Fourth District Beige Book
The Beige Book—officially known as the Summary of Commentary on Current Economic Conditions by Federal Reserve District—is produced eight times each year prior to Federal Open Market Committee (FOMC) meetings. The information in the Beige Book is gathered primarily through interviews with business people in each District, as well as from Federal Reserve Bank and Branch directors. The publication’s original purpose was to supplement official statistics with more current anecdotal accounts of the economic environment in order to assist policymakers during FOMC deliberations.
Summary of Economic Activity
Business activity in the Fourth District grew moderately during the survey period. Demand was strong in many sectors, but hiring continued at about the same pace as in the previous survey period. Contacts reported ongoing shortages of qualified workers, and many firms stepped up their training programs to alleviate the shortage. Firms increased wages, bonuses, and incentives to reduce worker turnover, although the increases were in line with recent trends. Upward pressure on input costs was strong, notably for metals, construction materials, and transportation services. Final selling prices increased as manufacturers, builders, and transportation firms raised their prices to cover their increased input costs. Consumer demand, including for autos, was stable to slightly higher. Manufacturing capacity utilization rose to meet strong demand. Freight volumes trended higher. Construction activity weakened as rising prices took some steam out of demand.
Employment and Wages
Staffing levels and wages rose moderately during the reporting period in a similar fashion to rises in recent survey periods. Hiring in professional services quickened thanks to stronger demand for technology services. Construction hiring was strong, as well, with firms' hiring entry-level, intermediate, and senior-level managers to accommodate the high volume of work. One nonresidential builder reported hiring slightly more-recently graduated engineers than in the year before. Hiring was weakest in banking, as some firms reduced expenses by trimming nonsales or non-customer-facing staff.
Contacts across many sectors often cited a shortage of quality labor as a constraint to hiring. A number of firms are boosting training efforts and considering alternatives to alleviate the shortage. One manufacturer reported trying an onsite training program to transition general laborers into more-skilled positions. A trucking contact reported implementing an apprenticeship program to attract younger workers. Overall wage pressures were in line with the moderate trends seen so far in 2018. A few transportation and manufacturing contacts reported that they were having to give off-cycle wage increases to retain workers. One auto dealer increased incentives and starting pay for midlevel technicians, while a retailer noted the contact's firm's new bonus program had helped keep turnover in check. One banker noted raising wages for more experienced professionals because these professionals were more mobile.
Both input prices and final selling prices continued to rise and anecdotes suggest price pressures were similar to those of the previous two survey periods. Contacts reported strong upward pressure on nonlabor costs, especially for metals and transportation services. Price increases for plywood, lumber, and concrete were also noted. One construction contact remarked that suppliers would guarantee a price for a few days only. There was some concern that the impact of tariffs would soon filter through the supply chain in the form of higher prices of new transportation equipment, including trucks and trailers. Also, one retailer pointed out that the firm was beginning to see an increase in the firm's costs because of import tariffs.
Final selling prices trended higher. Construction firms aggressively raised their prices to pass along higher materials costs. The majority of transportation contacts raised their freight rates thanks to strong demand and limited capacity in the sector. More than half of manufacturing contacts raised their prices for a fourth consecutive reporting period. Service-sector industries reported relatively more modest price increases as firms attempted to cover rising worker compensation costs.
Retail demand improved moderately, continuing a nearly year-long trend, and contacts expected this positive trend to continue in the near term. Clothing retailers and auto dealers were most upbeat about their sales in the current reporting period. Auto dealers indicated that demand was improving thanks to strong consumer confidence, a tighter labor market, and stable financing conditions. They also reported that SUVs and light trucks continued to outsell passenger vehicles. Retailers with broad footprints noted that sales within the Fourth District were roughly in line with national demand. Profit margins were stable, and inventory levels were reported to be in good condition.
Manufacturers reported stronger conditions and attributed the increased demand to a strong overall economy and pro-growth fiscal policy. One steel manufacturer noted that even though July is typically a soft month for new orders, demand remained strong this summer. Most manufacturers reported that capacity utilization had been within a normal range during the last two months, although some firms had increased their capacity utilization because of a backlog of orders. Some manufacturers were concerned about increased lead times due to rising freight costs and a scarcity of specialty metals. There were some reports that automotive manufacturing had slowed slightly, but other end markets such as industrial equipment, agricultural equipment, and construction remained strong.
Real Estate and Construction
Demand for new homes fell during the survey period, and homebuilders expected further decreases in the near future. The drop in sales was concentrated in higher-end homes; sales of lower-priced homes were steadier. Although homebuilders were able to pass along higher materials costs to preserve margins, they noted that rising home prices were a factor weighing on sales. Contacts reported stable first-time-homebuyer demand and stable financing conditions, along with an increase in the percentage of homeowners relative to renters.
Nonresidential builders reported that conditions moderated from the high levels seen in recent survey periods. Inquiries were down, especially for government and industrial projects. However, builders did not expect conditions to continue to worsen. Backlogs were still strong, and some builders were trying to expand their workforces to address their backlogs. Rising materials costs, especially of steel, lumber, conduit, and concrete, motivated nonresidential builders to raise their prices. However, while builders successfully passed through these cost increases, they believed the market was too tight to improve their profit margins.
Conditions in the financial services sector remained steady. During most of 2018, demand for credit had been strong, and in the current period, contacts mostly reported no change from this trend. Most contacts were optimistic about current economic conditions and expected the pipeline for loans to remain strong. Changes in core deposits were mixed. One contact indicated that wholesale customers continued to draw down balances instead of relying on credit. Another contact indicated that promotional increases in interest rates on deposits—especially certificates of deposit—bolstered deposit growth. Contacts are watching closely as interest rates rise, but they have not reported notable increases in delinquency rates or credit charge-offs.
Nonfinancial services firms reported strong demand thanks to generally favorable economic conditions. Business advisory firms and software developers reported strong activity. Contacts noted that in addition to tax savings and ongoing strong business confidence, their services were in demand because businesses were modernizing their IT infrastructures and attempting to automate their processes. Capital investments held steady. Transportation firms reported continued increases in freight volumes. Railroad contacts attributed some of their volume growth to ongoing capacity constraints in the trucking industry.