| Skip to content
|
The economy in the Fourth District continues to show some signs of improvement, although overall activity remains significantly below pre-recession levels. Reports from manufacturers indicated that production was stable or rose moderately and that orders have increased. New home sales improved slightly, while non-residential builders characterized activity in their industry as slow. Financing remains a major issue for residential and commercial contractors. January sales figures from District retailers and auto dealers were mixed. Energy production held steady, and reports showed a small upturn in freight transport volume. Demand by businesses and consumers for new loans remains weak, while the growth rate in core deposits is tapering off.
Labor markets are beginning to show a slight recovery, with some business owners recalling a few workers or increasing production hours. Staffing-firm representatives reported an increased number of job openings, especially in healthcare and, to a lesser degree, in manufacturing. Wage pressures are contained. We heard many reports of rising steel costs, otherwise, raw material and product pricing was generally stable. Capital spending is beginning to rise, but continues below pre-recession levels. Inventories remain under tight control.
Manufacturing
Reports from District factories showed that production was largely stable or rose moderately during the past six weeks, with a majority of our contacts citing an increase in new orders. Most manufacturers told us that production levels have increased on a year-over-year basis, though by varying amounts. In general, our contacts are cautiously optimistic in their outlook. However, several believe that the recent rise in new orders is a result of customers restocking their inventories and may not signal a sustainable increase in production. Steel shipments were in line with expectations, with volume reports showing a gradual improvement. Although no end market is particularly strong, rising volume was attributed primarily to defense and energy. Our steel contacts are hopeful that improving conditions will continue. District auto production showed a small increase during January on a month-over-month basis and a substantial rise when comparing year-over-year data for domestic and foreign nameplates.
Manufacturers reported that inventories are in line with demand, while capacity utilization is beginning to improve. In general, capital investments continue on the low side. Nonetheless, a number of contacts said that they have increased their capital budgets for 2010; others commented that if new orders continue to rise, they are likely to spend more on capital projects later in the year. We heard many reports of increasing steel prices, which were attributed primarily to rising raw material costs. However, there was little response on the part of manufacturers to raise their own prices. Reports indicated that food-related commodity prices have dropped. Half of our respondents said that they have increased the number of work hours or recalled a few production employees, and wage pressures are contained.
Real Estate
In general, new home sales improved slightly during the past six weeks and on a year-over-year basis. Purchases of entry-level homes continue to do well, and several builders reported that the move-up category is gaining momentum. However, builders expressed concern about the potential effect on home sales once the first-time home buyers' tax credit expires on April 30. They also reported that banks remain unwilling to lend money for constructing spec houses, and tight credit standards are keeping many potential buyers out of the market. Our contacts had decidedly mixed reports on the list prices of new homes and discounting. Construction material costs were generally stable, although the price of lumber has started to climb from its recent low. General contractors continue to operate with skeleton crews, but some reported that they are in the process of recalling a few workers. Subcontractors are struggling to keep busy.
Reports characterized activity in non-residential construction, including public works, as slow. Although most of our contacts said that business has fallen on a year-over-year basis and many have nearly depleted their backlogs, inquiries are picking-up slightly. Most projects under way fall within the public works and education categories. Nonetheless, two builders reported a small upturn in industrial construction. About half of our contacts expect activity to remain weak in 2010, while others see a slight improvement when compared to 2009. We continue to hear numerous accounts of difficulties in obtaining project financing. One executive noted that his firm is now financing some of its clients' projects. Increased costs for construction materials were limited to steel, and subcontractor pricing remains very competitive. Employment by general contractors has been largely stable.
Consumer Spending
Reports comparing January retail sales to the previous 30-day period were mixed. However, a majority of our retail contacts said that sales improved slightly on a year-over-year basis. Although consumers continue to focus on buying necessities over discretionary items, several retailers noted that they see a slight pick up across a broad range of products, including housewares and furniture. Almost all of our contacts expect sales to improve somewhat during the next few months. Vendor and store pricing has been relatively stable. Retail inventories continued on the lean side. Auto dealers reported that new-vehicle sales tended toward the down side in January when compared to December. On a year-over-year basis, most new-auto sales figures showed an uptick. Used-vehicle purchases are seen as holding steady. Dealers expect overall sales to show modest improvements at best during the next few months. Auto store inventories were characterized as tight. Some contacts told us that credit and financing have improved a bit during the past few weeks, and that many consumers remain heavily dependent on manufacturers' incentives. Reports show little change in staffing levels at retailers or auto dealers.
Banking
Demand for new business loans remains weak. Bankers experiencing increased volume attributed it mainly to draw-downs on existing lines and roll overs from other banks, rather than new activity. Interest rates and spreads were steady. On the consumer side, conventional loan demand dropped substantially since our last report, with several bankers characterizing demand as very soft. Activity in the residential mortgage market was stable to down and dominated by refinancings. On balance, core deposits continued to grow, but many bankers said that the rate of growth has tapered off. Credit standards remain tight, with many bankers emphasizing that they are actively managing or reviewing their existing loan portfolios and relationships. The credit quality of loan applicants was stable to weaker for consumers and businesses. Reports on delinquencies were mixed, with most increases occurring in real estate portfolios. Outside of some strategic hires and controlled attrition, banks have not appreciably changed their employment levels.
Energy
Little change in oil and gas output was reported during the past six weeks, with drilling activity in 2010 expected to be about equal to 2009. However, natural gas drilling may get a boost from recent investments made in Marcellus shale reserves. Spot prices for oil and gas are stable within a narrow range. Coal production continues to be below 2008 levels due to lower power generation and depressed steel production. Prices for coal were mixed. Capital expenditures by oil and gas producers are tightening, whereas investments by coal producers have been delayed until market conditions improve. Production equipment and material costs remain stable. Employment was steady, and little hiring is expected in the near future. Wage pressures are contained.
Transportation
Freight transport executives reported a slight improvement in shipping volume since our last report. One contact noted that January shipments increased on a year-over-year basis. Margins remain depressed, with several executives commenting that over capacity continues to be the key issue facing the industry. Nonetheless, most contacts we spoke with are cautiously optimistic in their outlook and expect modest improvements in volume during 2010. Apart from fluctuating fuel costs, prices have been relatively stable. Capital spending is expected to increase somewhat on a year-over-year basis, but remain significantly below pre-recession levels. A few contacts noted that they plan to allocate monies for IT equipment. However, spending on new trucks will be limited until capacity utilization improves. Hiring was limited to replacement only. Wage reports were more upbeat: One contact said that he is partially restoring wage cuts made a year ago, while another said he is lifting his firm's salary freeze.
|
Philadelphia