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.
Overall economic activity in the District was stable on balance, though reports varied by sector. A still favorable economic environment continued to boost demand for professional and business services generally, but some firms indicated that heightened uncertainty also contributed to the increase as customers sought more consulting services. Home sales and auto sales rose over the period, while consumer spending on nondurable goods was flat. Slowing global growth and trade tensions continued to weigh on manufacturing, but output stabilized as some customers rebuilt inventories after allowing them to run too low. Lenders suggested that overall loan demand was unchanged, even as lower interest rates boosted lending for homes and autos. Nonresidential construction remained strong, while residential construction softened modestly. Freight activity continued to fall. Employment was stable on balance, though reports by sector were mixed. Still, wages rose modestly because of persistently tight labor markets. Selling prices increased modestly on balance as firms sought to compensate for higher labor costs as well as increased pressure from rising nonlabor costs.
Employment and Wages
Employment was generally stable in the Fourth District, although there were scattered reports of softer demand for labor. Firms in the professional and business services sector continued to add staff in response to robust demand. Most apparel and general merchandise stores held headcounts steady, as did construction contractors. Some bankers curbed hiring to focus on operational efficiencies and to reduce expenses. By contrast, some firms reduced employment levels as a direct result of softer demand for goods and services. Specifically, some manufacturers froze hiring and reduced hours, and planned to keep payrolls and hours at lower levels until product demand picked up again. Freight haulers (both trucking and rail) reduced headcounts to "align [human] resources to reduced volume levels."
Wages grew modestly on the whole in the Fourth District. Manufacturers continued to increase wages and enhance benefits offerings amid persistently tight labor markets. Higher wages were also reported by general merchandise and auto retailers. Retailers cited difficulty finding qualified workers and heightened competition for labor from distribution centers as contributing factors. Some professional and business services firms increased skill requirements for new hires and therefore raised starting pay relative to wages of existing staff. Many real estate firms increased wages, citing a "war for talent." By contrast, most construction contractors did not raise wages in this period, nor did most freight haulers.
On balance, selling prices rose modestly. Most changes in this period resulted from firms' adjusting output prices to account for changes in input prices rather than from firms' trying to increase their margins. Apparel and general merchandise retailers reported upward pressure on clothes and food costs, pressure which was exacerbated by the September 1 tariff increases. Most retailers passed through these higher costs to consumers, although a couple of retailers absorbed them into their margins, rather than raising prices, to preserve market share. Many trucking companies reported recent cost increases because geopolitical factors and new diesel taxes have increased prices at the pump. Some freight haulers were able to negotiate higher rates to account for these costs, but others remarked that the freight market was not robust enough to be able to push for higher rates. Manufacturers' prices, which had been falling in the past couple of periods, stabilized in this period. Most construction contractors held prices steady because costs for construction materials were relatively stable. Professional and business services firms held pricing steady, as well, because stiff competition limited individual firms' ability to raise prices.
Retailers' reports on consumer spending were mixed. Reports from auto dealers were generally more upbeat than those from other segments. Some auto dealers reported that light vehicle sales were up substantially, while others indicated that sales were flat. Apparel spending was relatively flat, and merchants noted that unseasonable weather adversely impacted sales. Contacts in the restaurant industry reported that sales were down in this period because of increased competition from new restaurants.
Overall manufacturing conditions appeared to stabilize following a few periods of slowing, although reports from contacts varied. A few manufacturers suggested that their customers let inventories run too low in anticipation of a more significant manufacturing slowdown than has materialized. As a result of the need to restock, demand for these manufacturers' products picked up in recent months. Other manufacturers reported that demand continued to soften, citing a global slowdown in industrial activity and persistent trade-related uncertainties. Two-thirds of contacts reported that capacity utilization was within a normal range, although several noted that labor shortages persist. Some manufacturers had existing capacity that was going unused for lack of workers, a situation which damped plans for further capital spending.
Nonresidential construction and real estate saw strong, steady demand over the period. Some nonresidential contractors noted an uptick in contracts for office and healthcare-related buildings. Most nonresidential contractors expected construction to remain strong excepting winter slowdowns. However, some commercial real estate contacts expressed concern about slower demand in the near future; one remarked that he would "expect increased trepidation as the election draws near."
Residential real estate agents reported moderately higher home sales and expected demand to continue to increase modestly in the near future. Real estate agents pointed to lower interest rates as the primary factor spurring stronger sales. Real estate agents also remarked on growth in the first-time homebuyer segment and in the ratio of homeowners to renters as lower interest rates helped younger adults become homeowners. By contrast, homebuilders reported softening demand, which may suggest that households are uncertain about the medium-run economic outlook.
Loan demand was relatively unchanged. Lower interest rates spurred an increase in demand for auto loans, home mortgage originations, and loan refinancings. Some bankers noted that the pipeline for commercial loans remained strong, while others had noticed a slight softening. Core deposits ticked down, mostly as a result of falling interest rates, although one banker commented that competition had decreased because most banks are facing "not enough loan demand to go after deposits."
Professional and Business Services
Activity in professional and business services strengthened. Contacts reported an increase in demand for a variety of products and services, pointing to strong business conditions for their customers. Firms in consulting services suggested that global issues such as international security concerns and worries of future economic volatility have increased demand for their services. The majority of professional and business services contacts anticipate that favorable economic conditions will carry into the first quarter of next year, although a few expect growth to slow.
Freight activity softened further since the last report. Most contacts reported flat or lower demand for freight services. Contacts cited as contributing to lower freight volumes declines in manufacturing activity, lower volumes of coal shipments, and structural changes to transpacific shipping supply chains. One freight executive summarized the situation as "our customers have informed us they front-loaded much of their business to Q1 2019 due to perceived or impending tariffs placed on goods to and from China." Despite the recent softness, contacts were more optimistic than during last period that freight volumes will pick up in the near future.