April 13, 2011
Federal Reserve Districts
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Business activity in the Third District has improved overall since the last Beige Book. Manufacturers reported increases in shipments and new orders in March. Retailers achieved slight year-over-year increases in sales in March. Motor vehicle dealers also reported year-over-year sales increases in March. Third District banks reported little overall change in loan volume outstanding since the last Beige Book, although a few reported increased lending on home equity credit lines and growth in small business lending. Residential real estate agents reported some increase in activity since the last Beige Book as measured by inquiries, showings, and traffic, but little pickup in sales or construction. Contacts in the commercial real estate sector said that leasing and construction activity have remained slow since the last Beige Book. Service-sector firms reported some increases in activity. Business contacts reported further price increases for inputs as they did in the previous Beige Book. Output price increases have also been reported in several sectors, but by fewer contacts than for factor prices.
The outlook among Third District business contacts is positive and has strengthened slightly. Manufacturers forecast a broad rise in shipments and orders during the next six months. Retailers expect sales to increase modestly on a year-over-year basis. Bankers expect only slight growth in lending over the next two quarters. Contacts in residential real estate have mixed views, although some expect a pickup in sales of existing homes. Contacts in commercial real estate expect market conditions to improve slowly during the year. Service-sector companies expect continued slow growth through the first half of 2011.
Over two-thirds of Third District manufacturers expect business conditions to improve during the next six months. Among the firms surveyed in March, over 60 percent expect increases in new orders and shipments, and less than 5 percent expect decreases. One supplier of construction industry materials reported receiving contracts extending further out into the fourth quarter. Plans to increase capital spending became more widespread with over one-third of area manufacturers projecting an increase over the next six months.
Third District auto dealers generally reported that sales were above the year-ago level in March and were continuing to move up. Some dealers of various brands noted the beginning of supply interruptions due to halts of vehicle and parts production in Japan resulting from the earthquake and subsequent problems there. These dealers said the supply problem had not yet become serious, but they did not know how extensive it might become or how long it might last. Dealers reported that demand for large vehicles has not declined yet despite the recent increase in the price of gasoline. Dealers said they see evidence of "pent-up demand" and they expect sales to remain strong as long as economic conditions are improving and the price of gasoline does not rise much higher.
Real Estate and Construction
There has been little change in commercial and industrial markets in the Third District since the previous Beige Book, according to area nonresidential developers, builders, and real estate firms. While rental concessions were widely reported "even with renewals," one contact stated that "rents are bottoming out and building values are starting to improve for top-quality buildings." The overall market is expected to tighten slowly over the year. One contact indicated that the market for industrial space "may see positive net absorption by the end of the year, but three quarters of positive absorption will be needed to put pressure on rental rates." Another contact identified "shadow inventory" persisting in the office market and suggested that "a 7 percent unemployment rate is needed before the office market sees positive net absorption." With anticipated recoveries extending from six months to two years or more for various segments of nonresidential real estate, construction activity remains weak with little growth expected through 2011. Some building activity may increase for industrial space in the latter half of the year.
Prices and Wages
Business firms in the region reported mostly steady wages since the last Beige Book, although some continued to express concern about rising nonwage employment costs. Employment agencies reported growth in demand for workers, although they indicated that firms were continuing to delay additions to permanent or temporary staff until the need for more workers becomes pressing.