Federal Reserve Bank of Philadelphia
Summary of Economic Activity
On balance, business activity in the Third District continued to decline slightly. Consumer spending continued to fall despite a rise in retail promotions focused on driving higher customer traffic. Nonmanufacturing activity declined slightly after holding steady last period, and manufacturing activity fell modestly. Employment appeared to rise slightly following a slight decrease in the prior period, mostly due to manufacturing firms increasing their workforces. Staffing firms reported a slight increase in demand. Wage inflation remained modest. Continued improvement in employee retention and labor availability kept wage pressures at or below pre-pandemic norms. Firm costs and prices continued to rise modestly. On average, firms expect modest economic growth over the next six months—optimism was more widespread among both manufacturers and nonmanufacturers, although expectations remained below historical averages for both firm types.
Labor Markets
Employment appeared to rise slightly, reversing a slight decline in the prior period. Based on our September survey, full-time employment rose for manufacturing firms. Nonmanufacturing firms reported steady full-time employment and an increase in part-time jobs. Over half of both manufacturers and nonmanufacturers continued to report no change in employment during the period, while no manufacturers reported a decrease in their number of employees. However, manufacturing firms reported a decline in the average workweek.
Staffing contacts reported a slight increase in demand after reporting steady activity last period. One contact highlighted that the normally busy end-of-year season for staffing appeared to start earlier this year. Another staffing contact noted that many service-sector clients were active in hiring to replace departing workers; however, relatively few were looking to expand their workforce.
Overall, wage inflation remained at a modest pace. Most business contacts continued to report low or no wage pressure for most jobs outside of specialty trades. A couple of business contacts noted that recently negotiated labor union contracts resulted in moderate wage gains for many union and nonunion employees and led to growing wage pressure from other workers. Most contacts continued to report low employee turnover and better labor availability.
In our monthly surveys, the share of nonmanufacturing firms reporting higher wage and benefit costs per employee ticked up in September but remained typical of the pre-pandemic era when modest wage growth prevailed.
Prices
On balance, firm prices continued to rise at a modest pace. Contacts continued to report that increases in most input costs have stabilized; however, some commodity prices continued to fluctuate. Contacts across many sectors noted they were keeping prices steady, and in some cases reducing them, as customers have pushed back on further price increases.
In our monthly surveys, the prices paid and prices received indexes declined for nonmanufacturers and were below their nonrecession averages. Among manufacturers, the prices paid and prices received indexes both rose and were above their nonrecession averages.
Looking ahead, the indexes for future prices paid and future prices received continued to suggest that manufacturing firms expect price increases over the next six months. Both indexes ticked up relative to last period and were somewhat above their long-run averages.
Manufacturing
Manufacturing activity declined modestly, following moderate growth in the prior period. The indexes for new orders and shipments both declined—a trend observed near the end of the prior period—and turned negative in September.
Manufacturers’ expectations for growth over the next six months continued to become more widespread. However, the indexes for future new orders and shipments remained below their historical averages.
Consumer Spending
On balance, retailers (nonauto) continued to report modest decreases in real sales. One contact reported that customers continued to visit less frequently despite a rush of discounting and promotions throughout the industry in recent months. However, the contact noted that customers spent slightly more per visit toward the end of the period—a reversal of recent trends. Contacts also noted a recent increase in price sensitivity among higher-income consumers—a trend common among lower- and middle-income consumers over the past year.
Auto sales appeared to hold steady during the period, as affordability concerns continued to weigh on demand. Contacts reported that a rise in incentives aided sales, and inventories continued to grow, especially for electric vehicles.
On balance, tourism activity declined slightly after holding steady during the prior period. Contacts reported that demand for leisure travel held mostly steady, but noted that ongoing price sensitivity and last-minute bookings led to increased discount offerings and lower accommodation prices. Contacts also highlighted that tourists were booking slightly shorter stays and spending slightly less once they arrived at their destination. Meanwhile, one contact noted a stronger-than-usual rise in business and group travel in the Philadelphia region in September.
Nonfinancial Services
Nonmanufacturing activity appeared to decline slightly after holding steady last period. The index for new orders turned negative in September following a near-zero reading in August. Meanwhile, the sales/revenues index moved higher but remained slightly below its historical average.
At the firm level, nonmanufacturers reported a softening in general activity in September. Nonmanufacturers’ perceptions of general activity for the region picked up from the prior period but remained negative on balance.
Expectations among nonmanufacturers for their own growth over the next six months remained modest but grew more widespread after narrowing during the prior period.
Financial Services
The volume of bank lending (excluding credit cards) was essentially flat during the period (not seasonally adjusted), a slowdown after modest growth during the comparable period in 2023.
District banks reported moderate declines in commercial and industrial loans, while home equity lines and auto loans grew modestly. Home mortgages and commercial real estate lending essentially held steady. Credit card volumes changed little for a second consecutive period—volumes grew modestly during the same period one year ago.
Banking contacts continued to report strong credit quality with low delinquency rates. Contacts noted that growth in demand for loans remained tepid across most industries, with clients most commonly citing the expectation of further interest rate declines and the upcoming election as reasons to hold off on investment plans. Mortgage applications picked up during the period, but most applicants opted against locking in a rate, as they expected further drops in mortgage rates, according to one contact.
Real Estate and Construction
Brokers reported that existing-home sales continued to grow slightly. The inventory of for-sale properties edged slightly higher, but homes continued to sell extremely quickly and for over asking price, according to brokers.
Homebuilders reported that contract signings continued to hold mostly steady, supported in part by recent declines in mortgage rates. One builder described “malaise” around prospective buyer traffic; however, another contact highlighted that the share of prospective buyers that signed a contract is high compared with the historical average.
In the office market, leasing activity held steady. Multiple contacts noted increased investment interest in office properties, in part due to much lower valuations, but transactions remained sporadic.
Commercial real estate contacts reported a slight decline in construction activity after it held steady at lower levels last period. Contacts noted that institutional and infrastructure projects continued to enter the pipeline, but multifamily construction slowed slightly.
For more information about District economic conditions visit: https://www.philadelphiafed.org/regional-economy.