Prepared at the Federal Reserve Bank of Kansas City and based on information collected on or before August 26, 2011. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicated that economic activity continued to expand at a modest pace, though some Districts noted mixed or weakening activity. The St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco Districts all reported either modest or slight expansion. Atlanta said activity continued to expand at a very subdued pace, while Cleveland reported slow growth and New York indicated growth remained sluggish. Economic activity expanded more slowly in the Chicago District and slowed in the Richmond District. Business activity in the Boston and Philadelphia Districts was characterized as mixed, with Philadelphia adding that activity was somewhat weaker overall. Several Districts also indicated that recent stock market volatility and increased economic uncertainty had led many contacts to downgrade or become more cautious about their near-term outlooks.
Don't forget the BBook is really just an opinion survey. The Fed people call up their pals in the business community and say what's up and then they all report what they heard as the meeting (all filtered through the local Fed Gov's individual viewpoint of course). Notice I am pointing out the couching language - be very careful as they often have one exception out of 13 districts and they end up giving more space to the exception than the majority.
This allows the punditocracy to spin these reports any way they want to - the trick is to look through the BS and figure out what matters (like who cares if Cleveland had poor tourism?).
Consumer spending increased slightly in most Districts since the last survey, but non-auto retail sales were flat or down in several Districts. Although poor weather dampened growth in some areas, tourist activity remained solid in most Districts. The demand for services was generally positive throughout the nation, but one region said conditions were deteriorating. Of the five Districts reporting on transportation, three said conditions were mostly positive, while the other two reported activity as flat or slightly below expectations. Manufacturing conditions were mixed across the country, but the pace of activity slowed in many Districts. Residential real estate markets remained weak overall with only a few slight improvements in some Districts. Most Districts characterized commercial real estate and construction activity as weak or little changed, but improvements were noted in several areas. Loan demand remained stable or slightly weaker, and lending standards were largely unchanged with an improvement in loan quality. Harsh summer weather negatively affected agricultural activity, although recent rains in several Districts provided some relief. Districts reporting on energy activity said it generally expanded, with further growth expected.
Price pressures edged lower, although input costs continued to increase in some industries and retail prices rose in several Districts. Labor markets were generally stable, although some Districts reported modest employment growth. Wage pressures were generally minimal outside of some upward movement for skilled positions.
More green than red is good! This is certainly not recessionary and falling prices is like ringing Bernanke's dinner bell on the helicopter...
Consumer Spending and Tourism
Overall consumer spending increased slightly in most Districts, but non-auto retail sales were flat or down in some Districts. Hurricane Irene evacuations also produced widespread retail disruptions in late August in the New York District, where activity had been close to or above plan in July before slowing somewhat in early August. The Minneapolis and Kansas City Districts reported moderate increases in non-auto retail sales during the survey period, and sales in the San Francisco District were mixed but up slightly overall. Retail sales were up single-digits from a year ago in the Cleveland and Dallas Districts, although Dallas reported no growth in sales since the previous survey period. Retailers in the Chicago District reported strong back to school sales, while Atlanta said growth slowed in retail sales. The Boston and Philadelphia Districts said sales were flat to down but with sizable variation across stores, while sales mostly weakened in the Richmond and St. Louis Districts. Sales of apparel and luxury items were characterized as strong in several Districts. The Boston, Chicago, Kansas City, and San Francisco Districts all noted sluggish sales of big ticket household items such as furniture and appliances, and contacts in several Districts thought that heightened consumer anxiety was weighing on sales. Contacts in some Districts continued to indicate profit margins were being squeezed by rising input costs, although grocers in the Cleveland District were passing cost increases through to customers.
Most Districts reporting on auto sales noted increases in activity, despite lingering supply disruptions for some Japanese nameplates. The Kansas City and Cleveland Districts reported especially strong sales of fuel-efficient cars, while luxury vehicles sold well in the Minneapolis District. High demand for used cars was reported in several Districts. The New York and Philadelphia Districts reported somewhat softer auto sales in July, attributed in part to continued supply disruptions, although sales firmed somewhat in August. Tight vehicle supplies were noted in some Districts, and the San Francisco District noted ongoing shortages of Japanese nameplates. Auto contacts in the Dallas District believed the supply issues from Japanese manufacturers should be resolved by the end of September. Auto dealers in several Districts were optimistic about future sales, although contacts in the Philadelphia District said uncertainty clouded the outlook. The Cleveland District noted some easing in auto credit restrictions, and New York said both retail and wholesale auto credit conditions were good.
Tourism activity remained solid in most Districts, although poor weather affected growth in some areas. Travel activity was reported as robust in the Atlanta District, especially for airport traffic in South Florida. Tourism in the New York City area was also very strong prior to Hurricane Irene, and city theaters planned to re-open the Monday morning after the hurricane. Both business and leisure travel posted further improvement in the San Francisco District, and tourism activity was solid overall in the Minneapolis District despite heavy rains in Montana. By contrast, tourism activity slowed in July in the Boston District, leading hotels to increase promotional offerings, and the Long Island and Jersey Shore areas of the New York District as well as coastal areas of the Richmond District were heavily affected by hurricane evacuations in late August. Hotels in several Districts were raising room rates, although the Kansas City District noted some easing.
Nonfinancial services activity edged higher in most Districts, although Minneapolis and Dallas characterized growth as flat or steady, and New York said conditions deteriorated. Richmond, St. Louis, and San Francisco reported generally solid demand for health-care services, although Richmond noted lower occupancies at senior care facilities due to difficulties among potential residents in selling their homes. Software and information technology firms in the Boston District reported mixed activity since July but expected to return to previous strong growth patterns by late 2011. The San Francisco District reported expanded sales for technology service providers due to heightened demand for software, e-books, and mobile applications. In contrast, an information technology contact in the Minneapolis District noted a decline in sales as a result of reduced demand from the government and financial services sectors.
In transportation services, Cleveland, Atlanta, and Dallas reported mostly positive conditions, while activity was flat in the San Francisco District and below expectations in the Kansas City District. Railroad shipments rose slightly in the Dallas District, with particularly strong volume growth in metallic ores, petroleum products, and non-commercial building products. Cleveland noted an acceleration in capital spending, mainly to replace aging equipment and support demand growth from energy customers.Trucking firms in the Cleveland, Atlanta, and Kansas City Districts reported a shortage of qualified drivers, and a few firms noted concerns about higher fuel costs. Many services contacts expressed substantial uncertainty about future business activity, with a few Districts reporting weakened outlooks for transportation.
Not much to complain about. No way is this a recession so far!
Manufacturing conditions were mixed across the country, but the pace of activity slowed in many Districts. The New York, Philadelphia, and Richmond Districts reported declining activity overall, and contacts in the Boston and Dallas Districts noted slowing demand from European customers. Cleveland said factory production was stable, andmanufacturing activity in the Atlanta and Chicago Districts grew at a slower pace. Minneapolis, Kansas City, and San Francisco reported slight expansions, and St. Louis said activity continued to increase and that several manufacturers planned to open plants and expand operations in the near future. Most manufacturing contacts were less optimistic than in the previous survey; however, future capital spending plans were solid in a few Districts.
That's 6 of 13 districts expanding. Cleveland is stable and 6 are off slightly - not a catastrophe.
Looking across factory sectors, auto production decreased in the Cleveland District due to normal seasonal retooling for model changeovers, and the Chicago District said auto production leveled off in August after a strong July. Textile manufacturers in the Richmond District said markets have grown weaker due to declining consumer confidence. Construction-related manufacturing was characterized as weak in the Dallas and Philadelphia Districts, and Boston noted a cyclical decline in semiconductor demand. Philadelphia reported a decline in food manufacturing, and the Kansas City District noted weakness at nondurable goods plants. In contrast, commercial aircraft manufacturers in the San Francisco District reported solid production rates due to new orders for narrow-body aircraft and a growing order backlog. A metal fabricator in the Minneapolis District announced plans to expand a facility in northwestern Montana.Capacity utilization in the steel industry remained at record high levels in the Chicago District, and a tire manufacturer in the Atlanta District noted particular pressure in meeting a recent surge in new orders due to supply chain normalization after the Japan disaster.
Real Estate and Construction
Residential real estate activity remained weak overall, although a few Districts noted some slight improvements. Contacts in the Boston, Atlanta, Minneapolis, and Dallas Districts reported an increase in home sales over the previous year's weak levels; however, the uptick in the Atlanta District was concentrated mainly in Florida. The remaining Districts all reported stable or slower sales from the previous survey period, with several citing greater economic uncertainty as the primary cause. Both the New York and Philadelphia Districts reported that a growing backlog of foreclosures in New Jersey continued to weigh down the housing market. Home construction was down or stagnant in most Districts, with the exception of Minneapolis and Kansas City. However, several Districts indicated an improvement in home remodeling activity, and the New York, Philadelphia, and Cleveland Districts reported increased demand for multi-family housing projects. Home prices were flat to slightly down in several Districts, although New York said prices in many areas edged higher but remained below year-ago levels. Contacts in the Boston District reported competitive pricing by sellers with even lower prices negotiated by buyers, but in the Cleveland District many builders have shifted away from discounting. Inventories were elevated or rising in the Boston, Atlanta, and Kansas City Districts, particularly for existing homes, and demand for apartment rental space increased in the San Francisco and Dallas Districts.
Commercial real estate conditions remained weak or little changed in most Districts, although some improvements were noted by New York, Minneapolis, and Dallas. Commercial real estate activity was sluggish in the Boston, Cleveland, Richmond, Atlanta, Kansas City, and San Francisco Districts. However, San Francisco noted some areas have benefited from technology sector growth, and Boston noted investor demand for prime office buildings remained strong. New York said office vacancy rates declined noticeably in the Buffalo and Rochester metro areas and modestly in Manhattan and Long Island. Lower commercial rents helped push down vacancy rates in the Kansas City District, and the Dallas District noted strong demand for leased space in Houston due to solid energy activity. Commercial construction was characterized as weak or limited by Cleveland, Atlanta, Chicago, and Kansas City, although Atlanta noted some strength in the healthcare sector. St. Louis described conditions as mixed, with some improvement in education and energy-related construction, while Minneapolis District contacts reported an increase in small retrofitting projects and rebuilding in flood-damaged areas. The Chicago District noted continued strength in industrial construction, particularly in the automotive sector. Credit for commercial development remained an obstacle for small retailers in the Richmond District, although Boston said aggressive competition among lenders led to reduced borrowing rates.
Signs of life! That's all we ever wanted... Congrats to the VNO players - they are reacting as expected. At this point, the biggest obstacle seems to be Consumer (and Business) Confidence - if people were less worried, they would be out doing something and this data was gathered while the markets were falling apart so the spin is probably extra negative.
Banking and Finance
Most districts cited overall loan demand as stable to slightly weaker, with the exception of St. Louis, which reported a modest increase. Demand for business loans remained unchanged or weakened in the New York, Chicago, Kansas City, and San Francisco Districts, but was moderately stronger in the Philadelphia, Cleveland, and St. Louis Districts. Demand for consumer loans increased somewhat in the St. Louis District, but was unchanged to slightly weaker in the New York, Kansas City, and San Francisco Districts. While Kansas City reported a decline in commercial real estate loans, St. Louis cited a modest increase. New York and Cleveland noted increased demand for residential mortgages.
Most Districts said that loan quality was generally improving and that credit standards were largely unchanged. Cleveland reported a decline in delinquencies across all loan categories, and Richmond and Kansas City also indicated a continued strengthening in loan quality. However, New York indicated that delinquency rates increased on most categories of loans and that banks tightened standards for commercial mortgages and commercial and industrial loans. Banking contacts in several Districts also referenced concerns about the economy. The Chicago District cited recent volatility in financial markets and reduced expectations for economic growth, while Kansas City District contacts listed a weak economic recovery and uncertainty about financial regulations.
Agriculture and Natural Resources
Harsh summer weather strained agricultural activity in many Districts since the last survey period. Hot, dry weather stressed crops and livestock in the Chicago, St. Louis, Kansas City, and Dallas Districts, with poor pasture conditions hastening herd liquidations in the Kansas City and Dallas Districts. Recent rains provided some relief to agricultural producers in the Richmond and Atlanta Districts, but Hurricane Irene caused extensive damage to field crops not yet harvested in North Carolina. Shrinking production estimates pushed up crop prices and the Chicago District noted thatrobust ethanol production was also driving corn prices higher. Crop and livestock sales rose in the San Francisco District, and the Dallas District reported strong beef exports. Farmland values rose further in the Chicago and Kansas City Districts, but rising input costs trimmed farm capital spending in the Kansas City District.
Energy activity generally expanded since the last survey period, with additional gains expected in coming months. The Minneapolis, Kansas City, and Dallas Districts reported an increase in land-based oil drilling activity, and the Atlanta and Dallas Districts reported a modest rise in off-shore drilling operations in the Gulf of Mexico. Natural gas exploration rose in the Cleveland District, and remained steady in the Kansas City and San Francisco Districts. Additional capital investments in oil and gas production were expected in the Cleveland, Atlanta, and Kansas City Districts. Energy contacts in the Cleveland and Kansas City Districts noted some new hiring, although permit delays and environmental compliance could constrain expansion. Coal production rose in the Kansas City District, held steady in the Cleveland District, and fell in the St. Louis District. Higher metals prices spurred mining activity in the Minneapolis and San Francisco Districts, especially for iron ore.
There's a metal we actually WANT to go higher!
Employment, Wages, and Prices
Labor markets were generally steady, although some Districts reported modest employment growth. Several Districts reported a shortage of skilled workers such as engineers, mechanics, and software developers. Jobs in the health care industry continued to increase, and the Cleveland, Minneapolis, Kansas City, and Dallas Districts indicated growth in energy-related employment. Many Districts reported an increase in auto sales and service technician positions, and several companies in the Minneapolis District announced new manufacturing jobs. The Atlanta District noted that many contacts were focused on productivity and efficiency increases with existing staff, and Richmond said one firm would rather pay overtime than hire new workers. A large staffing firm in Chicago reported a decline in billable hours for staffing and professional services as well as fewer permanent placements, while Boston said demand for permanent and temporary-to-permanent hiring continued to grow. A major New York City employment agency reported unusually slow hiring activity in August but remained cautiously optimistic about future recruitment. Most Districts reported that wage pressures were minimal, but contacts noted some wage gains for several skilled positions as a result of heightened demand.
Any wage growth is good and lack of overall pressure is good for business so they can afford to pay skilled labor a bit more (it's a start!).
The majority of Districts reported fewer price pressures, but input costs continued to rise in select industries. The New York, Philadelphia, Cleveland, and San Francisco Districts noted some stabilization or decline in raw materials prices but Chicago said elevated commodity prices continued to put pressure on costs, particularly copper and steel. Manufacturers in the Boston District were able to pass through input price increases with little resistance, although a semiconductor firm was one exception. The Kansas City District reported construction materials prices as steady, excluding prices of petroleum-based products such as roofing shingles and asphalt, which continued to rise. Retail prices were steady or rising slightly in New York, Richmond, and Atlanta, although some Atlanta District retailers mentioned that weak sales could prompt them to lower prices. Retailers in the Dallas District noted a slight decline in overall prices, although increases were observed in certain high-end goods and cotton-based products. Prices for cotton-based products, such as clothing, also increased in the San Francisco and Cleveland Districts. Food prices climbed higher in the Cleveland and Chicago Districts, and restaurants in the Kansas City District expected further increases in menu prices as a result of rising food costs.
This is not a bad BBook folks! It is certainly not a book that tells us that we should be trading below the middle of last year's range (S&P 1,150). It's not a strong speedy recovery - heck, it's hardly a recovery at all but Recession - no way! And we are priced for a recession at 1,150. 10% up from there takes us back to around our 5% line at 1,297 so we can fully expect to see 1,235 (our Must Hold line) re-tested as long as we can get past Jobs, Bernanke and Obama tomorrow. That's another 2.5% gain from here so let's say we can expect to test it by Friday!