The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed July 23, 2008

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 weakened somewhat from June to July. Manufacturers, on balance, reported declines in new orders and shipments. Retailers posted mixed sales results, with year-over-year increases at discount stores but decreases at most other types of stores. Motor vehicle sales continued to fall, and the year-over-year decline has worsened. Bank lending has been increasing slowly in recent weeks. Residential real estate sales and construction activity have eased further. Commercial real estate leasing and construction activity have remained sluggish. Reports of increases in input costs and output prices were somewhat more common in early July than they were in June.

The outlook among Third District businesses varies. Manufacturers forecast increases in shipments and orders during the next six months, but they have become less confident of a strong recovery. Retailers generally do not expect a near-term strengthening in sales, and auto dealers expect slow sales to persist through the rest of the year. Bankers anticipate a sluggish advance in overall lending. Residential real estate agents and home builders expect sales to continue to remain slow for some time. Contacts in commercial real estate expect leasing and construction activity to remain soft as long as overall economic conditions are uncertain. Service sector firms expect slow growth.

Third District manufacturers reported a fall in shipments and new orders, on balance, during early July compared with June. Around one-third of the manufacturers surveyed noted declines in those measures, twice as many as reported increases. Most of the firms that noted increased demand for their products cited company-specific circumstances for the gains; overall, there did not appear to be any clear industry pattern to the mix of positive and negative reports.

The outlook in the Third District manufacturing sector remains positive despite the on-going slowness in activity. Nearly one-half of the manufacturers contacted for this report expect new orders and shipments to rise during the next six months, and around one-fifth expect declines. However, since the last Beige Book more manufacturers say the outlook has become less clear and capital expansion plans remain limited. One firm cited "general uncertainty about demand" and another said "concern about tax increases are a drag on business expansion."

Retailers in the Third District gave mixed reports on sales in early July. Discount stores posted year-over-year gains, but most other stores had declines. Discount, department, and appliance stores generally received a boost from sales of appliances and consumer electronics, especially televisions, which they attributed to income tax rebates. However, the increase in sales of these items was not sufficient to raise total sales above the year-ago level for most retailers. Despite what one store executive termed "very large markdowns" on many types of merchandise, total sales have fallen below the year-ago level for many stores. Business contacts also noted that restaurant business has declined since the spring and that vacation-related spending has not been strong. Store executives see no signs that consumers will step up spending soon. They observed that store traffic has declined and that consumers seem to be limiting themselves to what one retailer called "targeted shopping trips" for specific needed items.

Auto dealers in the region reported a continuing downward sales trend in early July. Although sales of some foreign small cars were rising, total sales of light vehicles were well below the level of a year ago. Dealers reported a sharp shift in preferences for different types of vehicles, resulting in an undesired rise in inventories of pickup trucks and SUVs while supplies of small cars have been inadequate to meet demand. Dealers expect a prolonged period of slower sales while buyers' interest in large vehicles remains low and manufacturers retool to produce more small cars.

Total outstanding loan volume at Third District banks has been increasing slowly in recent weeks, according to bankers contacted for this report. There have been slight gains in all major credit categories. Most of the banks surveyed reported slow but steady growth in commercial and industrial lending, an easing in expansion of consumer credit, and very slight increases in real estate lending. Several banks indicated they were putting limits on new home-equity lending and reducing amounts available under existing home-equity credit lines. Banks were generally raising credit standards. One lending officer said his institution was "tightening standards across the board," and another said his bank was "paring back loan-to-value ratios" for real estate lending. Nonbank financial companies were also tightening credit standards, and some were curtailing lending to certain industries, particularly real estate and retailing. Banks generally reported further deterioration in credit quality across all loan categories. Looking ahead, bankers expect loan growth to remain sluggish until overall business conditions show definite signs of strengthening.

Real Estate and Construction
Residential real estate activity in the third District has weakened since the spring. Residential real estate agents reported sales of existing homes have slowed, and home builders continued to see falling sales and rising cancellations. Real estate contacts also reported that sales prices of both existing and new homes continued to decline, although they indicated that in most parts of the District the drop has not been steep. Real estate agents said economic uncertainty and concern about the future course of house prices was restraining home buying. One agent said "buyers are looking at more homes and taking longer to buy" and another said "the unstable economy continues to bring anxiety to a lot of pent up potential demand."

Commercial real estate firms indicated that construction, leasing, and purchase activity remained sluggish. Rents have been steady. However, there has been an increase in the overall vacancy rate, according to some commercial real estate agents, as tenants have reduced their occupied space and offered unused space on the sublet market. Contacts anticipate that markets will likely continue to be soft while economic conditions remain unsettled. As one contact explained, because "there's too much uncertainty, tenants adopt the do-nothing strategy" and negotiate short-term lease extensions rather than look for new or expanded space.

Service-sector firms generally reported modest growth in business conditions in early July. Some business services firms indicated that growth had slowed since the spring, while others reported that growth has been steady. Some technology consulting companies and engineering firms indicated that they were seeing increased demand for services directed toward energy conservation, but some other engineering firms noted that work on environmental projects has slowed. Most of the service-sector firms contacted for this report expect business to continue to expand during the rest of the year, although some business services companies expect slower growth in the second half of the year compared with the first half as their client firms implement measures to reduce operating costs, including expenses for outsourced services.

Prices and Wages
Reports of increases in input costs and output prices were somewhat more prevalent in July than they were in June. Firms in the region noted on-going increases in the prices of food products, chemicals, industrial materials, metals, and energy. Many firms indicated that sluggish demand for their products has made it difficult for them to raise prices; nevertheless, companies that have significant commodity and motor fuel expenses generally reported that they were raising prices in response to the increased cost of these inputs. Most of the firms reporting on employment costs in July indicated that wage increases remained moderate. Employers and employment agencies in the region reported that demand for labor has not been as strong in the past few months as it was during the same period last year.

Return to topReturn to top

Previous New York Cleveland Next

Home | Monetary Policy | 2008 calendar
Accessibility | Contact Us
Last update: July 23, 2008