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Beige Book Says Economic Activity Continues to Expand


July 18 - Reports from most of the 12 Federal Reserve Districts indicated that overall economic activity continued to expand at a modest to moderate pace in June and early July. The Atlanta, St. Louis and San Francisco districts reported modest growth, while Boston, Chicago, Minneapolis, Kansas City and Dallas described economic activity as advancing moderately. The New York, Philadelphia and Cleveland districts noted that activity continued to expand, but at a slower pace since the last report, while Richmond cited mixed activity.

Retail sales increased slightly in all reporting districts except Boston and Cleveland, where sales were categorized as flat, and New York, where sales softened. Of the districts that saw an increase in activity, most noted strength in auto sales. In particular, auto dealers noted that demand for fuel-efficient vehicles continued to support sales. Tourism activity remained strong according to contacts in the New York, Richmond, Atlanta, Minneapolis and San Francisco districts.

All district housing market reports were largely positive as sales and construction levels increased and home inventories declined. Rental markets continued to strengthen with rising rents being reported in Boston, New York, Atlanta, Chicago and Dallas. Commercial real estate leasing and construction continued to improve as demand for multifamily units increased in Atlanta, Chicago and San Francisco. However, New York and Richmond noted a slowdown in commercial activity, while Philadelphia and Dallas held steady.

Manufacturing activity continued to expand slowly in most districts, and Cleveland, Atlanta, Chicago and Kansas City cited slight increases in production levels. However, several districts reported a deceleration in new orders, and the Philadelphia and Richmond districts reported declines in shipments and orders. Demand for nonfinancial services remained generally stable in most regions. Richmond noted strong sales among professional, scientific and technical firms, while Dallas noted strength in energy, legal and audit-related services. Transportation reports were generally positive, with Kansas City noting an uptick in trucking activity, while Richmond reported increased port activity.

Demand for loans, particularly those related to real estate, grew modestly in most districts. However, Cleveland and Richmond noted some weakness in loan activity. Credit standards remained unchanged in New York, Richmond and Kansas City, while credit quality improved in Philadelphia, Kansas City, Dallas and San Francisco. Agricultural production and pricing reports were mixed. While drought conditions have affected production in some Districts, others noted favorable conditions. Chicago and Kansas City reported a significant deterioration of corn crops, which has pushed up prices since the end of June.

All districts conveyed that input prices had stabilized in recent months. Price pressures were described as easing in New York, Philadelphia, Atlanta and San Francisco as energy costs declined. Wage pressures remained modest, except for highly skilled workers in information technology, health care, transportation and manufacturing. Employment levels improved at a tepid pace for most districts. Overall, Districts reported that their contacts remained cautiously optimistic about future business conditions.

Consumer Spending and Tourism

Most districts reported modest increases in retail spending on a year-over-year basis, but many reported slower growth in recent months compared with earlier in the year; however, Boston and Cleveland reported sales as flat, and New York cited softer sales. There were a few reports that high summer temperatures negatively affected sales. Sales of big-ticket household goods were strong in the Richmond, Chicago, Kansas City and Dallas districts, while sales were reportedly flat for home furnishings and major appliances in the San Francisco district. Boston reported that sales for furniture and electronics had slowed, and retailers in the New York District reported that home goods sales were weak. Reports from luxury-goods retailers were mixed.

Firms in the Philadelphia, Atlanta and Chicago districts reported that sales of high-end goods remained strong, while retailers in the Kansas City and San Francisco districts indicated demand had softened, and those in the Cleveland district noted that sales of luxury goods had slowed. Most districts reported that vehicle sales remained robust. Demand was high for fuel-efficient vehicles in particular. Looking forward, merchants in the Boston and Philadelphia districts were concerned that economic uncertainty could result in restrained sales growth, while retailers in the Cleveland district anticipated that the third quarter will be higher compared with year-ago levels. Kansas City noted that merchants there expected further strengthening in the coming months.

Travel and tourism activity was reported as strong across several Districts. Hotel occupancy rates and revenue per room were robust in many areas according to reports from New York, Richmond, Atlanta, Chicago and San Francisco. Attendance numbers were solid at attractions in various districts, including theme parks in Florida and New York's Broadway theaters. Richmond, Minneapolis and San Francisco reported that natural disasters had negatively affected bookings in some parts of their districts. Dallas reported that demand for international travel was strongest for South America and Mexico destinations. Atlanta shared their contacts' concerns about the potential impact of economic and financial stress abroad and the effect it could have on international travel. That said, several districts reported that the outlook among the majority of hospitality contacts for the remainder of the summer is good as hotel and convention bookings continued to exceed last year's pace.

Real Estate and Construction

Reports on residential housing markets remained largely positive. Sales were characterized as improving in Philadelphia, New York, Richmond, Chicago, St. Louis and Minneapolis, while home sales increased in Boston, Cleveland, Atlanta, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. However, reports on sales were mixed in the New York district, and gains in the Boston district eased from earlier in the year. New home sales were described as disappointing in the Philadelphia district. Construction increased in the New York, Atlanta, St. Louis, Minneapolis, Dallas and San Francisco districts, while reports from the Cleveland District said construction slowed. Most districts reported declines in home inventories. Homes prices have begun to stabilize in some markets and price increases were noted in select markets. Boston and Atlanta noted that appraisals were coming in below market prices.

Rental markets continued to strengthen by most accounts. Rising apartment rents were reported in the Boston, New York, Atlanta, Chicago and Dallas districts. Strong demand for rental units spurred increases in multifamily construction in the San Francisco district. Multifamily construction was described as strong in the Atlanta and Chicago districts. Apartment construction is expected to pick up over the next several months in the Dallas district.

Recent activity in commercial real estate markets has been mixed. Modest improvements were noted in Boston, Atlanta and St. Louis and demand strengthened in the San Francisco district. Softer conditions were reported in the New York and Richmond districts, while demand held steady in the Philadelphia and Dallas districts. Nonresidential construction activity varied as well. Construction activity increased modestly in the Minneapolis and Kansas City districts, while construction continued to gain momentum in the Boston district. Demand for commercial construction rose in Chicago, while activity was described as much improved from a year earlier in the Cleveland district. Construction was flat in the Atlanta district on a year-over-year basis, while activity had softened in recent months in the Richmond district. Overall, the outlook among commercial real estate contacts and contractors was slightly positive.


Manufacturing continued to expand in June and early July in most districts, but at a more modest pace compared with earlier in the year. Several districts reported that new orders had moderated since the last report, but the Philadelphia, St. Louis and Kansas City districts were more optimistic that new orders would rebound. The Philadelphia and Richmond districts however, reported declines in shipments and orders. The passing of a transportation bill through Congress led contacts in the Philadelphia district to express interest in increasing their capital spending. Capacity utilization rates at refineries and petrochemical manufacturing facilities held steady in the San Francisco District, with weaker domestic demand being offset by growing exports. Meanwhile, manufacturers in the Dallas district reported operating at above 90 percent utilization rates to catch up with below-normal inventory levels.

The San Francisco district noted continued strength in semiconductor production, while the Dallas district said sales at high-tech manufacturing had decreased since the last report. Expectations from high-tech manufacturers in the Dallas district were that growth would remain flat to slightly weaker through year's end, a change from earlier in the year when most contacts anticipated a pick-up in the second half. Overall, most districts reported a moderation of expectations among their manufacturing contacts.

Hiring at manufacturing firms continued to vary by district. Kansas City said that fewer plant managers were planning to hire, while the St. Louis district reported plans for plant expansions later in the year. The Dallas district cited particular strength in food production, citing contacts who said they planned to add several new workers. However, makers of food products in the Philadelphia district noted a fall-off in demand. Cleveland and Chicago noted that automobile production remained a source of strength, with contacts from the Chicago district reporting that there was an increase in research and development activity.

Nonfinancial Services

Demand for nonfinancial services was generally stable to slightly stronger since the previous report. Richmond noted that revenue improvement was strong among professional, scientific and technical firms. Strength in energy, legal, and audit-related services was noted in the Dallas District. Advertisers in the Philadelphia and San Francisco Districts reported strong revenues, and consulting and advertising contacts in the Boston District noted steady activity. Richmond and San Francisco reported that restaurants were busy, while food service contacts in Atlanta reported that demand had softened a bit.

Transportation contacts reported that activity was generally positive. In the Atlanta and Dallas Districts, rail contacts reported strong shipments of petroleum and motor vehicles and equipment. The Richmond District reported increases in port activity with container volumes and tonnage at or near record levels. Input from logistics and trucking contacts was mixed. The Cleveland and Atlanta Districts noted softening volumes and less-robust forecasts for the remainder of the year. Kansas City's report cited an uptick in trucking activity, while San Francisco's report cited moderating growth in trucking.

Banking and Financial Services

Overall loan demand grew modestly in most districts. New York indicated no change, while Richmond observed flat-to-weakening loan demand. Chicago, Kansas City, Dallas and San Francisco noted increased commercial and industrial lending, but lending in that sector decreased somewhat in the New York district and was characterized as soft in Cleveland and Atlanta. Most districts reported an increase in mortgage lending, with Dallas noting especially strong demand and a healthy backlog of loans. Refinancing of mortgage loans was steady or increasing in New York, Cleveland, Richmond and Chicago, but Philadelphia noted a recent slowdown. Kansas City and Dallas noted some improvement in lending for agriculture and commercial real estate. The Atlanta, Chicago, Dallas and San Francisco districts observed steady-to-increasing demand for consumer credit, especially for auto loans, while consumer loan demand was somewhat weaker in Kansas City and little changed in Cleveland.

Contacts in the New York, Richmond and Kansas City districts reported that credit standards remained largely unchanged. Cleveland reported some loosening of auto lending guidelines, while San Francisco indicated credit standards were somewhat restrictive for businesses and consumer loans. Philadelphia, Kansas City, Dallas and San Francisco noted general improvements in credit quality. Delinquency rates held steady or declined in the New York and Cleveland districts. Banking contacts in the Cleveland, Atlanta, Dallas and San Francisco districts noted stiff competition for quality loan customers. The Chicago district noted uncertainty over the effects of U.S. fiscal policy actions was reducing their customers' demand for credit. Likewise, Dallas reported a slightly more pessimistic outlook than the previous Beige Book due in part to European debt issues and regulatory and political uncertainty.

Agriculture and Natural Resources

Agricultural conditions were mixed since the previous report. Several districts noted areas of increased drought resulting in stress to crops and livestock, while rainfall provided needed moisture to parts of the Atlanta district. With high heat and drought cited as the cause, the Chicago and Kansas City districts reported concerns for their corn and soybean crops, while the Minneapolis district reported that favorable weather conditions contributed to their corn and soybean crops doing well. The Kansas City and Dallas districts reported drought-stressed pasture conditions, although the Dallas district noted much better crop conditions than this time last year. The St. Louis and Kansas City districts reported better-than-expected yields for the winter wheat crop nearing completion. The San Francisco district noted further sales growth for many crop and livestock products, attributed in part to overseas growth, but suggested that this source of growth was decreasing. The Kansas City district cited rising export demand as the reason some hog producers expanded production. Agricultural price reports were mixed. While June corn prices were reported down on a year-over-year basis, reports of corn crop deterioration was noted by the Chicago and Kansas City districts as having pushed corn prices sharply higher since the end of June.

Several districts reported that energy exploration activity had increased, with offshore prospects being aided by recent lease sales. Regions where coal production is prevalent noted that extraction had decreased over the last year with electricity generation shifting to natural gas. Contacts in many districts shared expectations that natural gas prices will remain low in the near future. Corn producing regions reported that ethanol processing had decreased in response to the higher corn prices.

Employment, Wages and Prices

Employment levels grew at a tepid pace for most districts since the last report. The Boston, Cleveland, Atlanta, Chicago and Dallas districts said employment levels were flat to up slightly, with most contacts citing U.S. fiscal policy uncertainty or weak demand for their conservative approach to hiring. Kansas City said employers were reluctant to increase wages or hire full-time staff until economic uncertainty diminishes. A Richmond district employment agency contact noted an increase in temporary employment turning into permanent positions since the last report. The Atlanta district noted some smaller chain stores with low price points were expanding and hiring at a significant pace. Several districts noted that employers were having difficulty filling highly skilled positions.

Many districts noted that wage pressures were minimal since the last report. Wage increases were mostly concentrated in highly skilled workers in information technology, health care, transportation, some professional services and highly skilled manufacturing workers, according to reports from the Atlanta, Chicago, Minneapolis, Kansas City and Dallas districts.

Price inflation was modest across most areas of the country. Lower input prices for various commodities were mentioned across most districts and resulted in expectations of stable input prices in the coming months. Retailers and manufacturers in the Richmond, Chicago and Dallas districts noted a decline in cotton prices. Manufacturers in the Cleveland, Chicago, Kansas City and Dallas districts mentioned that steel and scrap metal prices have moderated. The decline in energy prices was mentioned in the Atlanta, Chicago and Dallas reports as contributing to lower cost expectations. However, contractors and building contacts in the Philadelphia, Richmond and Kansas City districts noted increases in the cost of building supply materials. Richmond contractors said they were able to pass these costs through, but homebuilders in Philadelphia mentioned limited ability to do so.

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