Fed Beige Book: Manufacturing a Bright Spot as Economic Conditions Improve Overall

Economic activity continued to expand across most U.S. regions and sectors from early January through mid-February, according to latest Federal Reserve Bank economic roundup, commonly known as the Beige Book.

Although the growth rate varied across districts and sectors, in general, manufacturing improved since the previous survey. The Atlanta district reported a rebound following a modest slowdown in December, while Chicago and San Francisco noted a moderate rise and New York, modest gains. Contacts in Kansas City indicated slow growth; Philadelphia, slight increases; and Dallas, flat to positive growth. Reports were mixed and weakened for Cleveland and Richmond, respectively. Most manufacturers shared generally positive outlooks going forward, while the New York District felt less optimistic about the near-term future.

Automobile manufacturing output rose in the Cleveland, Chicago and St. Louis districts. Aerospace manufacturers in San Francisco anticipate a record year for 2015, while those in St. Louis expect to expand. Primary and fabricated metals manufacturers gave mixed reports. “Firms in Chicago reported steady gains in new orders, firms in Dallas reported slower growth in demand, and firms in Philadelphia, St. Louis, and Kansas City reported weakness.” Shipments for steel in Cleveland were softer than expected. In Cleveland, Chicago and San Francisco, contacts cited increased competition from imports as a constraining factor for steel manufacturing. “Industrial equipment manufacturing was mixed in Richmond and Dallas, while the Philadelphia, Chicago, and Minneapolis Districts reported gains in activity.” Kansas City and San Francisco each reported slower growth in machinery production.

Electrical equipment manufacturers in Richmond reported no change in shipments and orders from the previous report, while contacts in Kansas City noted slower growth in electronics. Contacts in Philadelphia and Dallas reported an increase in the demand for electronic devices. Healthcare device manufacturers in Richmond noted reduced sales. Chemical producers in the Dallas District noted declining export demand and decreased refinery utilization rates, while chemical manufacturers in St. Louis announced plans to hire additional employees and expand operations. Food producers in Richmond, Kansas City, and Dallas noted increases in demand.

Real Estate and Construction
Although residential real estate conditions were mixed, commercial real estate market conditions were stable or improving in most districts. Vacancy rates declined in Boston, Chicago, St. Louis and Kansas City. In Dallas, commercial real estate had steadied or slowed since the previous report. Contacts in Chicago reported moderate growth in commercial real estate, driven mainly by industrial buildings. In Boston, contacts noted that speculative construction remains limited due to high construction costs.

Banking and Finance
Reports on banking conditions were mostly positive. Overall, loan demand increased except for Kansas City, where it was mixed. Reports indicated that credit quality has remained largely unchanged or has improved. Most bankers reported no change in their lending standards. Several bankers in the Richmond and St. Louis districts reported relaxed standards, however, and others in the Philadelphia, Richmond and San Francisco districts noted that competition is lowering lending standards more generally.

Agriculture and Natural Resources
Weak farm income, persistent drought and declining exports hurt agricultural conditions. Prices for corn and soybeans fell in at least three districts: Chicago, Kansas City and Dallas. Most contacts in the Minneapolis and Kansas City districts noted that farm incomes had fallen from the prior year’s levels. In Kansas City, farmland values were reported as leveled off after recent gains, while ranchland values continued to rise due to strong demand.

Input prices for the spring planting season were reported as stable in two districts: Richmond and Chicago. A stronger dollar was hurting agricultural exports, according to contacts in the Dallas and San Francisco districts. And Chicago and San Francisco Districts relayed that labor disputes at ports along the West Coast were as well. Drought conditions persisted in some areas of the Atlanta and Dallas districts and hurt yields in the San Francisco District.

Oil and natural gas drilling declined in the Cleveland, Minneapolis, Kansas City, and Dallas districts. In contrast, the Richmond District reported that natural gas production was unchanged. The number of drilling rigs for oil and natural gas declined sharply in the Cleveland, Minneapolis and Kansas City districts. Oil and gas producers in the Cleveland, Kansas City and Dallas districts anticipate cuts in capital expenditures during 2015. Coal production was unchanged in both the Cleveland and Richmond Districts, while it increased modestly in the St. Louis District. Both the Cleveland and Richmond Districts reported lower coal prices.

- Diana Mota, NACM associate editor
Click here to view the entire Fed Beige Book report.

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