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
The Fourth District's economy grew modestly with some improvement to business demand. Professional and business services was the fastest-growing sector during the period as increased confidence motivated clients to spend on new projects. Financial services reported growth, especially for construction and real estate lending. Nonauto consumer spending accelerated, but auto purchases declined modestly. Homebuilders and real estate agents saw slightly increased housing demand, partially because of the spring selling season. Manufacturing activity in the District declined slightly because of slowing global demand. Employment grew modestly, driven by the service sector. Wages rose moderately overall, but they rose faster for white-collar industries than blue-collar industries. Prices decelerated to a modest pace. Manufacturers cited an easing of materials costs pressures, retailers absorbed cost increases, and competition held down professional and business services prices.
Employment and Wages
District employment increased modestly, with much of the gains concentrated in services. Professional and business services and banks added workers at a healthy clip thanks to growing demand. A couple of contacts in these sectors noted that automation had reduced the need for workers in some functions but that they had increased hiring for more analytical roles. A few retailers added workers to keep up with increased demand. Nonresidential builders increased staffing levels because of good weather and strong demand, while homebuilders reduced staffing levels slightly. Changes to manufactures' staffing levels were mixed. One industrial equipment manufacturer remarked that the firm was more cautious in hiring in order to prepare for future business conditions. Transportation employment declined slightly as companies looked to reduce costs. Several contacts in various industries reported that their growth was hamstrung by lack of workers. One steel producer noted that staff levels fell because they could not find replacements.
Wages rose moderately as employers encountered tight job markets. Although wages rose in all industries, they rose faster in white-collar industries than in blue-collar industries. Professional and business services firms reported difficulty finding qualified workers and found that competitors were luring away workers by offering higher salaries. One technology contact reported that he had given raises to employees who had been with the firm less than a year in an effort to retain them. Bankers reported wage increases across job levels, but especially for tellers, in order to compete with recent wage increases from retailers. General merchandise, food and hospitality, and auto retailers all reported raising wages because of competition for workers. Wages in the freight sector rose modestly—one freight contact characterized it as an "upward drift." Construction firms held wages steady, for the most part. A few manufacturers raised wages for retention, citing tight labor markets, but fewer raised wages than had in the prior two periods.
Selling prices rose modestly overall, a deceleration of prices relative to growth rates during the last several periods. Manufacturers reported final selling prices were mostly unchanged because materials costs, especially for steel and other metals, fell during the period. This is a notable change from circumstances during the last several periods when manufacturers consistently raised prices to cover materials cost increases. Retailers reported strong input cost pressures stemming from higher freight costs, marketing costs, tariffs, and, for auto retailers, new-vehicle costs. A few retailers raised prices to cover these cost increases, but many elected instead to absorb the cost increases. A few nonresidential builders reported that strong backlogs enabled them to increase their margins. Home price increases were inconsistent across the District; contacts in markets that were experiencing stronger population growth reported stronger price appreciation. Trucking contacts reported somewhat smaller price increases relative to those in previous periods, with the decrease in pricing power concentrated in the long-haul segment. Strong competitive pressures kept prices for professional and business services flat.
Overall, activity in the retail sector accelerated through the period. Nonauto retailers cited seasonality, promotions, and the continuation of trends in growth as the primary drivers of the modest growth in the period. The majority of nonauto retail contacts believe these trends will continue into the next quarter. By contrast, auto retailers saw a modest decline in activity. One auto retailer reported that sales were down in the last two months because the payments on new cars have been increasing as a result of higher interest rates. Auto contacts reported that they expect new-vehicle sales to be flat or even to decline in the near future.
Manufacturing activity declined slightly. Contacts attributed slowing demand to weakness in global markets, especially in demand for light vehicles and related parts. Many contacts are concerned that the increased tariffs on goods traded with China will further exacerbate softening manufacturing activity in China, leading to less demand for American products from Chinese manufacturers. Others noted that weakness has also emerged in some European markets. Some contacts reported that they are holding off on capital expenditures in the short term. Despite uncertainty about trade negotiations and slowing global growth, backlogs remain stable, and manufacturers were relatively upbeat. Many noted that there is usually an uptick in activity during the summer months.
Real Estate and Construction
Demand for nonresidential real estate and construction was steady during the period, while residential demand increased slightly. Nonresidential builders are busy, with strong and increasing backlogs. One builder mentioned that extensions and expansions of existing contracts are contributing to rising backlogs. Nonresidential builders acquired new projects at a pace in line with that of the prior period, and they commented that demand in this period was strongest from industrial and healthcare customers. Homebuilders noted improved demand because of the spring selling season and because of urgency spurred by the possibility of higher interest rates in the future. Homebuilders started more homes in this period than in last period. Real estate agents reported slightly improved sales and unchanged housing inventory.
Banking conditions improved modestly. Many contacts reported an increase in commercial construction and real estate lending. Residential mortgage demand picked up seasonally, though several contacts noted that growth in mortgage demand is constrained by lack of housing inventory. Competition for core deposits remained stiff, particularly for lower-rate deposits. Bankers dismissed potential concerns about a slight rise in delinquency rates, noting that these remain low by historical standards and that consumer and commercial financial positions remain strong.
Professional and Business Services
Professional and business services firms reported strong growth in the period. Expanding markets, new products, consumer confidence, and a favorable competitive landscape were among the variety of factors reported as contributing to this growth. However, one legal firm reported that tariffs had resulted in decreased deal flow. Overall, expected conditions are favorable in the sector because increased budgets from clients and consumers and strong project pipelines will continue to drive growth.
Reports from the freight sector were mixed. Some contacts reported that demand was strong in the beginning of the period, citing seasonal improvements, while others reported demand had decreased over the same timeframe. Firms that reported a decrease in activity indicated various reasons, such as that meat loads had been soft because of Lent, light-vehicle shipping had weakened, and coal shipments were down. One contact who saw a decline in demand, especially for long-distance trucking, said he was unsure whether this is a real decline in demand or just a temporary deceleration because of pull-ahead effects of tariffs in prior periods. Freight contacts expect demand to remain relatively flat for the remainder of the current quarter.