July 27, 2011
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Prepared at the Federal Reserve Bank of Philadelphia and based on information collected on or before July 15, 2011. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicated that economic activity continued to grow; however, the pace has moderated in many Districts. The six Districts nearest the Atlantic seaboard reported a slowdown in activity since the previous Beige Book report; activity was little changed in the Atlanta District and unchanged or slightly improved in the Richmond District. Of the other six Districts, the Minneapolis District reported political and weather-related disruptions that temporarily slowed growth, and the Dallas District slowed to a moderate pace of growth. The remaining four Districts continued to grow modestly. The previous Beige Book reported a slower growth rate for four Districts, seven Districts growing at a steady pace, and one District with faster growth.
Consumer spending increased overall, with modest growth of nonauto retail sales in a majority of Districts. Falling gasoline prices throughout most of this reporting period may have encouraged a pickup in shopping trips and some additional spending since the previous Beige Book. Price pressures from food, energy, cotton, and other supplier inputs continued to squeeze retail margins. Auto sales slowed a little since the previous Beige Book, with inventories still lean due to Japanese supply chain disruptions. The summer tourism season has started off stronger than last year in most areas unaffected by severe weather.
Activity among nonfinancial service sectors improved overall in most Districts. Of the five Districts reporting on transportation services, volumes were mostly up. Manufacturing activity expanded overall, with two Districts growing at a somewhat faster rate since the last Beige Book, many Districts reporting steady or slowing growth, and two Districts reporting little change. Among firms reporting on near-term expectations, the manufacturing outlook remained generally optimistic, but capital spending plans were somewhat more cautious.
Most residential real estate activity was little changed and remained weak, although construction and activity in the residential rental market continued to improve since the previous Beige Book. For six Districts, activity in the nonresidential real estate market has improved slightly for specific submarkets, although conditions generally remained weak across all twelve Districts. Since the last Beige Book, overall loan volumes have increased in three Districts, decreased in two Districts, and were relatively flat, often with mixed trends across the banks' portfolios, in five Districts. Credit quality was steady or improving.
Drought conditions and severe flooding adversely affected large portions of the seven Districts that reported on their agricultural sectors. Districts that reported on their energy and mining sectors continued to note strong growth for most energy-related products but some weakness in coal production.
Although most Federal Reserve Districts observed modest hiring increases, labor market conditions remained soft. Wage pressures continued to be subdued for all but a few specific occupations in some Districts. Price pressures moderated somewhat in many Districts, although some firms indicated that they were able to pass on some cost increases to their customers.
Consumer Spending and Tourism
Reports of auto sales were mixed across Districts and varied by vehicle make, with most Districts indicating that dealer inventories were lean primarily due to lingering supply disruptions for Japanese vehicles and parts. Auto dealers in the Kansas City District cited strong sales despite reduced incentives and credited, in part, continued low interest rates and tornado damage. The Chicago District noted lower sales in June as incentives decreased and showroom traffic declined, followed by improved sales in early July. The New York, Philadelphia, Richmond, Atlanta, St. Louis, Dallas, and San Francisco Districts noted varying degrees of lower sales stemming from Japanese supply constraints. Strong demand for smaller vehicles and used cars continued in several Districts. The Cleveland District described dealers' outlook as cautious due to uncertainty about gas prices, the economy, and vehicle availability.
Tourism activity strengthened in most Districts as the summer season got underway. The Richmond District reported that bookings along the Mid-Atlantic coast were comparable to the 2010 season, despite last year's increase from additional vacationers who were avoiding the Gulf Coast oil spill. The New York, Atlanta, and San Francisco Districts also reported increased tourism. Tourism was also up in parts of the Kansas and Minneapolis Districts, except for destinations adversely affected by drought, heavy rains, flooding, and Minnesota's state government shutdown.
Growth continued among manufacturers in the Boston and Dallas Districts as well; however, results were more mixed. Contacts in the Boston District cited stronger growth for products related to foreign demand, non-luxury consumer goods, and clients addressing deferred maintenance needs. Softer growth was reported by firms delivering consumer luxury goods, and products or services to the small business, banking, and government sectors.
Manufacturing firms in the Philadelphia, Richmond, and Atlanta Districts reported somewhat slower rates of growth overall. However, the Philadelphia District reported a lull early in the period, followed by resumption of a slow rate of growth in early July, while the Richmond District reported moderate gains, which stalled in early July. Manufacturing firms in the New York District reported a pause in growth throughout the period.
Manufacturing firms' expectations of future activity were optimistic in the Boston and Philadelphia Districts, although Boston's firms were less positive than in the previous Beige Book, and Philadelphia's firms were more positive. Firms in the Boston District indicated limited plans for capital spending, while firms in the Philadelphia, Cleveland, Chicago, and Dallas Districts maintained plans for capital spending at prior levels. Fewer firms in the Cleveland District were reporting delays to project starts for their capital spending plans.
Real Estate and Construction
Nonresidential real estate activity improved somewhat in the Boston, Philadelphia, Cleveland, Chicago, St. Louis, and Dallas Districts. The Chicago District reported strong demand for industrial facilities, particularly from the automotive sector. The Philadelphia District reported improvements in terms of lower vacancy rates for office space, industrial space, and apartments; the Chicago District reported generally lower vacancy rates. The New York, Richmond, Atlanta, Minneapolis, Kansas City, and San Francisco Districts all reported generally weak activity in nonresidential real estate. Construction in the Minneapolis District stalled in areas because of flooding and unavailability of state building inspectors due to the Minnesota state government shutdown. Health care and apartment construction was a bright spot for the Atlanta District. Activity was weak in the Kansas City District, but firms that supply construction materials reported increased sales and stable prices. San Francisco reported stable but high vacancy rates in many parts of the District.
Banking and Finance
Credit conditions have changed little since the previous Beige Book. Banks in the New York, Cleveland, Richmond, Chicago, and Dallas Districts reported that credit quality was flat or somewhat improved. Bankers in the Richmond, Atlanta, Chicago, Dallas, and San Francisco Districts noted that competition among lenders for high-quality borrowers was squeezing banks' margins and lowering the cost of capital for those borrowers. Bank contacts in the New York, Atlanta, Chicago, Kansas City, and San Francisco Districts indicated that credit standards were mostly unchanged at tight levels, but the Cleveland District heard a few reports of easing standards for good borrowers.
Agriculture and Natural Resources
Activity in the energy sector remained strong. Shale exploration increased in the Atlanta and Cleveland Districts. The Cleveland District also reported little change in the production of oil, natural gas, or coal, despite rising demand for coal. The St. Louis District reported higher coal production than the prior year. The Minneapolis District reported continued strong mining activity and mixed plans for wind farms and biodiesel. The Kansas City District reported expanded drilling activity and higher ethanol production but weak coal production. The Dallas District also reported strong drilling activity, and the San Francisco District reported strong activity for metal mining, along with oil and gas extraction.
Employment, Wages, and Prices
Wage pressures remained subdued in most Districts and for most occupations. For the overall labor market, the Philadelphia, Cleveland, Richmond, Kansas City, Dallas, and San Francisco Districts reported limited wage pressures. Wage pressures or wage increases were characterized as modest or moderate by the Atlanta, Chicago, Minneapolis, and San Francisco Districts. Boston District contacts reported wage growth between 3 percent and 5 percent in consulting and advertising. In addition, contacts in the Kansas City District reported labor shortages and wage pressures in the retail sector and for many occupations in the high-tech, energy, and transportation sectors, while the San Francisco District reported continued wage pressures for specialized information technology workers.
Price pressures seemed to have moderated somewhat, although some firms reported being able to pass on some rising costs. Overall, input price pressures appeared to have fallen modestly. Input price increases remained elevated in the Philadelphia, Chicago, Minneapolis, and Kansas City Districts. Meanwhile, the Boston, Cleveland, Atlanta, and San Francisco Districts reported moderation in input price pressures relative to the previous Beige Book. For the most part, firms' ability to pass on price increases remained mixed. A few Districts reported some sectors being able to pass on rising prices, such as the retail sector in the Chicago District and service-sector firms in the Dallas District.