Beige Book: Activity Increases ‘Modest to Moderate’



The Federal Reserve’s latest Beige Book reports from most of the twelve Federal Reserve Districts indicated that economic conditions continued to expand from January to early February. Eight Districts reported improved levels of activity, but in most cases the increases were characterized as modest to moderate. New York and Philadelphia experienced a slight decline in activity, which was mostly attributed to the unusually severe weather experienced in those regions. Growth slowed in Chicago, and Kansas City reported that conditions remained stable during the reporting period. The outlook among most Districts remained optimistic.

Retail sales growth weakened since the previous report for most Districts, as severe winter weather limited activity. However, Richmond, St. Louis, and Minneapolis reported modest sales growth since the beginning of the year. Weather was also cited as a contributing factor to softer auto sales in many Districts, with the exception of Cleveland, which saw strong gains. Tourism increased in a number of Districts but declined in Philadelphia and was reported to have been mixed in New York and Minneapolis. The demand for nonfinancial services was mixed compared with the last report; however, both Boston and San Francisco reported strong demand for technology related services.

Manufacturing sales and production in several Districts were negatively impacted by severe winter weather; however, modest improvements were noted in Boston, Atlanta, Minneapolis, and Dallas.

Residential real estate markets continued to improve in several areas, albeit modestly. Boston and New York gave mixed reports on sales, and Philadelphia, Cleveland, Minneapolis, and Kansas City noted a decrease in sales. Many Districts cited low inventories of housing and continued home price appreciation.

Commercial real estate leasing expanded, according to most reports, while reports on construction activity were mixed. Demand for commercial real estate loans was solid in Boston, improved slightly in Dallas, and continued to grow steadily in Chicago and Kansas City.

Districts reported that energy production and demand continued to increase as a result of increased demand due to the unusually cold winter. Employment levels improved gradually for most Districts, and shortages of specialized skilled labor continued to be reported. Price pressures remained subdued, with the exception of upward cost pressures for some energy and construction products. Wage pressures remained stable for most Districts.

Reports from districts mentioning nonfinancial business services indicated that activity has been mixed since the previous report. Both New York and Philadelphia reported that severe winter weather reduced demand for services in their region. Activity in Minnesota and San
Francisco’s professional business service firms improved since their last report. Boston said that demand for software and information technology was stronger than expected, and demand for cloud computing remained strong according to San Francisco’s report. Richmond service providers noted flat revenue in recent weeks, while sales were characterized as stable among Kansas City service providers. The outlook among contacts was mixed, as well. Planned activity in St. Louis was described as negative, while contacts in Minneapolis and Dallas noted optimism. Contacts in Kansas City anticipate activity will pick up, while software and IT professionals in San Francisco are cautiously optimistic and anticipate revenue growth will be positive this quarter.

Transportation activity since the previous report was mixed. Severe weather reportedly disrupted supply chains and delayed shipments in several Districts. In Dallas, railroad cargo volumes fell slightly below year earlier levels, with winter weather conditions across the country largely to blame. Port activity in Atlanta and Richmond reflected increases in auto shipments, while Dallas reported declines in container volumes. Atlanta and Dallas indicated air cargo was down, compared with year earlier levels. Kansas City cited increasing optimism about future transportation activity, while Cleveland noted expectations that demand in 2014 will be the same or only moderately higher than a year ago.

Manufacturing activity expanded at a moderate pace from January through early February in most Districts. Several Districts reported that severe winter weather had a negative effect on sales and production during this period, including Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, and Dallas. The weather was cited to have caused utility outages, disrupted supply chains and production schedules, and resulted in a slowing of sales to affected customers. Philadelphia and Richmond reported that shipments and orders declined during the first half of February. Steel producers in Cleveland indicated that they have excess capacity, and San Francisco reported low capacity utilization rates at steel mills. Boston and San Francisco indicated that semiconductor sales had been particularly strong. Hightech contacts in Dallas reported a slight improvement in orders, as demand for memory chips remained strong and demand for logic devices remained weak but stable. San Francisco also cited growth in the commercial aerospace industry due to a backlog in orders for commercial aircraft, while defense-related manufacturers reported sluggish overall conditions and expected sales to trend downward. Auto production was strong in Chicago despite weather-related slowdowns in sales, and Cleveland reported auto production to be higher than a year ago. Most Districts were optimistic about the future and expect manufacturing activity to rise in the coming months.

Reports on residential housing markets were somewhat mixed. Many Districts continued to report improving conditions but noted that growth had slowed. Most of the Districts indicating otherwise attributed the slowing pace of improvement to unusually severe winter weather conditions. Home sales increased in Richmond, Atlanta, Chicago, St. Louis, and Dallas, while sales were down in Philadelphia, Cleveland, Minneapolis, and Kansas City. Boston and New York reported that the trend in sales for their Districts was mixed. New home construction increased in Richmond, Atlanta, Chicago, St. Louis, and Minneapolis, and remained flat in Kansas City, and was down slightly from the previous period in Philadelphia. Most districts reported low levels of home inventories and indicated that home prices continued to appreciate. The outlook for sales and residential construction was positive in Boston, Philadelphia, Cleveland, Atlanta and San Francisco.

District reports of loan demand and volume were mixed. Demand for residential mortgages decreased in New York, Richmond, St. Louis, and Kansas City, and softened in Philadelphia and Dallas. Cleveland and Atlanta noted increased demand for new purchase mortgages, while mortgage refinancing declined in New York, Richmond, Atlanta, and Kansas City. Demand for consumer loans grew slightly in Philadelphia, Cleveland, Chicago, and Dallas, and held steady in Kansas City. Decreased demand for consumer loans was noted by Richmond and St. Louis, and among small to medium-sized banks in New York. Boston reported commercial real estate loans were highly competitive and demand was solid. Richmond businesses looked for shorter-term commercial real estate loans in order to benefit from lower interest rates those loans offered. Chicago and Kansas City reported steady growth in commercial real estate loans, and demand for such loans improved marginally in Dallas. Small to medium-sized banks in New York reported no change in commercial real estate loan demand. New York noted modest declines in delinquency rates. Cleveland reported delinquencies were stable or trended lower, and St. Louis indicated delinquencies for most types of loans decreased. Loan quality in Kansas City improved compared with a year ago and continued to strengthen in Dallas. Bankers in Cleveland and Atlanta voiced concerns about recently enacted regulations and the potential negative impact on lending.

To read the Federal Reserve Beige Book news release, click here.

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