September 19, 2001 Federal Reserve Districts Third District - Philadelphia

Skip to content Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report

Business activity in the region remained subdued in August. Manufacturers reported declines in shipments and orders in August compared with July. Retail sales rose slightly for the back-to-school shopping period, but the underlying trend in consumer spending in the region showed no signs of picking up. Motor vehicle sales slipped in August. Bank loan volumes rose slightly in August, with gains in most major credit categories. Commercial real estate markets eased somewhat. Residential real estate markets were generally firm. Home sales have been steady, although off from last year's pace, and price appreciation for existing homes continues but appears to be moderating. Looking ahead, businesses in the District have mixed views. Manufacturers forecast increases in orders and shipments during the next six months. Retailers, however, anticipate slower sales in the last quarter of this year. Bank credit officers expect continued slow growth in lending. Real estate contacts expect some further softening in commercial markets. Residential real estate agents believe home sales will falter if the regional economy slows further. Manufacturing Third District manufacturers reported continuing declines in activity in August. Orders and shipments were down compared with July in nearly all the major manufacturing sectors in the region. A few firms producing fabricated metal products, plastic products, and food products reported month-over-month increases in orders. In general, the region's manufacturers trimmed inventories during August, and they plan further reductions during the next six months. Third District manufacturers continue to report intense competition from foreign firms. Local makers of lumber and paper products noted increasing sales in domestic markets by producers from other countries. Local manufacturers of metals, industrial machinery, and industrial materials indicated that competition from companies worldwide, and from Asia especially, has been growing. Despite current weakness in the manufacturing sector, local companies expect conditions to improve during the next six months. More than half of the firms polled in August forecast increases in orders and shipments. They expect to extend working hours, although they do not plan to increase employment. Area firms have been trimming inventories, and they plan to make further reductions in the next six months. Capital spending plans at area firms remain limited, overall, although some firms within the chemicals, plastics, and instrumentation sectors have scheduled higher outlays for new plant and equipment during the next six months. Retail Nearly all the Third District retailers contacted for the report said sales picked up for the back-to-school shopping period, although the increase was below their expectations, overall. Sales of women's apparel rose, and a tax-free shopping period for personal computers in Pennsylvania boosted sales of computers and peripheral equipment. But in general, merchants indicated that sales in late August and early September did not rise above the lackluster trend that has characterized most of the year so far. Local store executives said they were reviewing their sales plans for the balance of the year for possible downward revision. Several merchants said they anticipate no increase in sales for the last quarter of this year compared with the same period last year. Although most retailers indicated that their current inventory levels were not troublesome, many are considering reducing orders for merchandise to be delivered during the remaining months of the year. Overall sales of cars and light trucks have slowed in recent weeks, although some import dealers have posted gains. On balance, dealer inventories have increased, but most of the dealers surveyed said the increase was slight. Manufacturers' incentives continue to support a relatively high sales rate, but dealers are becoming increasingly concerned that consumer confidence is weakening, portending a fall in demand. Finance Lending at major Third District banks rose slightly in August. There were small gains in most credit categories. Residential real estate lending increased for both refinancings and purchase mortgages. Credit card lending has been moving up, but there has been a recent easing in other types of consumer loans. Business lending has increased marginally. Some banks have experienced slight increases in nonperforming loans, both personal and business, but credit officers at these banks said the increase was well within anticipated bounds. Looking ahead, commercial bankers in the Third District generally expect continued slow growth in lending. They anticipate some easing in the growth rate of real estate loans, but steady gains in personal and business loans. Lending officers expect business activity and credit needs to increase slowly in most of the region's industries, except among computer manufacturing and information technology service companies. Real Estate and Construction Third District commercial real estate markets have softened somewhat. The vacancy rate for office buildings has risen by one to two percentage points in most areas since spring. In the Philadelphia central business district, the vacancy rate has moved above 9 percent, according to recent estimates by commercial real estate firms. In suburban markets, the rate has risen to an average of 12 percent. Lack of office construction in the Philadelphia central business district has kept the vacancy rate there relatively low. In suburban markets, the amount of new space that has been put on the market recently has exceeded demand, and more space is expected to become available during the rest of this year and next. Rental rates have increased in the Philadelphia central business district and have been steady in the suburbs. Some commercial real estate agents expect rents to decline during the balance of the year in both the central business district and the suburbs. Demand for industrial space has eased. The slowdown in Internet merchandising has reduced the demand for warehouse and distribution space in particular. The industrial vacancy rate in the region has moved up, and rents have been generally flat. Construction of industrial buildings continues, but the amount of new space under construction has been declining. Residential real estate agents generally indicated that sales of existing homes have been running at a steady rate recently, albeit below the rate set last year at this time. Price appreciation continues for existing homes but appears to have moderated somewhat over the summer. Homebuilders reported that sales were steady during July and August at around the same rate as during the same months last year. Prices have been rising significantly for new homes. Real estate agents and builders indicated that relatively low mortgage interest rates and generally healthy financial positions among consumers are supporting demand for homes, although uncertainty about general economic conditions is keeping some prospective buyers out of the market. Residential real estate contacts say sales could slow sharply if the region's economy weakens further. Return to top New York Cleveland