WASHINGTON (MNI) – The following is the Beige Book section on the
Federal Reserve’s Third District, published Wednesday:
THIRD DISTRICT – PHILADELPHIA
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.
Manufacturing
Third District manufacturers reported slight decreases in shipments
and new orders from August to September, on balance, as well as a
decrease in order backlogs. Despite the generally slower activity among
the region’s manufacturing industries, some sectors reported increases
in demand for their products, notably makers of industrial machinery and
equipment, producers of wood products, and food processers.
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.
Retail
Third District retailers reported modest year-over-year gains for
the back-to-school shopping period, and most of those contacted for this
report said sales have continued to move up in recent weeks. Some store
executives noted that customer traffic and discretionary spending
appeared to be increasing somewhat. One said, “Sales of home goods have
begun to pick up, as well as sales of things that are not necessarily
must-have, but the price has to be right. The consumer is incredibly
price-sensitive.” Looking ahead, most of the retailers contacted for
this report said they expect sales to continue to increase at around the
current growth rate through the end-of-year shopping period. Most agreed
that stronger growth will not set in until economic conditions,
particularly employment, show clear evidence of significant improvement.
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.
Finance
Total outstanding loan volume at most of the Third District banks
contacted for this report has been level since the last Beige Book.
Commercial bank lending officers said there has been virtually no change
in any credit category. Bankers continued to report slack demand for
both consumer and business loans. “Business loan demand is incredibly
weak,” one said. Another banker said, “Credit line usage is well below
normal.” With low demand for credit, some bankers reported increased
competition among lenders, especially for business loans. Commercial
bank officers indicated that credit quality has continued to improve as
borrowers work down debt.
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
Contacts in residential real estate markets reported some increases
in sales of existing homes in recent weeks but relatively flat sales of
new homes. However, the recent sales rate remained below the year-ago
rate for both new and existing homes. Contacts continued to report that
lower-priced homes are selling at a relatively better pace than
higher-priced homes. Residential real estate contacts expect sales to
remain slow until overall economic conditions and the employment
situation begin to improve. Real estate contacts generally indicated
that prices of existing homes have shown little change recently.
However, one agent reported that “more sellers are just saying no to
offers substantially below the asking price.”
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.
Services
Service-sector firms generally reported marginal increases in
activity since the previous Beige Book. Some contacts said growth in
customer counts, measures of output, or dollar value of sales had
recently fallen below their forecasts. Among firms providing services to
both businesses and individuals, there were several reports of
increasing competition in terms of pricing or level of service. In the
current environment, “a lot of growth is market share gains,” one
contact noted. Looking ahead, most of the service firms contacted for
this report expect growth to be slow for the rest of this year and into
next year.
Prices and Wages
Reports on input costs and output prices indicate little change
since the last Beige Book. Most of the manufacturing firms polled in
September reported no change from August in the costs of the commodities
they use or the products they make. However, some producers of primary
metals raised prices. Construction firms gave mixed reports on prices,
with some noting steady materials costs and some indicating increases
for steel, lumber, and rubber products. Retailers generally noted that
most wholesale costs and retail prices have been steady, although some
contacts noted recent increased costs for some commodities and higher
costs for international shipping. One large retailer said foreign
suppliers have indicated that they plan to raise wholesale prices next
year.
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.
** Market News International Washington Bureau: 202-371-2121 **
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