July 28, 2010
Federal Reserve Districts
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Economic activity has moved up slightly in the Third District since the last Beige Book, overall, although several sectors of the regional economy remained soft. Manufacturers, on balance, reported an increase in shipments but a slight decline in new orders in July. Retailers posted year-over-year increases in sales of general merchandise for the month, but motor vehicle dealers indicated that sales have decreased since the spring. Third District banks reported steady loan volume outstanding. Residential real estate agents and home builders said that home sales decreased sharply with the expiration in April of the federal tax credit for purchases and that sales have continued to be soft since then. Contacts in the commercial real estate sector said vacancy rates have been nearly level, but rents have been flat to down. Construction contacts continued to report low levels of activity. Service-sector companies generally reported just slight gains in activity. Business firms in the region indicated that prices of most goods and services have been steady, although there were increased reports of rising prices for some metals and construction-related products. Firms also reported increases in costs for employee health insurance.
The outlook among Third District business contacts is guardedly positive, but the level of optimism has waned somewhat since the last Beige Book. Manufacturers forecast a rise in shipments and orders during the next six months, although the balance of positive over negative views has declined since the previous report. Retailers expect sales to expand slightly but believe consumer confidence remains fragile. Auto dealers expect the sales rate to be steady in the months ahead, retreating from their previous view that sales would increase. Bankers expect slow growth in lending. Contacts in both residential and commercial real estate expect mostly flat activity during the rest of the year. Service-sector companies expect slow and uneven improvement.
Third District manufacturers expect business conditions to improve during the next six months, on balance, although the margin of positive opinions over negative opinions has declined since the previous Beige Book. Among the firms surveyed in July, about 40 percent expect increases in new orders and shipments, and 20 percent expect decreases. Capital spending plans among area manufacturers remain positive, on balance, but are not strong overall. About one-third of the firms polled in July plan to increase expenditures for new plant and equipment, but nearly one-half plan to maintain level spending, and nearly one-fourth expect to reduce spending.
Third District auto dealers reported a drop in sales from May to June, with continued slowness in July. Although dealers said there continue to be shortages of popular models, they said overall demand for cars and light trucks has not been as strong recently as it was earlier in the year. Dealers have trimmed expectations since the last Beige Book; they now anticipate little change in the sales rate during the rest of the year.
Looking ahead, Third District bankers expect slow loan growth, at best. They generally expect slight gains in business lending but continued softness in consumer and residential mortgage lending. Bank lending officers said credit standards remain more restrictive than they had been in the past few years. For business borrowers, one banker said this means a firm "must have stable relationships with customers and vendors and show reasonable expectations about cash flow" to be considered for new or renewed credit facilities.
Real Estate and Construction
Nonresidential real estate firms indicated that vacancy rates in commercial and industrial buildings have been nearly steady or have moved up slightly in most parts of the Third District in the past few months. Leasing activity has been flat, and effective rents have been about level for Class A space but have moved down for Class B space. Construction activity has been weak. Some contacts reported that projects financed by federal stimulus funds are near completion or have been finished and that there are no immediate prospects for more major infrastructure construction. Commercial real estate contacts expect market conditions to show little change in the second half of the year. One said, "We're stabilizing, but if companies cut space needs the market will be dragged down."
Prices and Wages
Business firms in the region reported little or no upward movement in wages, and most indicated that they have had no difficulty in filling open positions. Employment agencies reported that client companies have been cautious in adding employees or replacing those who have left, although they have increased use of temporary workers on an as-needed basis. Labor markets remain slack, according to employers and employment agencies, who report that they generally get large numbers of applicants for permanent positions; however, they also noted that they get smaller numbers of applicants for temporary positions.