October 20, 2010
Federal Reserve Districts
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Business activity in the Third District has been mixed since the last Beige Book. Manufacturers, on balance, reported slight decreases in shipments and new orders in September. Retailers posted modest year-over-year increases in sales during the back-to-school shopping period. Motor vehicle dealers generally reported steady sales in September and year-over-year gains for the month. Third District banks reported level loan volume outstanding in the past few weeks. Residential real estate agents indicated that sales of existing homes have edged up in the past few weeks, but homebuilders indicated a mostly flat sales pace for new homes. Contacts in the commercial real estate sector said there has been practically no change in market conditions since the last Beige Book. Service-sector firms reported mostly marginal increases in activity in the past month. Business contacts indicated that prices of most goods and services have shown no change, although there were continued reports of rising prices for metals and new reports of increases in lumber prices. Some retailers said there have been increases in some wholesale prices and international freight charges.
The outlook among Third District business contacts is positive, on balance, but not robust. Manufacturers forecast a rise in shipments and orders during the next six months. Retailers expect sales to expand slightly through the end of the year. Bankers expect only minimal growth in lending in the near term. Contacts in both residential and commercial real estate expect flat to slowly rising activity into the middle of 2011. Service-sector companies also expect slow growth during the next six months.
Third District manufacturers expect business conditions to improve during the next six months, on balance. Among the firms surveyed in September, about 45 percent expect increases in new orders and shipments, and about 20 percent expect decreases. Manufacturing executives continued to remark that recovery in their business has been slow and halting. One said, "Some parts of our business begin to pick up but others decline," and another described business as "choppy." Capital spending plans among area manufacturers remain positive, overall, but are not strong. About 20 percent of the firms polled in September plan to increase expenditures for new plant and equipment and about 10 percent expect to reduce spending.
Third District auto dealers reported steady sales during September at a rate slightly above the year-ago pace. Inventories were generally described as light, and supplies of popular models were said to be particularly lean. Dealers expect sales to improve slowly during the rest of this year and into next year.
The consensus outlook among the Third District bankers surveyed for this report is that there will be minimal growth in lending until both consumers and businesses regain confidence that the economy is improving. Several bankers said that in recent discussions with their commercial customers, both business owners and managers said they are postponing expansion and other capital spending programs until current political and economic uncertainties are resolved.
Real Estate and Construction
Nonresidential real estate firms indicated that conditions have been mostly unchanged in commercial and industrial markets since the last Beige Book. Contacts reported that vacancy rates and rents have moved very little since mid-year in most parts of the District. Among property types, market conditions were said to be weakest for retail space. Some contacts also noted declining demand for industrial space, where many firms have taken a "wait and see" attitude toward new construction, according to one contact. Commercial real estate contacts expect market conditions to improve very slowly, and some estimate that a significant increase in nonresidential construction will not begin until mid-2011 at the earliest.
Prices and Wages
Business firms in the region reported no major changes in wages, although many continued to report current or prospective increases in costs for employee health care benefits. Employers generally reported that they were not having difficulty finding workers with requisite skills at current compensation levels. Employment agencies reported that client companies are filling positions as workloads increase, but do not appear to be adding employees in anticipation of increased activity.