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
Economic activity in the Fourth District has risen modestly since our prior report. Residential and nonresidential construction and professional and business services drove the majority of growth over the period. Growth in non-auto retail and in banking was restrained by seasonal factors, but contacts in these sectors were optimistic that underlying demand remained resilient. Manufacturers’ reports were mixed. Freight haulers reported flat demand. District firms across most industries increased staffing levels moderately. Wages strengthened moderately for a wide range of industries and education levels. Companies expressed concern about employee retention in the face of increased competition for labor. Selling prices increased moderately overall across the District. Some goods producers reported some relief from materials cost increases, but they continued raising selling prices to cover prior increases in their input costs. Retailers reported improved pricing power. Professional and business services firms reported limited pricing power despite demand growth.
Employment and Wages
Hiring in the Fourth District strengthened back to a moderate overall pace after a brief softening in the prior period. Most industry sectors reported job growth but also difficulty finding new, qualified workers. Staffing agencies noted that more companies were struggling to hire on their own and that clients were increasingly contracting staffing firms to assist with permanent placements. Bankers reported adding staff to run new programs and to develop a talent pipeline in anticipation of near-term retirements. Nonresidential builders rehired staff that had been laid off for seasonal reasons during the winter months, and they further increased payrolls when possible. In contrast, residential builders held staff levels steady, citing uncertainty about overall demand through 2019. Trucking companies added drivers in preparation for their busy season, but they expressed difficulty finding qualified drivers. Manufacturing jobs increased overall, as the manufacturers who saw improved demand over the period added staff while those who saw slowed demand held staff numbers steady. Professional and business services firms continued to grow. Retail staffing levels were stable.
Wages increased moderately across industry sectors and education levels. Retailers increased wages for both store and warehouse employees, citing increased competition for both. Manufacturers and freight haulers increased wages for their hourly staff to aid retention efforts, pointing to wage increases by competitors. A contact in robotics development noted that he had lost out on several candidates for new hires because competitors offered higher salaries, so he has increased his offer in turn. Construction companies preemptively offered bonuses and raises to certain office staff members, such as key engineers, for the purpose of retention. Staffing agencies noted their clients were offering higher pay for temporary and permanent hires.
Selling prices rose moderately in the District at a pace similar to that of the prior period. Manufacturers and some nonresidential builders reported a deceleration of materials cost inflation. Some manufacturers even reported materials cost declines, especially for steel, after a run-up last summer. However, these firms still reported raising selling prices in this period for the purpose of covering the materials cost increases that they had seen throughout 2018. Prices of new homes have risen to cover recent input cost increases, especially from increased subcontractor rates and higher costs for manufactured products such as cabinets. Freight haulers continued to raise prices, and, in turn, retailers reported freight prices as a cost driver. Retailers reported improved ability to raise prices. Auto retailers reported transaction price increases for new vehicles, and a department store reported offering fewer discounts on items. Most professional and business services firms reported limited pricing power because of strong competition, but some specialized firms were able to raise selling prices.
Activity in the retail sector was slightly up during the reporting period. Several retailers noted that the strengthening of the economy late last year had continued into 2019, but other firms reported that colder weather toward the end of the quarter curbed foot traffic to their stores. Auto retailers reported stable demand and increased inventories for new cars. Auto retailers also reported higher prices as interest rates rose. Several retailers noted signs of increasing consumer demand and confidence, and they expect conditions to improve going into the second quarter because of warmer weather, plant sales, and several holidays.
Reports from the manufacturing sector remained mixed, with little indication that conditions have changed from those of the prior period. Some contacts reported that demand for their products improved as a result of strong economic conditions and organic growth. Others attributed an increase in activity to more transient factors: falling retail prices (driven by falling input costs) and a seasonal upswing coming off the slow winter months. However, some reports suggested that demand has slowed, possibly because of trade tensions and the slowing of industrial activity in China. Some contacts reported that their finished goods inventories have increased because of capacity constraints and longer lead times. Despite some reports of slower growth in demand compared with that of recent months, many manufacturers continue to report strong backlogs and normal levels of capacity utilization.
Real Estate and Construction
Construction activity in the District increased moderately over the period, while real estate activity remained stable. In the current period, growth in nonresidential construction has rebounded to the moderate pace seen before the typical winter slowdown in the prior survey period. Education, warehousing, and industrial projects especially picked up over the period. Nonresidential backlogs increased. Homebuilders pointed to lower mortgage rates, urgency caused by increasing home prices, and the spring selling season as spurring improved demand. Contacts reported that lower-priced homes outsold more expensive homes. Real estate agents reported stable sales. Nonresidential builders expect demand to remain strong, but homebuilders are more uncertain about 2019 overall and are therefore holding off on hiring and capital expenditures.
Consumer lending declined slightly, as it typically does during this time of the year. Consumers paid off credit card balances during the first quarter, and mortgage lending was soft because of the winter weather. Bankers reported that they expect the second quarter to be stronger than the first. Core deposits increased somewhat as consumers received refunds from income taxes, but competition for deposits continues. Commercial lending firmed some, and bankers were optimistic about continued growth in inquiries from business clients. One contact cited an uptick in credit requests for debt restructuring, capital expenditures, and acquisition financing.
Professional and business services firms reported a solid first quarter, citing increased demand for specialized services because of clients’ budget increases. One risk consulting firm stated that global security concerns were driving increasing demand for particular services. In contrast, freight contacts had a softer first quarter, reporting that demand was mostly flat. One freight contact indicated that while meat shipments in February and March are typically down because of Lent, this year’s meat shipments were particularly weak. Overall, professional and business services firms indicated they expect strong demand to continue through the next quarter, while freight firms expect demand to be flat.