District reports on manufacturing activity were mostly positive, although among these, the Cleveland, St. Louis, Minneapolis, and Dallas Districts painted a somewhat mixed picture across manufacturing sectors. Only the New York and Kansas City Districts cited declines in manufacturing. Retail contacts in a majority of Districts reported that their sales and revenues continued to expand. By contrast, the Cleveland and Minneapolis Districts cited flat consumer activity since the last report, Atlanta was mixed, and Dallas reported decreased sales year-over-year. Most Districts reported increased auto sales. Among Districts with information on tourism, activity was strong in most reports. Demand for non financial services, including staffing, generally expanded over the reporting period. Districts mentioning the transportation sector mostly noted activity increases.
Districts reporting on the banking sector mostly tallied increases in both business and consumer loan volumes. Credit quality was reported to be improving in most Districts, while credit standards were generally said to be unchanged. Reports on residential and commercial real estate markets across the Districts were mostly positive. Existing home sales and residential leasing widely improved, with home prices moving up in most areas. Commercial real estate activity also rose in most Districts; commercial construction activity ranged from strong in the Cleveland and Minneapolis Districts to up only slightly in Chicago, while * Prepared at the Federal Reserve Bank of Boston based on information collected on or before August 24, 2015. 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. ii commercial leasing was reported to have increased across the board. Agricultural conditions were mixed across Districts.
Farm contacts indicated that anticipated yields were up for corn and soybeans, but conditions deteriorated in the St. Louis and Kansas City Districts; drought was an ongoing concern in the San Francisco District and was also a factor in parts of the Atlanta and Minneapolis Districts. Districts reporting on the energy sector indicated that conditions were stable to declining; coal production was down in the Richmond and St. Louis Districts, while oil related activity declined in the Cleveland, Atlanta, and Dallas Districts. Most Districts reported modest to moderate growth in labor demand, although Boston, Cleveland, and Dallas cited only slight increases in hiring. This tightening of labor markets was said to be pushing wages up slightly in selected industries or occupations, especially in the New York, Cleveland, St. Louis, and San Francisco Districts. Across all Districts, input and selling prices were reported to be stable or up only slightly. Manufacturing District reports on manufacturing were generally positive during the reporting period.
Ten Districts reported stable or positive growth and only two, New York and Kansas City, registered declines. Several areas of strength were noted: Auto sales have generally been above expectations and Cleveland, Richmond, and Chicago all reported strong growth in auto-related manufacturing. Aerospace, particularly commercial aviation, continued as a plus for manufacturing production in the Chicago, Dallas and San Francisco Districts. Demand from the construction industry was strong, with the Boston, Philadelphia, Cleveland, Chicago, Minneapolis, and Dallas Districts reporting increases in demand for construction related goods from lumber to construction machinery.
Even in Districts where manufacturing activity expanded, several factors were mentioned as damping demand: The Cleveland, Chicago, and Minneapolis Districts reported weakness in the agricultural sector and declines in demand for agricultural machinery. Falling energy prices have led to a reduction in demand for machinery (reported by Cleveland and Minneapolis) and metals (Chicago and St. Louis). The Boston, Philadelphia, Cleveland, Richmond, and Dallas Districts cited the strong dollar as a weakening influence.
Manufacturing contacts in Cleveland, iii Chicago, and St. Louis reported that cheap steel imports were depressing demand and leading to low capacity utilization in that industry; these cheap imports were attributed to the strong dollar and slowing economic growth in Asia. Reports from three Districts explicitly mentioned the Chinese slowdown as a factor, noting reduced demand for wood products (San Francisco), chemicals (Boston), and high-tech goods (Dallas). District reports cited no major revisions to firms’ capital spending plans, although contacts in the Kansas City District, for example, expected recent declines in activity to lead to a curtailment of capital expenditure. In general, District reports indicated the manufacturing outlook was positive; even contacts in Kansas City, one of the two Districts to report a decline in manufacturing activity, were modestly positive about the future.
Real Estate and Construction Residential real estate activity improved across the 12 Districts, with home sales and home prices increasing in every District, while construction activity was more mixed. Richmond and Kansas City indicated that sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Cleveland, Richmond, and San Francisco noted that demand was more robust for multifamily homes. Construction activity was reportedly increasing in most Districts, but was moderate or flat in the Boston, Philadelphia, Richmond, Minneapolis, and Dallas Districts. Contacts in the Cleveland District attributed increases in construction activity to expectations of a rise in interest rates, the improving labor market, and rising consumer confidence.
However, Cleveland also cited supply-side constraints and difficulty obtaining construction financing. Similarly, Boston noted difficulty in obtaining new construction permits. San Francisco reported that construction activity slowed in some areas due to tighter borrowing conditions and shortages of skilled labor and available land. Contacts in many Districts attributed increases in home prices to robust demand and declining inventory. Inventories continued to decline or stay flat, with the exception of the Kansas City District, where they rose slightly. Boston, New York, and Richmond specifically commented on low inventory leading to bidding wars among buyers. Cleveland builders cited rising construction and land development costs as upward price drivers. New York and Dallas both indicated that prices have climbed for low- to medium-priced homes but price pressures are softer for higher-priced properties. Rental markets remained strong nationwide.
Overall, the residential outlook was positive, with the majority of Districts expecting this increased activity to continue. District reports on commercial real estate were positive on balance. Commercial leasing activity vi increased in the Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts. Leasing activity was steady in the Philadelphia District, steady or increasing in the New York District, and mixed in the Boston District. Leasing demand was described as very strong in large cities, including Boston, New York, Philadelphia, Chicago, and Dallas, but Houston saw weak leasing demand. Significant office rent increases were reported for downtown Boston and New York City while slight increases were seen in Center City Philadelphia.
Retail rents and industrial rents increased in portions of the Richmond District. Contacts in the Boston and Dallas Districts were optimistic or cautiously optimistic about commercial leasing activity moving forward; contacts in the Kansas City District expected modest improvement in leasing demand. Commercial construction activity increased in the Cleveland, Atlanta, St. Louis, and San Francisco Districts. Commercial construction was described as active in the Dallas District, strong-to robust in the New York and Minneapolis Districts, and steady at a solid pace in the Philadelphia District’s urban centers. In urban Boston, office construction activity increased from levels that were seen as below normal in relation to fundamentals, and elsewhere in the Boston District commercial construction activity was mixed. The outlook for commercial construction was generally positive in the Boston, Cleveland, Atlanta, and San Francisco Districts, but risks to growth in construction activity include rising labor costs for skilled workers (noted by Boston and Cleveland contacts), and tighter underwriting standards for construction loans (noted by San Francisco).
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