WASHINGTON (MNI) – The following is the second and final section of
the summary of the latest Federal Reserve Beige Book survey of economic
conditions in the 12 Fed districts, published Wednesday:
Manufacturing
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 years 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 falloff 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 Citys report cited an uptick in trucking activity, while
San Franciscos 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.
(2 of 2)
** MNI Washington Bureau: 202-371-2121 **
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