The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed October 24, 2001

Federal Reserve Districts

Third District - Philadelphia

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Business activity in the region slowed in mid-September following the attacks in New York and Washington and picked up slowly late in the month and in early October. Manufacturers reported declines in shipments and orders in October compared with September. Retail sales have moved up after being extremely slow in mid-September, but they have been just level compared with a year ago. Auto sales also moved up, but remain below last year's pace. Bank loan volumes rose slightly in September, with gains in business and residential real estate loans, but consumer credit has been flat. Travel and tourism activity remains weak, although it has improved since mid-September.

Looking ahead, businesses in the District have mixed views, and all indicate that they face greater uncertainty than usual. Manufacturers forecast increases in orders and shipments during the next six months. Retailers, however, expect sales in the remaining months of the year to be even with or to fall below last year's results. Auto dealers also anticipate a slowdown in sales. Commercial bank credit officers expect continued slow growth in commercial and industrial lending, but they are uncertain what course consumer lending will take. They expect residential real estate lending to ease.

Third District manufacturers reported continuing declines in activity in October. Orders and shipments were down compared with September in nearly all the major manufacturing sectors in the region, although some firms producing chemicals and plastic products reported increases in orders. Half of the manufacturing firms contacted for this report indicated that orders for their products fell following the September terrorist attacks, around one-third reported no changes in order flows after the attacks, and just over one in 10 said their orders increased. In general, the region's manufacturers reduced employment and working hours in October compared with September, and they continued to trim inventories.

Local manufacturers' forecasts have been virtually unchanged, although several firms noted that some of their usual customers have reduced or postponed orders, and they are uncertain when regular buying will resume. Nevertheless, more than half of the firms surveyed in early October forecast increases in orders and shipments during the next six months. They expect business to improve gradually, with momentum building through next year. Capital spending plans at area firms call for slight increases, on balance, during the next six months.

Third District retailers reported improved sales in the past few weeks, but most indicated that the recent sales pace remains below the rate prior to the September terrorist attacks. Overall, general merchandise sales in the region in early October were flat compared with the same period a year ago. Discount stores were achieving some gains, but sales at department and specialty stores were down. Sales of luxury goods were off more than sales of basic goods. Some merchants reported increased sales of home furnishings, but appliance and furniture sales in general were not strong. Apparel sales appeared to be weaker than many retailers had expected. Stores have been expanding price reductions in an effort to boost sales, but many merchants feel consumer confidence is too fragile to support a solid gain in sales regardless of markdowns.

Local store executives have reduced their forecasts for the year-end shopping season, leading some to predict a year-over-year decline. Although most retailers indicated that their current inventory levels were not high, some stores have cancelled orders or resold on-order goods to other stores. As revenues continue to track below plan, stores have laid off workers.

Overall sales of cars and light trucks picked up in the region in late September and early October, but remain well below year-ago levels. Manufacturers' incentives have boosted customer traffic, but sales have not risen commensurately, and inventories have been rising. Dealers expect some reduction in the sales rate as the year closes, and they have cut back orders to manufacturers.

Lending at major Third District banks rose slightly in October. There were small gains in business loans and residential real estate loans. Residential real estate lending increased for both refinancings and purchase mortgages. Credit card lending has slipped, as has consumer installment lending generally. Banks have experienced some increases in nonperforming loans, on balance, but most of the bankers contacted for this report said the increases have been slight.

Commercial bankers in the Third District expect business lending to remain on a positive trend, although they anticipate only slight gains. Several banks indicated they were restricting lending in sectors where activity has weakened, such as travel related businesses, commercial printing, and retailing. Bankers in the region do not expect lending for home purchases or residential real estate development to continue at the current pace, but they see no signs yet that a sharp drop is imminent. Bankers expect consumer lending to track retail sales, but they say the outlook for consumption spending in the region is uncertain.

Banks in the Third District reported that their net interest margins have become very tight as market interest rates have eased. Several indicated that they cannot reduce deposit rates further without risk of losing balances. Bankers said the need to maintain deposit rates limits their ability to reduce lending rates.

Transportation and Travel
Travel and tourism activity in the Third District has increased slightly in the past few weeks, but remains below the year-ago level as well as below the level prior to the terrorist attacks. Lodging and air transport companies have laid off workers in the region. Port activity has increased slightly as both freighters and cruise ships have been diverted from New York. This source of business is expected to last through the winter, but firms involved in port activity say their overall business is not likely to rise if the U.S. and foreign economies slow down.

Return to topReturn to top

Previous New York Cleveland Next

Home | Monetary Policy | 2001 calendar
To comment on this site, please fill out our feedback form.
Last update: October 24, 2001