By Lisa M. Goolik, J.D.
While much of the United States was mired in the relentless cold and snow of a particularly brutal winter, there was one sunny forecast published this week—the Federal Reserve Board’s Beige Book, which reported that economic activity continued to expand across most regions and sectors from early January through mid-February. The winter weather had some impact on economic conditions, most notably on consumer spending, tourism, and construction.
Banking and financial services. According to the Fed, banking conditions were mostly positive across the districts. Overall loan demand increased in all reporting districts, with the exception of Kansas City. Demand for commercial real estate loans was strong in Atlanta, Cleveland, and Philadelphia, while demand increased in New York. Residential lending also was positive across the district, with bankers in Cleveland, Richmond, Chicago, and San Francisco noting an increase in refinancing activity.
In addition, across the districts, credit quality was largely unchanged or improved since the prior reporting period. While most bankers reported no change in their own lending standards, several bankers in the Richmond and St. Louis districts reported relaxed standards, and bankers in the Philadelphia, Richmond, and San Francisco districts noted that competition is lowering lending standards more generally.
Consumer spending. Most districts reported that overall consumer spending increased during the reporting period. The winter weather impacted the types of consumer goods purchased. Notably, the Boston and Cleveland districts reported increased sales of winter-related items, such as winter apparel, rock salt, and snow shovels, while the Minneapolis district noted that some apparel stores had difficulty selling winter clothing due to a relatively mild winter in December and January.
In addition, automobile sales rose in most districts during the reporting period, which included an increased demand for trucks and SUVs in the Atlanta, Cleveland, Chicago, Kansas City, and San Francisco Districts. The New York, Cleveland, and St. Louis Districts noted higher sales of new vehicles during the reporting period, and the Philadelphia, Kansas City, and Dallas districts were optimistic about future sales.
Surprisingly, consumers braved the cold and travelled to the Eastern Seaboard during the past quarter. The Fed reported that travel and tourism improved in the New York and Philadelphia districts. Ski season tourism also grew at a brisk pace.
Employment. There was more good news on employment, with levels remaining stable or improving in most districts and across a variety of sectors. Several districts reported strong labor demand and challenges filling a variety of skilled positions. Firms in the Philadelphia district reported positive employment trends in a broad range of sectors, with the majority of hires due to economic growth rather than replacement.
In addition, some contacts reported increased wages to attract skilled workers for difficult-to-fill positions. Service sector firms in the New York district noted increasingly widespread reports of wage hikes, and Chicago reported some companies were also willing to raise rates for unskilled workers to reduce turnover. Contacts in Atlanta also reported increasing entry-level wages.
Real estate and construction. While the winter weather also impacted residential real estate conditions, commercial real estate market conditions were stable or improving. The Boston, New York, Philadelphia, and Cleveland districts partially attributed lower construction and low inventory levels to inclement weather conditions. Meanwhile, commercial vacancy rates declined in the Boston, Chicago, St. Louis, and Kansas City districts.
Manufacturing. Manufacturing generally increased since the previous survey, although the rate of growth varied across the districts and sectors. Manufacturers had generally positive outlooks going forward. Firms in Atlanta expect production levels to increase over the next three to six months, and some firms in Chicago expect steady growth in shipments for 2015. Manufacturers in Boston, Cleveland, and Richmond also reported positive outlooks.
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