The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed March 4, 2009

Federal Reserve Districts

Third District--Philadelphia

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Business conditions in the Third District remained weak in February. Manufacturers, on balance, reported declines in shipments and new orders. Retailers indicated that sales were nearly steady but below the level of a year ago. Motor vehicle dealers reported continued declines in sales. Bank loan volume has risen very slightly in recent weeks, but credit quality has continued to deteriorate. Residential real estate sales and construction remained low but appeared to be close to steady. Commercial real estate investment and construction activity have been moving down. Service-sector activity has generally declined in recent weeks. Business firms in the region reported decreases in most input costs and output prices in February.

The outlook among Third District businesses is generally not bright, although there has been some improvement since the last Beige Book. Manufacturers forecast increases in shipments and orders during the next six months. Retailers expect sales to remain slow while consumers remain concerned about job security. Auto dealers see no indications of improvement in sales. Bankers expect lending to move up slowly during the year. Residential real estate agents and home builders expect sales to remain slow through most of the year. Contacts in commercial real estate expect leasing and purchase activity to fall further this year, and they expect vacancies to rise. Service-sector firms expect activity to be slow through most of the year.

Third District manufacturers reported continuing declines in shipments and new orders, on balance, from January to February. Around one-half of the manufacturers surveyed noted decreases in those measures, and around one-fifth reported increases. The balance of negative over positive reports increased from January to February.  However, much of the recent worsening in the region's manufacturing sector has been among producers of primary metals and electrical equipment. Demand for industrial equipment and materials has been especially weak because, as one manufacturing contact said, "customer purchasing for capital projects is on hold." In contrast, demand has increased for food products, chemicals, some finished products, and testing and measuring instruments.

Despite poor current conditions, the outlook among Third District manufacturers has improved since the last Beige Book.  Among firms polled in February, nearly one-half expect new orders and shipments to increase during the next six months, and one-quarter expect decreases. However, capital spending among area manufacturers is being reduced, on balance, as the number of firms planning to cut outlays for new plant and equipment continues to exceed the number planning increases.

Third District retailers generally reported nearly steady sales during February, although the year-to-year comparison remained negative for most. Merchants said sales of basic apparel and household items have been steady or rising, but sales of most other lines of merchandise have been weak. Reflecting the comments of most area retailers, one store executive said, "The consumer is focused on the basics, and sales of big ticket items are still falling."  Merchants indicated that sales of big ticket appliance and electronics items and jewelry have been falling steeply. In contrast, sales of some apparel items were up. The outlook among the region's retailers is not positive, but some contacts believe consumer spending could gather strength if employment conditions show signs of stabilizing.

Third District auto dealers reported further slowing in sales in February. Demand has fallen for all makes and models. Dealers said the availability of financing for car purchases continued to limit sales, as well. Dealers also reported continued difficulty in obtaining inventory financing. Looking ahead, dealers see no signs of an upturn, and they expect the financial difficulties of domestic manufacturers to negatively affect demand for those companies' vehicles and the business operations of dealers selling them.

Total outstanding loan volume at Third District banks has edged up slowly in recent weeks, according to bankers contacted for this report. The gain has been mostly the result of modest growth in commercial and industrial lending. Residential real estate loan volume outstanding has been practically flat, and consumer loan volume has declined. Commercial bank lending officers attributed the slowness in lending to falling demand for credit. "The weakness in lending is on the demand side," one banker noted, and another said, "The news coverage has the public convinced the banks aren't lending, but we're looking for business." However, other bankers said that an ongoing process of consolidation among large banks with branches in the region continued to divert those institutions from major loan marketing efforts. Several contacts also noted that lending and investing by financial companies other than banks have been limited, especially in certain sectors, such as construction, real estate, and retail trade. Most of the banks contacted for this report said that credit quality continued to decline for all categories of credit. Looking ahead, bankers expect slow expansion in lending this year, and they are becoming increasingly concerned that a prolonged economic slowdown will result in further weakening in the creditworthiness of both business and individual borrowers.

Real Estate and Construction
Residential real estate activity in the Third District remained weak in February. Residential real estate agents and builders reported that sales have been nearly steady, but at a very slow pace. One builder said that "sales have been anemic," and another said the rate has been "the lowest we have ever seen." Inventories of both new and existing homes for sale have been practically unchanged since the beginning of the year. Builders continued to offer substantial incentives to purchasers, but real estate agents said an increasing number of sellers of existing homes have preferred to offer them for rent rather than accept low offers. Builders and agents expect sales to remain slow through most of this year, although some said that government programs to stimulate home buying could provide a lift to sales.

Commercial real estate firms indicated that construction, leasing, and purchase activity have remained on a downward trend since the last Beige Book. Contacts said a sharp reduction in financing for commercial real estate has put commercial properties of all types under downward price pressure, and that falling employment has reduced the demand for space, resulting in declining rents. Contacts expect commercial real estate investment and construction activity to remain weak through the year, and they expect vacancy rates to rise and rents to decline until overall economic conditions begin to improve.

Service-sector firms generally reported a drop in activity since the last Beige Book. Business and professional services firms indicated that the reduction in activity has prompted layoffs and other cost-cutting measures. Firms providing services to the construction, real estate, and finance sectors reported particularly sharp pullbacks in demand. One such firm said that "we are living hand to mouth" and trimming every possible budget item. Many of the region's educational institutions have also been limiting expenditures. Endowment values have declined for most, and some have seen reductions in applications and enrollments. The outlook among area service firms remains negative, and several contacts say they have pushed out their expectations for a rebound to later in the year or into next year.

Prices and Wages
Reports on input costs and output prices largely reflect further declines since the last Beige Book. Manufacturing firms continued to note decreases in prices for most of the materials they use. Most also reported reducing their own prices, although food processors have raised prices recently. Retailers have reduced prices for some apparel and many large appliances and furniture, mainly in an effort to work down inventories in preparation for new spring merchandise. Prices of other goods were said to be mostly steady.

Firms in a wide range of industries reported they were implementing salary freezes or reductions and cutting back on fringe benefits, including 401-K matching contributions. A growing number of employers in the region have announced hiring freezes as well as immediate and prospective layoffs. Several firms that reported they intended to maintain staffing levels noted that they were reducing hours, imposing unpaid furloughs, or scheduling temporary plant shutdowns in order to reduce wage bills. 

Return to topReturn to top

Previous New York Cleveland Next

Home | Monetary Policy | 2009 calendar
Accessibility | Contact Us
Last update: March 4, 2009