Summary of Federal Reserve's Beige Book (FULL-TEXT)

Reports from the twelve Federal Reserve Districts indicated that overall economic activity continued to expand at a modest to moderate pace in January and early February. Both Kansas City and San Francisco noted that their economies expanded further. Boston and Philadelphia cited conditions as improving. New York, Cleveland, Richmond, Atlanta, and St. Louis described activity as modestly improving, while Minneapolis and Dallas experienced moderate growth. Chicago reported that although there was an increase in activity, it was at a pace not quite as strong as during the previous reporting period.

Retail sales increased in all Districts, except Richmond and Atlanta, although Boston, New York, Philadelphia, Atlanta, and Kansas City noted that severe snowstorms had a negative impact on merchant activity. Retail inventory levels were described as desirable in New York, Cleveland, Dallas, and San Francisco. Tourism improved in Richmond, Atlanta, and San Francisco, while New York and Kansas City noted a slowdown in activity as hotel occupancy rates declined. Some Districts reported a slight increase in the level of residential real estate activity, although all Districts maintained that the overall level of home sales and construction remained low. Several Districts indicated improvements in commercial real estate sales and leasing activity, including Boston, Richmond, Chicago, Kansas City, Dallas, and San Francisco. Most reports characterized nonresidential construction as weak.

All Districts, except St. Louis, experienced solid growth in manufacturing production, and new orders improved for Philadelphia, Atlanta, Chicago, Kansas City, and San Francisco. Most regions observed an increase in nonfinancial services. Boston, Philadelphia, and San Francisco reported that sales advanced for services related to information technology, while Kansas City noted softer sales of IT services.

Changes in loan demand were mixed across Districts, with Richmond, Dallas, and San Francisco experiencing increased loan demand and Kansas City noting a decrease. Lending standards remained tight across most Districts. Labor markets modestly improved across the country. Boston, Richmond, and Chicago reported more permanent job placements occurring in the market, while Atlanta businesses reported a continued preference for hiring temporary workers rather than permanent workers. Several Districts described an increase in demand for staffing services, especially for high-skilled IT positions. Adverse weather conditions continued to hamper agricultural production in many Districts, but strong prices helped producers of cotton, corn, soybeans, wheat, poultry, hogs and cattle. Energy production expanded or remained stable, according to reporting Districts.

Non-wage input costs increased for manufacturers and retailers in most Districts. Manufacturers, in a number of Districts reported having greater ability to pass through higher input costs to customers. Retailers in some Districts mentioned they had implemented price increases or were anticipating such action in the next few months. Homebuilders in Cleveland and Atlanta had limited ability to pass through cost increases to buyers. Most reporting Districts noted continued strong agricultural commodity prices. Wage pressures remained minimal across all Districts; although Philadelphia, Dallas, and San Francisco noted that most wage increases were for workers with specialized skills.

Consumer Spending and Tourism
Retail spending strengthened compared with a year ago across all Districts except Richmond and Atlanta, where sales were reported to have softened modestly. Boston, New York, Philadelphia, Atlanta, Kansas City, and Dallas commented that severe winter weather in January had a negative impact on retail activity. New York, Chicago, and San Francisco observed that consumers are still responding to promotions and discounting. Meanwhile, Cleveland noted that some of their low- to mid-market segments are still struggling. Some Districts observed an increase in discretionary spending; luxury and big-ticket item sales increased in Cleveland, Chicago, and San Francisco. Inventories were at desired levels in New York, Cleveland, Dallas, and San Francisco, while contacts in St. Louis had mixed views about their inventory levels. Boston and Atlanta reported tight inventory management. The outlook among all Districts was for a modest increase in retail activity.

Automobile sales increased compared with a year earlier in most Districts. Chicago and Dallas observed that auto sales held steady, while Kansas City's contacts said sales softened because of inclement weather but expected them to rebound in the near future. Cleveland and Chicago noted increased availability of auto financing, and Cleveland reported an increase in leasing activity. Philadelphia, St. Louis, Kansas City, and Dallas indicated that vehicle inventories were at appropriate levels for the current sales rate, while inventories were mixed in Cleveland and lean in New York and San Francisco. All Districts conveyed optimistic outlooks among their auto contacts.

Tourism reports improved in the Richmond, Atlanta, and San Francisco Districts. Atlanta observed a strong increase in international visitors. Kansas City noted a slowdown in tourism amid severe weather but added that ski resorts benefited from the snowfall. New York reported a larger-than-usual seasonal slowdown in tourism with decreases in hotel occupancy rates and Broadway theater attendance, although the level of activity remained fairly high.

Real Estate and Construction
Recent activity in residential real estate varied, but overall sales and construction remained at low levels across all Districts. The Richmond, Atlanta, and Chicago Districts reported a slight improvement in the level of recent activity, while Boston noted that activity was mixed across New England. New York described the housing market as stable with some pockets of improvement. Demand was unchanged according to reports from the San Francisco District. Philadelphia, Kansas City, and Dallas described recent activity as sluggish, and St. Louis noted sales continued to decline. Construction activity was described as flat or down by Cleveland, Atlanta, Minneapolis, and Kansas City. Philadelphia and Atlanta contacts attributed weaker buyer traffic in January to inclement weather, and Philadelphia noted a pickup in early February.

Richmond, Kansas City, and Dallas also indicated an increase in buyer traffic. Reports on home prices were mixed. Atlanta and Kansas City observed persistent downward price pressure. Home prices continued to fall according to Philadelphia reports, but mainly at the high-end of the market. Cleveland and Chicago contacts described prices as little changed. The outlook for residential sales and construction improved marginally, although activity is expected to remain at low levels. Kansas City contacts anticipate a seasonal surge in sales activity this spring. Atlanta, Dallas and San Francisco also expect modest improvement, while little to no sales growth is expected among Philadelphia contacts. A slight uptick is expected in Chicago and San Francisco construction.

Commercial real estate activity showed signs of gaining traction according to a number of District reports. Boston, Chicago and Dallas reported that commercial real estate activity improved overall, while Richmond, Kansas City, and San Francisco noted increases in leasing activity. Kansas City described the market as stabilizing, while Philadelphia and Minneapolis reported that markets were flat overall, and New York described conditions as slack and St. Louis as soft. Nonresidential construction remained weak according to most accounts. The Boston, Philadelphia, Atlanta, Chicago, St. Louis, and Dallas Districts reported weak levels of construction activity, while Chicago noted a slight pickup. Cleveland District contractors cited increasing inquiries, and unexpected growth in commercial construction was noted in the Minneapolis District. Overall, contacts anticipate a slow recovery in commercial real estate markets.

Manufacturing
Reports from eleven of the twelve Reserve Banks indicated that manufacturing activity improved since the previous report, while St. Louis attributed a decline in manufacturing activity to several factory closings. Cleveland, Atlanta, Minneapolis, and Kansas City noted solid expansion in production, but Chicago observed a more moderate rise in output than in its last report. Cleveland, Atlanta, and Minneapolis indicated that adverse weather conditions temporarily disrupted production. Philadelphia and Atlanta noticed that a higher percentage of contacts indicated that production levels would increase in the near term. Boston, Cleveland, Kansas City, and Dallas also described the manufacturing outlook as optimistic.

Philadelphia, Atlanta, Chicago, Kansas City, and San Francisco reported more rapid improvement in factory orders. Chicago cited steel, automotive, and heavy equipment manufacturing as sources for significant new orders growth, while Dallas noted that orders for high-tech goods had accelerated. Philadelphia and Atlanta suggested that increases in orders were more broad-based. Cleveland and Richmond observed that orders were increasing at the same pace as in their previous report. Demand from abroad, particularly Asia, was cited by several Districts as a driving force in new orders.

Nonfinancial Services
Districts reporting on nonfinancial services noted increased activity. Philadelphia, Richmond, Minneapolis, and Dallas observed rising demand for general professional business services, with several reports singling out accounting firms. Dallas noted that much of this rise in demand for accounting services was related to consulting and transactional work. Several Districts also cited increased demand for healthcare, insurance, and legal services. The New York District, while reporting that legal hiring had picked up a bit, observed that it was from very low levels. St. Louis reported overall strength in business services, although contacts in government services and religious organizations announced plans to decrease operations and lay off workers. San Francisco also saw improved demand for consumer and business services, but countered that providers of healthcare, legal, and accounting services reported that demand remained largely flat. Information technology and telecommunication providers experienced increases in sales, according to the Boston, Philadelphia, and San Francisco Districts. Kansas City observed softer sales by IT firms, especially those tied to federal stimulus spending, but noted that activity generated by data centers and e-commerce were characterized as strong.

Transportation services firms in the Cleveland, Atlanta, and Kansas City Districts reported an increase in shipments. Cleveland contacts hinted at the possibility of hiring more drivers but also expressed concern over the tightening of the labor pool. Transportation firms in several Districts expressed concerns over rising fuel costs.

Banking and Financial Services
Loan demand varied across District and loan category. Richmond, Dallas, and San Francisco noted improvements in overall loan demand, while Kansas City observed a decrease. Demand for residential real estate loans increased in Philadelphia, Atlanta, and Dallas but was weaker in New York, Cleveland, St. Louis, and Kansas City. The New York, Philadelphia, Richmond, Chicago, and San Francisco Districts reported improvements in commercial loan applications. The Dallas District experienced mixed commercial loan demand, while St. Louis noted that demand was unchanged to weaker. Cleveland reported business loan applications were beginning to pickup but demand for consumer loans remained soft. The Philadelphia District expected little change in loan volume as consumers remained reluctant to borrow.

Most Districts reported that credit standards were unchanged to tighter. Kansas City reported standards were unchanged for all types of loans. New York noted some tightening of commercial loan standards but little change in the standards for residential mortgages or consumer loans. The Atlanta District reported increased standards for residential mortgage loans. St. Louis indicated standards had tightened somewhat for commercial mortgages, but were unchanged for C&I loans, and were unchanged to somewhat tighter for residential mortgages. San Francisco noted relatively restrictive standards for both consumer and commercial loans.

Community bankers in the Chicago and Dallas Districts cited increased competition for C&I lending from large banks. Atlanta noted improvements in credit conditions for all loan segments except those related to residential construction and real estate. Cleveland, Richmond, Chicago, Kansas City, and Dallas indicated steady to improving credit quality, and New York reported steady to lower delinquency rates. San Francisco reported that venture capital financing was improving with increased investor interest and IPO activity.

Agriculture and Natural Resources
Adverse weather conditions continued to hamper agricultural production in many areas. Extremely cold and/or dry conditions negatively affected crops or livestock in the Richmond, Atlanta, and Dallas Districts. Kansas City also reported poor growing conditions. St. Louis described mixed results for production in many crops, but large increases in rice and cotton production were noted. Most reporting Districts noted continued strong commodity prices were benefitting producers of cotton, corn, soybeans, wheat, poultry, hogs and cattle while there are also some reports of rising input prices, particularly in fertilizer and feed prices. San Francisco observed some boost in export sales for timber companies.

Energy activity expanded or remained stable since the last report. Kansas City and Dallas noted strong drilling activity, while Cleveland and Atlanta reported a decline in permit issuance. In the Atlanta District, drilling activity remained below pre-Gulf of Mexico oil spill levels, although up slightly since October 2010. Coal production remained above year-ago levels in the St. Louis and Kansas City Districts and held steady according to Cleveland. Kansas City reported that oil and gas production increased, while Cleveland noted that production held steady. San Francisco reported that global demand supported oil extraction, while Minneapolis experienced stable oil exploration.

Prices and Labor Markets
Manufacturing and retail contacts across Districts reported rising input costs. Manufacturers in many Districts conveyed that they were passing through higher input costs to customers or planned to do so in the near future. Homebuilders in the Cleveland and Atlanta Districts noted rising material costs, but acknowledged little ability to pass through the costs to buyers. Retailers in some Districts mentioned they had implemented price increases or were anticipating such action in the next few months. There is little evidence of wage pressures across Districts. Wages remained steady in the Boston, Philadelphia, Cleveland, Kansas City, and Dallas Districts, while moderate wage pressures were reported in the Chicago, Minneapolis and San Francisco Districts. Philadelphia, Dallas, and San Francisco noted that most wage increases were for workers with specialized skills.

Labor market conditions continued to strengthen modestly, with all Districts reporting some degree of improvement. The Boston, Cleveland, Minneapolis, and Dallas Districts cited noticeable improvements in the manufacturing sector, and the Boston and Cleveland Districts also observed increased labor demand in the healthcare and medical sectors. New York reported little or no hiring in the manufacturing sector, although their factory contacts planned on increasing hiring in the coming months. The Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and Dallas Districts received optimistic reports from staffing agencies. Dallas said that staffing firms experienced continued strong demand, particularly for high-skilled IT positions. The Cleveland District staffing contacts noted some growth in the number of new job openings, with vacancies concentrated in healthcare, manufacturing, and professional business services. Chicago reported that a large staffing firm reported solid growth in billable hours for both industrial and for office and clerical positions, as well as increases in both temporary-to-permanent job transitions and direct hiring of permanent employees. Boston, Richmond, and Chicago noted increases in the conversion of temporary to permanent hires and permanent job placements, while contacts in the Atlanta District reported a preference for hiring temporary staff. Employers in the Boston District reported difficulty in finding qualified candidates for high-skilled jobs. Despite the improvement in most labor markets, some Districts such as New York, St. Louis, Minneapolis and Dallas also noted layoffs in the region.