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Economic growth in the Fourth District, although positive, has slowed since our last report. In general, manufacturing output has been steady while production at auto assembly plants increased during October. Activity in commercial construction was stable with a few contractors expecting a slowing in their backlogs going into 2008. Home builders reported new home sales were unchanged to declining. District retailers experienced relatively weak sales. Demand for business and consumer loans was steady to declining while the number of delinquencies rose. Reports on credit quality showed some deterioration, especially on the consumer side. Oil production was up whereas natural gas production fell slightly. Truck freight volume was unchanged to declining.
Employment levels across the District were largely unchanged. On balance, staffing firms reported a slight decrease in job openings while the number of job seekers was flat. Little wage pressure was reported. With the exception of petroleum-based products, supplier prices and material costs were relatively stable. Several manufacturers reported raising their prices during the past six weeks, and some anticipate raising prices in the upcoming months.
Manufacturing
Most District manufacturers told us that production has been steady over the past six weeks with reports of increased production being offset by slowdowns attributed to seasonal factors and scheduled maintenance. On a year-over-year basis, contacts reported output has been unchanged to declining slightly. Steel producers characterized shipping volumes as flat. The strongest end markets for steel included energy, nonresidential construction, and aerospace/defense. Looking forward, almost all of our contacts anticipate production and shipping volume to remain at current levels or decrease slightly. Auto assembly plants within the District reported higher production during October. Foreign nameplates and their domestic counterparts shared in the increase. On a year-over-year basis, automakers experienced a slight production decline.
Most manufacturers reported that capacity utilization is at, or slightly below, normal levels with little to no change over the past six weeks. Further, capital expenditures were on plan with the expectation that current spending levels will be maintained in the upcoming months. With the exception of petroleum-based products and metals, input prices were stable. About a third of our contacts said they have raised their prices during the past six weeks, and some anticipate raising prices in the upcoming months. A majority of respondents reported no change in the size of their workforce. Those citing employment declines attributed them to organizational restructuring, seasonal factors, and attrition. Hiring in the near future is expected to be very slow. Wage pressures were minimal.
Real Estate
New home sales in the District were unchanged or declined since our last report. Sales continue to be down year-over-year. Looking forward, most builders believe a turnaround will not occur until 2009. Home prices were generally stable; however, several builders reported increasing their discounting, especially for spec houses. On balance, material costs remain stable. Almost all contractors told us that the size of their current workforce is in line with market conditions, and they don't anticipate additional layoffs. Concerns about labor costs were limited to increases for health care coverage.
Most commercial contractors reported that business has been stable since early October and has picked-up slightly on a year-over-year basis. Segments showing strong activity include health care, education, and infrastructure. Looking forward, nearly all contacts said that they expect activity in 2008 to be at, or near, 2007 levels. When asked to comment on their backlogs, contractors had mixed responses. Some rated their backlogs as good to very good while others, although busy at this time, are expecting some slowing going into 2008. For the most part, material costs were stable during the past six weeks--though fuel costs have risen significantly. Workforce levels remain largely unchanged. Contractors have not experienced any wage pressures; however, almost all reported increased health care costs.
Consumer Spending
District retailers reported general merchandise sales were flat to declining since our last report while sales of food, pharmaceuticals, and personal care products increased. Contacts told us that the warm autumn weather affected the sales of seasonal merchandise. Retailers had mixed opinions regarding the upcoming holiday shopping season. Auto dealers reported a decline in the sales of new and used vehicles during October, and they anticipate a downward trend in the coming months. Vendor prices were stable during the past six weeks. Hiring was limited to temporary workers needed for the holiday season, and little wage pressure was reported.
Banking
In general, demand for business and consumer loans was steady to declining during the past six weeks. The one exception was an increase in commercial real estate loans by national banks. Reports on auto loans and home equity lines of credit were mixed while the residential mortgage market remains sluggish. Core deposits were flat to slightly up. Most of our contacts told us that their margins continue to decline. Respondents reported an increase in delinquencies, especially for residential mortgages and commercial real estate loans, and some decline in credit quality, in particular, on the consumer side. Looking forward, bankers anticipate a continuing drop in loan demand, restrictive credit conditions, and increased margin pressures.
Energy
In general, natural gas production has declined slightly while oil production has increased. At the same time, prices received for crude rose significantly while gas prices were flat. Capital expenditures remain on plan with little change expected during the next few months. Most of our contacts said that material and equipment costs have increased over the past six weeks. Employment levels are largely unchanged. Several contacts reported some wage pressure due to competition among companies to keep their best employees.
Transportation
Truck freight volume was steady to declining over the past six weeks with the shipment of construction supplies being singled out as particularly weak. Looking forward to 2008, most contacts were uncertain about the level of business activity with only a few anticipating modest growth, at best. Several trucking executives believe there is overcapacity in the industry, which is keeping shipping prices competitive. Increasing fuel costs were cited as an issue by most respondents with some reporting that they were unable to recover the entire amount through surcharges. On net, there has been a slight decrease in employment levels due to layoffs. Wage pressures are not an issue at this time.
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Philadelphia