December 3, 2014
Aggregate business activity in the Third District continued to grow at a modest pace during this current Beige Book period, with several notable shifts in the growth rates of specific sectors. Manufacturers reported moderate growth (a faster pace than the modest rate of the previous period). Staffing firms reported a moderate pace of growth, as did service-sector firms generally. Nonauto retailers reported modest growth (stronger than last period), auto dealers reported moderate growth (slower than last period), and tourism activity continued at a modest pace. Residential builders reported a slight decline in contract sales of new homes, while brokers noted a slight increase in existing home sales (sales of new homes had risen slightly during the past period, and existing home sales had been flat). The commercial real estate sectors reported modest growth for construction and for leasing of existing commercial properties, which was somewhat faster than in the prior period.
Lending volumes grew at a modest pace (a slight acceleration from the prior period), and credit quality continued to improve, while contacts continued to describe heated price competition for loans. Overall, contacts reported slight increases in wages, home prices, and general price levels that were similar to those reported for the previous Beige Book period. Contacts continued to anticipate moderate growth of economic activity over the next six months.
Manufacturing
Third District manufacturers reported that activity has continued to grow since the previous Beige Book and that the pace has increased to a moderate rate. Similarly, firms reported strengthening of new orders and shipments, with a greater percentage of firms reporting increases and a smaller percentage of firms reporting decreases. Gains in activity continued to reflect relatively broad-based demand. Ongoing strength was mentioned by intermediate producers serving the automotive and commercial aviation sectors. Increased demand was reported to be coming from government expenditures on public infrastructure, especially bridges, and military spending. A chemical firm reported growing demand for products used for medical diagnostics but flat demand for lab chemicals.
For the third consecutive Beige Book period, well over half of Third District manufacturing contacts expressed expectations of positive future growth during the next six months; less than 10 percent expected activity to decline. Firms also continued to report that they expect to increase employment levels and capital spending.
Retail
Third District contacts reported modest growth in nonauto retail sales since the prior Beige Book period, a somewhat faster pace than before. As with fall apparel, a recent cold snap is now helping to move winter product lines, although retailers continued promotions in order to capture market share. An operator of area malls reported that traffic has improved relative to last year, with shoppers spending a higher average amount, and that department stores seem to be doing better. An operator of outlet malls cited favorable weather and low gas prices as factors driving its strong October and November sales. Overall, contacts were optimistic that they would see a slight improvement in sales in the upcoming holiday season compared with last year. Retailers reported holding more promotions prior to Thanksgiving and planning more promotions for after Christmas to compensate for this year's shorter shopping period between Thanksgiving and Christmas. Pennsylvania analysts are anticipating that this may be the first year in which a majority of households eat their turkey and pumpkin pie at restaurants rather than at home.
Auto dealers reported moderate growth in sales year over year. A Pennsylvania contact described sales levels throughout the state as steady from August through October after reaching a record high in July. Statewide sales in New Jersey are nearing their pre-recession peak of a half million vehicles per year. Falling gas prices have shifted sales away from cars and toward light trucks and SUVs. Early reports of November sales were described as "very good" in New Jersey and in Pennsylvania. Dealers continued to express optimism for ongoing sales growth into 2015.
Finance
Third District financial firms reported modest increases in total loan volume, a somewhat faster pace than that reported in the previous Beige Book. Volumes increased most for commercial and industrial loans and for some consumer credit lines, including home equity but excluding credit cards. Contacts reported little change in volumes of home mortgages and commercial real estate. Contacts reported ongoing credit quality improvements and intense price competition for creditworthy loan prospects. Contacts described seeing and sensing continued strengthening of the economy. One bank contact reported that his bank's personnel and many of its customers had feelings about the economy that were "close to optimism." Many firms have rebuilt strong balance sheets, accelerated maintenance schedules, and increased their productivity, yet lack sufficient confidence to take on the added risk of expanding capacity, according to this contact.
Real Estate and Construction
Third District homebuilders have reported lower traffic and declining numbers of contract signings since the previous Beige Book period. Builders report that first-time homebuyers remain scarce and that contracts for new homes with existing homeowners are often burdened by contingencies to sell their current home. Builders are entering a seasonally slow period that will likely extend over the remainder of the year; contacts reported starting some additional homes on spec to maintain sufficient activity for their construction crews. Although existing home sales tend to decline at this time of year, residential real estate brokers observed that sales were greater than expected. On a year-over-year basis, closings and pending sales are turning positive again in most major markets. Brokers continued to note some difficulties with buyers securing financing and with contingent contracts as buyers struggle to sell their own homes. Brokers do not expect overall sales in 2014 to surpass 2013 levels, but remain optimistic for a return to growth in 2015.
Construction and leasing reported by nonresidential real estate contacts have picked up to a modest pace of growth since the previous Beige Book period. Demand continues for new industrial/warehouse projects along the I-81/I-78 corridors. Recently, several major projects have broken ground in Center City Philadelphia; contracts have been signed and skilled tradespeople have been hired. An architecture and engineering firm reported ending its best year in the firm's history and that it expects to do more hiring in 2015. Contacts continued to report incremental improvements in leasing activity in downtown and suburban Philadelphia, especially for office, residential, and retail spaces in Center City Philadelphia.
Services
Third District service-sector firms have continued to report moderate growth in activity since the previous Beige Book. About half of all firms reported increases in new orders and sales. A large service contractor reported that new business opportunities were expanding, especially in the private sector. However, competition also remains strong with some projects lost to lower bidders. Staffing contacts in eastern and central Pennsylvania continued to report moderate increases in hiring for both temporary and permanent positions. Staffing requests have been broad-based and reflect business expansions as well as replacement hiring. Staffing firms remained upbeat about prospects for the remainder of this year. Overall, about three-fourths of all service-sector contacts reported expectations that growth trends will remain positive over the next six months; only a few anticipated declines.
Most Third District tourist areas continued to benefit from great weather conditions throughout the fall. Contacts reported modest revenue gains overall, especially for hotels and restaurants. Visitors were still spending too little to make shore retailers happy. Early estimates by tourism contacts suggested that the remaining Atlantic City casinos may have absorbed about half of the revenues from three closed casinos and a much smaller percentage of employees. Most of the effects of the layoffs were felt within the immediate Atlantic County area. However, contacts throughout southern New Jersey anticipated some small effect from the reduced purchasing power of these laid-off workers.
Prices and Wages
Overall, Third District contacts reported little change to the steady, slight pace of price level increases that was seen in other recent Beige Book periods. About one-fifth of manufacturing contacts and one-fourth to one-third of service-sector contacts reported an increase in prices paid and received. Nearly three-fourths of manufacturing contacts reported no change in these prices, as did over one-half of nonmanufacturing contacts. Contacts from staffing and other firms noted little significant change to the slight wage pressures evident during the previous period. Brokers continued to report slight overall increases in home prices. The potential for falling gasoline prices to loosen consumers' pocketbooks sparked comments from retailers, brokers, and tourism contacts. Otherwise, few contacts reported material changes in wages or prices.