auto sales picked up in August and September, according to Third District auto dealers. Sales growth meant market share losses for Honda and Toyota, which have resumed full production, but whose dealer inventory may not be fully replenished until early 2012. Inventories remain lean and used cars remain scarce, leading to strong prices for dealers. Limited rehiring may ensue, if sales growth continues.

At most of the Third District banks contacted for this report, total outstanding loan volume has been roughly level since the previous Beige Book. Overall, commercial and industrial loans and commercial real estate loans have contracted somewhat. Bankers anticipate continued low consumer loan demand due to high unemployment rates and ongoing deleveraging, which has accelerated with the recent surge in refinancings. Credit quality, along with growing corporate and household cash balances, is improving. The outlook among Third District bankers interviewed in September is that total loan volume will expand only slightly over the remainder of the year.

Real Estate and Construction
Residential real estate activity in the Third District has been mixed with sales rising, then falling since the previous Beige Book, and with builders reporting slight gains in activity. August sales figures finished up over the year, but agents reported that September would be off last year's pace. Properties are moving, but inventory remains very high. Overall, 2011 sales are expected to be lower than 2010 in all three Third District states. While trends and timing varied across states, builders reported somewhat stronger activity overall, since some distance has passed since the debt-ceiling debate. Still, sales remain difficult, and buyers noncommittal, as economic uncertainty increases. "People are really scared," said one builder. Labor and material costs have flattened, but list pricing has, as well; therefore, builders are struggling to hold margins. The industry remains cautious.

Caution guides the commercial and industrial real estate sector as well, but the sector is less susceptible to the news cycle. Since the last Beige Book, continued slow growth has been observed, with select markets beginning to tighten. In those markets, vacancy rates tend to drop, rents rise, and concessions disappear. Investor interest has picked up, but deals remain difficult to close. New construction or renovation plans are mostly limited to institutional, life sciences, multifamily, and warehousing sectors in selected markets.

Third District service-sector firms have reported flat to modest growth since the last Beige Book. A logistics firm reported above-average improvement, noting some growth was seasonal. A staffing firm noted that its flat activity was marked by relatively greater interest in workers with high skills or low skills and little or no interest in workers with medium skills. The debt-ceiling agreement has increased caution for defense-related firms and may be a cause of future layoffs. These firms as well as several other large service firms reported greater efforts to expand their overseas markets, where their growth rates have been stronger. Firms remain generally positive, but very cautious, reporting that their own customers often delay decisions.

Prices and Wages
Since the previous Beige Book, general price levels remain contained. Price pressures have flattened or lessened further for retailers, service-sector firms, and builders for most factor prices; however, margins remain very tight. Retailers did note increases for cotton products. Manufacturers have been reporting slightly greater price pressures and modestly greater success at passing along those costs. Rents are rising in a few select markets, but house prices remain soft or are falling, and wages pressures are low. However, reports of shortages of skilled labor may reflect unrealistically low wage offers.

Return to topReturn to top

Previous New York Cleveland Next

Home | Monetary Policy | 2011 calendar
Accessibility | Contact Us
Last update: October 19, 2011