Federal Reserve Bank of Philadelphia
Summary of Economic Activity
On balance, business activity in the Third District declined slightly after growing slightly last period. Consumer spending in most sectors, including retail, restaurants, and autos, fell. Employment appeared to decline slightly following a slight increase in the prior period, as a growing share of nonmanufacturing firms reported decreases in their workforces. Staffing firms reported little change in demand. Nonmanufacturing activity appeared flat after increasing modestly last period. Wage inflation remained modest, with wage pressures at or below pre-pandemic norms, as labor availability and retention continued to improve. Firm costs and prices continued to rise modestly. On average, expectations for economic growth over the next six months remained slightly positive overall but differed widely between manufacturers, whose positive expectations grew more widespread, and other firms, whose optimism waned considerably.
Labor Markets
Employment appeared to decline slightly, following modest growth in the prior period. Based on our July and August surveys, full-time employment declined for nonmanufacturing firms and was flat to slightly higher for manufacturing firms, on average. While over half of both manufacturers and nonmanufacturers continued to report no change in employment during the period, a rising share of nonmanufacturers reported a decrease in their number of employees.
Staffing contacts continued to report little change in demand. Multiple contacts reported that hiring was broad-based across industries, except for the tech industry. One contact relayed that a tech company had recently laid off its entire recruitment staff. Another contact mentioned that some businesses had slowed internal recruiting efforts, turning to staffing agencies instead.
Overall, wage inflation remained at a modest pace. Most business contacts reported low or no wage pressure for most jobs outside of specialty trades as labor availability continued to improve. One contact highlighted that they were recently able to hire accountants for positions they had been unable to consistently fill for nearly four years. Many contacts also continued to report low employee turnover.
On a quarterly basis, firms' expectations of the one-year-ahead change in compensation cost per worker ticked up to a trimmed mean of 3.6 percent in the third quarter of 2024, from 3.3 percent in the second quarter (but it is down from a peak of 5.8 percent in the third quarter of 2022). Expectations averaged 3.2 percent before the pandemic. Expected compensation growth rose to 3.6 percent for manufacturers and to 3.7 percent for nonmanufacturers.
Prices
On balance, firm prices continued to rise at a modest pace. Firms reported that increases in prices received for their own goods and services over the past year edged up in the third quarter of 2024 compared with the second quarter. The trimmed mean for reported price changes, based on responses to our quarterly survey, rose to 2.5 percent from 2.3 percent for all firms. Price increases rose to 2.3 percent from 1.8 percent among nonmanufacturers and edged down to 2.7 percent from 2.8 percent for manufacturers.
In our monthly surveys, the diffusion indexes for both prices paid and prices received remained mostly in line with their nonrecession averages for both manufacturers and nonmanufacturers.
Looking ahead one year, the increases that firms anticipate in the prices for their own goods were little changed. The trimmed mean for all firms edged up to 2.4 percent in the third quarter of 2024 from 2.3 percent in the second quarter. The expected rate of growth rose from 2.0 percent to 2.5 percent for nonmanufacturers and fell to 2.2 percent from 2.6 percent for manufacturers.
Manufacturing
Manufacturing activity quickened to a moderate pace of growth, following a slight decline in the prior period. On average over the period, the indexes for new orders and shipments both rose above their nonrecession historical averages.
Manufacturers' expectations for growth over the next six months rose modestly after falling significantly in the prior period. On average, the indexes for future new orders and shipments remained below their historical averages during the period.
Consumer Spending
On balance, retailers (nonauto) reported modest decreases in real sales, following slight declines in the prior period. Contacts reported that customers visited less frequently, purchased slightly fewer items per visit, and opted for lower-priced options when available. Multiple contacts described consumers as more budget conscious.
Auto sales continued to decline modestly during the period as ongoing affordability concerns led to softening demand. Contacts reported that many dealers introduced or increased incentives in an attempt to work through growing inventories of new vehicles.
On balance, tourism activity continued to hold steady across the Third District. The normally busy summer months were mostly in line with the same period a year ago. Contacts noted that demand for travel remained strong in the Poconos and at the shore. However, according to one contact, tourists' continued price sensitivity led to growing pushback on accommodation prices across all hotel segments. Multiple contacts also mentioned that tourists were spending less at restaurants and on other discretionary items—one contact highlighted a significant drop in alcohol sales.
Nonfinancial Services
On average, nonmanufacturing activity appeared to hold steady, slowing from modest growth last period. However, activity appeared to improve in the latter half of the period. The indexes for new orders and sales/revenues fell and turned negative in July but rose in August.
At the firm level, nonmanufacturers reported a significant drop in general activity in July before it recovered somewhat in August. Nonmanufacturers' perceptions of general activity for the region declined throughout the period.
Expectations among nonmanufacturers for their own growth over the next six months fell moderately from the prior period but remained positive on average.
Financial Services
The volume of bank lending (excluding credit cards) grew modestly during the period (not seasonally adjusted), a pickup after it held steady last period. Loan growth was moderate during the comparable period in 2023.
District banks reported strong growth in commercial real estate and home equity lines. Home mortgages and commercial and industrial loans grew moderately, while auto loans grew slightly. Credit card volumes edged up after moderate growth last period, but the pace was down slightly from the same period one year ago.
Banking contacts continued to report strong credit quality with low delinquency rates. One banker noted a significant pop in mortgage applications toward the end of the period, with an almost even split between customers looking to refinance and those looking to purchase. Meanwhile, a nonprofit agency that works with small businesses reported that almost all the businesses they've recently spoken with are living on credit.
Real Estate and Construction
Brokers reported that existing-home sales continued to grow slightly. Despite an uptick in new listings and the inventory of for-sale properties, existing-home prices continued to rise, according to brokers. One contact noted that some potential homebuyers have decided to stay on the sidelines because they expect lower mortgage rates in the coming months.
Homebuilders reported a mostly steady level of contract signings, aided by a pickup in activity toward the end of the current period. Demand had slowed slightly during the prior period. Contacts cited the recent drop in mortgage rates as the primary cause of the improvement. One builder noted that a wave of recent sales was concentrated in the least expensive models and that buyers were starting to cut back on upgraded finishes.
Commercial real estate contacts continued to report steady construction activity at lower levels. Contacts noted that institutional, infrastructure, and multifamily projects continued to enter the pipeline. One architecture contact noted that while they've heard activity was starting to slow slightly, their firm remained so busy they had to pass on new projects they would have otherwise pursued.
For more information about District economic conditions visit: https://www.philadelphiafed.org/regional-economy.