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Reports from businesses in the Third District indicated that economic activity in the region increased moderately in August. Manufacturers reported some gains in shipments and orders. Retail sales increased modestly for the month and on a year-over-year basis, although auto sales were just about the same as a year ago. Lending activity at area banks was up slightly. Commercial real estate markets continued to firm up a bit, and construction activity has increased, but not by a significant amount. Homes sales have been steady in most parts of the District, and home prices were reported to be appreciating only marginally.
Manufacturing
Manufacturers reported increases in orders and shipments during August, continuing on the path of moderate growth that characterized the previous two months. Firms in nearly all the major goods-producing sectors in the region were sharing in the gains, although producers of electrical machinery noted a slight drop in business. On balance, area manufacturers indicated that order backlogs were steady, even though delivery times edged up from the previous month. Some firms noted they were implementing procedures to shorten delivery times and to reduce required inventory levels. While two-thirds of the firms contacted in August said their employment levels were steady, nearly one-fourth were adding workers. These firms were primarily makers of business equipment.
Most firms contacted for this report continued to describe industrial prices as steady. Three out of four said both input and output prices have not changed from last month. More companies noted recent increases than decreases in costs for the goods they purchase, but the number of area firms that raised prices for their own products was offset by the number reducing prices.
Retail
Third District retailers generally reported an increased pace of sales in August compared to July and increases over August of last year. For most of the stores contacted for this report, year-over-year gains were a bit over 3 percent in dollar terms on a comparable store basis. The increase in total sales was higher as several major retailers have expanded the number of stores they operate in the District since last year. Most apparel stores experienced healthy gains compared to last year, although stores specializing in footwear did not appear to attain the increases they had expected. In general, store executives said they entered the back-to-school shopping period with appropriate product mixes and attractive prices and they did not have to make unplanned price markdowns. They described their inventories as appropriate for the current pace of sales.
Auto dealers said sales ran at a steady pace throughout August and at about the same rate as in August of last year. Manufacturers incentives have not boosted overall sales, but they have enabled dealers to reduce inventories of current models as they begin to receive shipments of new cars.
Finance
Bank lending in the District has been rising slowly. Real estate lending has increased and consumer loan volume has moved up a bit. Business loan volume outstanding at commercial banks has been relatively flat in recent weeks. Bankers continue to report competition for commercial and industrial loans from nondepository institutions such as commercial finance companies and specialized small business lenders. Real estate investment trusts have stepped up their activity in the region, and they are providing financing for acquisition of existing office and industrial buildings as well as undeveloped land. They are also financing construction of some new commercial buildings.
Real Estate and Construction
Commercial real estate markets in the District have been firming up since the beginning of the year according to property management firms, although construction activity has not increased significantly. Office vacancy rates have improved slightly; the rate was estimated at 14 percent in the Philadelphia central business district, around 9 percent in northern Delaware, 18 percent in southern New Jersey, and 10 percent in the Pennsylvania suburbs around Philadelphia. Rental rates have edged up in some tight markets, but the average increase in the District has been slight. Commercial real estate contacts said the current vacancy rate in the Pennsylvania suburbs has prompted some speculative construction in those markets; but demand for space in central Philadelphia has not yet pushed acquisition prices of office buildings up to replacement cost, the point at which potential acquirers of space might consider new construction. Demand for industrial space, especially distribution facilities, remained strong throughout the District, and rents have been on the rise in recent months. Some speculative construction of industrial space has begun, and commercial real estate agents think new supply could restrain increases in rents for these types of buildings.
Reports from residential real estate agents indicated that home sales in the District have been running at a steady rate recently. Realtors said the pace has been good, although lower than in the spring. According to real estate agents and builders, both existing and new home prices do not appear to be appreciating very much. A continuing large supply of homes for sale is limiting price increases, although the amount of time homes are on the market before being sold has been declining.
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New York