The economy expanded across the country from late August until early October, but the pace shifted into a lower gear, the Federal Reserve said Wednesday. In its beige book, an anecdotal look at conditions named for the color of its cover, seven of the 12 Fed districts said growth remained steady, but the Cleveland, Dallas, Kansas City, Richmond and San Francisco Fed banks saw more tepid conditions.
Lenders noted rising delinquencies and tighter loan standards. Commercial real estate was solid, but there were some emerging signs of problems. Housing continued its long slow burn. Companies had mixed success passing on higher prices. Fed officials will examine the beige book, and a host of other economic data, as they debate interest-rate policy Oct. 30-31. A look at some of the highlights of the report:
1st District: Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, most of Connecticut. The outlook was uncertain but not downbeat. Manufacturers saw solid demand, except for housing-related items. Housing markets were soft. Businesses noted higher production costs. Retailers were cautious, with some expecting an economic slowdown and saying they were uncertain whether it will turn into a recession. Others said the problems were not so much a matter of underlying weakness as much as consumer confidence. Businesses mostly expected capital spending to be flat to up in coming months. Consulting firms said some customers have become more conservative. Speculative real estate investment has been sharply curtailed by lack of financing. Condo projects under construction are in trouble.
2nd District: New York, northern New Jersey, Fairfield County, Connecticut. Expansion was moderate, with a generally stable and tight labor market, expanding manufacturing and mixed housing markets. Retailers said sales were on or below plan in September, except in New York City, where activity has been relatively strong. Bankers noted weaker demand, especially for consumer loans and home mortgages. Commercial real estate in the New York City area was generally stable to stronger. New Jersey home builders all but ceased seeking approvals for new development. Factories noted steady upward pressure on production prices and “increasingly widespread” increases in selling prices.
3rd District Delaware, southern New Jersey, eastern Pennsylvania. Business activity expanded. Manufacturers reported increased orders and shipments. Retailers generally gained, with higher-price goods moving most briskly. Home furnishings and autos didn’t fare as well. Firms noted moderate wage increases, but several said health benefit cost increases were large. On the inflation front, firms were passing on price increases, especially for food. Lending slowed broadly, including business, personal and credit card business. Several bankers said lending related to mergers, acquisitions and leveraged buyouts increased. One banker said housing developers are stressed, and several banks stepped up monitoring of borrowers in commercial and residential development. Competition among builders for commercial projects is up as housing slows. Manufacturers saw rising prices for food, chemicals and machinery but some declines in lumber, transportation equipment and metals.
5th District: Maryland, Virginia, North Carolina, South Carolina, southern West Virginia, District of Columbia. Activity slowed because of weakness in housing and slower revenue growth in the services sector. Mortgage demand softened. Reports from merchants were less rosy as retail sales – particularly big-ticket categories – pulled back. Widespread, droughtlike conditions hurt crops and delayed winter plantings. However, manufacturers saw better shipments and new orders, and tourism activity has been solid since Labor Day. Commercial real estate agents said leasing was steady. Hiring moderated a bit in recent weeks, though factory employment rose for the second month in a row. On balance, price growth was little changed. A West Virginia auto dealer said, “The only people buying are the need buyers, not the want buyers.” Retailers started hiring seasonal employees, and most planned to staff the holiday season at about year-ago levels.
6th District Alabama, Florida, Georgia, eastern Tennessee, southern Louisiana, southern Mississippi. Economic activity was mixed. Home sales and construction continued to decline, and inventories rose. Manufacturing slowed, especially for industries linked to housing markets. Bankers tightened mortgage lending standards. Skilled workers were in short supply, boosting wages. The overall pace of hiring slowed in Florida. Drought conditions hurt crops. Retailers said September sales were up modestly compared with a year ago. Some Florida home builders indicated the rise in new-home inventory had moderated, but most builders anticipated that the housing market’s weakness would persist. Commercial construction was flat to slightly up compared with a year ago, with fewer big projects in the pipeline in Florida. Several firms linked to the defense and auto-parts supply industries expanded production. Freight demand weakened through the end of September. Producer prices for metals were volatile.
7th District: Iowa, northern Indiana, northern Illinois, southern Michigan, southern Wisconsin. The economy in the region in September grew at a “modest pace.” Back-to-school sales ended well after getting off to a slow start. But retailers were cautious about the upcoming holiday season. One retailer said it planned to keep fewer products on hand because of too much uncertainty, while a national restaurant chain said the pace of sales gains had slowed. Business spending rose, but firms were expressing caution about investments in 2008. Manufacturers reported strong demand from abroad. Mortgage delinquency rates rose as the housing market continued to slow.
8th District: Arkansas, southern Illinois, southern Indiana, western Kentucky, northern Mississippi, eastern Missouri, western Tennessee. Factory activity rose as more firms announced plans to expand or open new plants than those who said they expected to cut back. Retail sales were strong, while car sales were “fairly steady” from the prior year. The commercial real estate market continued to be strong, while the housing market slowed further. Through August, year-to-date home sales were up in Louisville, but were down in Little Rock, St. Louis and Memphis. Residential construction fell in all parts of the district. Harvesting of crops such as corn, sorghum and cotton was ahead of schedule as dry weather made it easier for farmers to get into the fields. Crop conditions improved in most areas, although more than half of the corn and soybean crop in Tennessee and the soybeans in Kentucky were considered in poor shape.
9th District: Minnesota, Montana, North Dakota, South Dakota, upper Michigan, northern Wisconsin. Growth in consumer spending slowed. The job market was mixed. While the market improved in Montana and in the Dakotas, it weakened in Minnesota and Wisconsin. Employers reported trouble finding qualified workers in Montana. Wage gains were “moderate,” while price increases were “generally modest.” Diesel prices, however, were rising quickly in the region. While commercial construction was steady, the non-residential real estate market softened. Sources in the Minneapolis-St. Paul; Fargo, N.D.; and Sioux Falls, S.D., areas reported high vacancy rates for retail space.
10th District: Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, northern New Mexico. Growth in the region slowed from prior months. Consumer spending eased. Sales of apparel, jewelry and sporting goods were healthy, but purchases of home-related items “remained weak.” Demand for large SUVs and trucks ebbed, while fuel-efficient cars sold well. Restaurants said sales were “flat” as costs rose. Manufacturers expressed optimism even though activity in the factory sector eased. The housing market slowed further, although demand for low-to-midprice homes remained healthy. Banks tightened lending standards, particularly for residential and commercial real estate loans. The labor market “remained tight,” although the rate of job growth and wage pressures “eased slightly.”
11th District: Texas, northern Louisiana, southern New Mexico. Economic activity in the area slowed, although the improvement in financial markets led some business contacts to become more optimistic. Price pressures continued from the food, energy and transportation sectors, and the fall in the value of the dollar is leading to higher costs for import. Retailers, however, reported trouble passing along higher costs to consumers because of strong competition. The labor market was tight and wages rose. Firms reported trouble finding accountants, IT specialists, engineers, mechanics, welders and workers for the energy and commercial construction industries.
12th District: Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, Washington. The region’s economy grew at a slower pace than in previous months. Price pressures were “modest,” aside from the noticeable exception of food costs. Wage gains were “moderate,” although strong increases were seen for skilled workers in some fields such as finance. Overall retail sales’ growth slowed, although luxury items fared better than lower-price goods. Tourism was mixed, with “solid growth” seen in Las Vegas but an easing in Hawaii. Reports from title and escrow providers suggest home sales fell as much as 40 percent in some areas recently.
