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Wednesday
January 17, 2018

The Beige Book
Summary of Commentary on Current Economic Conditions
By Federal Reserve District

January 2018

Federal Reserve Districts

Minneapolis

Boston

Chicago

New York
Cleveland

Philadelphia

San Francisco
Kansas City

St. Louis

Richmond

Atlanta
Dallas

Alaska and Hawaii
are part of the
San Francisco District.

The System serves commonwealths and territories as follows: the New York Bank serves the Commonwealth of Puerto Rico and the U.S. Virgin
Islands; the San Francisco Bank serves American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands.

National Summary
Boston

1
A-1

First District

New York

B-1

Second District

Philadelphia

C-1

Third District

Cleveland

D-1

E-1

Fifth District

Atlanta

F-1

Sixth District

Chicago

G-1

Seventh District

St. Louis

H-1

Eighth District

Minneapolis

The Beige Book is a Federal Reserve System publication about current
economic conditions across the 12 Federal Reserve Districts. It characterizes regional economic conditions and prospects based on a variety
of mostly qualitative information, gathered directly from District
sources.
The qualitative nature of the Beige Book creates an opportunity to
characterize dynamics and identify emerging trends in the economy
that may not be readily apparent in the available economic data. Because this information is collected from a wide range of business and
community contacts through a variety of formal and informal methods,
the Beige Book can complement other forms of regional information
gathering.

How is the information collected?

Fourth District

Richmond

What is The Beige Book?

Each Federal Reserve Bank gathers anecdotal information on current
economic conditions in its District through reports from Bank and
Branch directors, plus phone and in-person interviews with and online
questionnaires completed by businesses, community contacts, economists, market experts, and other sources.

How is the information used?
The anecdotal information collected in the Beige Book supplements the
data and analysis used by Federal Reserve economists and staff to
assess economic conditions in the Federal Reserve Districts. This
information enables comparison of economic conditions in different
parts of the country, which can be helpful for assessing the outlook for
the national economy. The Beige Book also serves as a regular summary of the Federal Reserve System’s efforts to listen to businesses
and community organizations.

I-1

Ninth District

Kansas City

J-1

Tenth District

Dallas

K-1

Eleventh District

San Francisco
Twelfth District

L-1

This report was prepared at the Federal Reserve Bank of Atlanta based
on information collected on or before January 8, 2018. This document
summarizes comments received from contacts outside the Federal
Reserve System and is not a commentary on the views of Federal
Reserve officials.

National Summary
The Beige Book ■ January 2018

Overall Economic Activity
Reports from the 12 Federal Reserve Districts indicated that the economy continued to expand from late November
through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country. Most Districts reported
that non-auto retail sales expanded since the last report and that auto sales were mixed. Some retailers highlighted
that holiday sales were higher than expected. Residential real estate activity remained constrained across the country.
Most Districts reported little growth in home sales due to limited housing inventory. Nonresidential activity continued to
experience slight growth. Most manufacturers reported modest growth in overall business conditions. Reports indicated
that some manufacturers increased capital expenditures over the reporting period. Most reporting Districts noted continued growth in transportation activity. Loan volumes in many Districts were steady. Among reporting Districts, agricultural conditions were mixed and energy contacts described a slight uptick in activity.

Employment and Wages
On balance, employment continued to grow at a modest pace since the previous report. Most Districts cited on-going
labor market tightness and challenges finding qualified workers across skills and sectors, which, in some instances,
was described as constraining growth. Several Districts noted elevated demand for manufacturing and construction
labor. Most Districts said that wages increased at a modest pace. A few Districts observed that firms were raising wages in a broader range of industries and positions since the previous report. Some Districts reported that firms expect
wages to increase in the months ahead.

Prices
Most Districts reported modest to moderate price growth since the last report; exceptions were Chicago, which noted
that prices increased only slightly while San Francisco noted price inflation was down slightly. Reports of pricing pressures were mixed across the country although several Districts noted increases in manufacturing, construction, or
transportation input costs. Firms in some Districts noted an ability to increase selling prices. Retailers in some Districts
reported modest price increases and there were reports of rising home prices across most of the country. Agriculture
and energy commodity prices were mixed.

Highlights by Federal Reserve District
Boston

New York

Economic activity expanded at a modest pace as 2017
ended, with the majority of contacts at manufacturing,
retail, and software and information technology firms
reporting revenue increases even as some saw flat or
declining revenue. Employers cited tight labor markets
as a constraint on expansion. Respondents’ outlooks
continued to be positive.

Economic activity continued to expand moderately, while
labor markets have remained tight. Input prices have
increased at a somewhat faster pace, while selling prices
continued to rise modestly. Housing markets and commercial real estate markets have been mixed but generally steady overall.

1

National Summary
Philadelphia

Minneapolis

Economic activity continued to grow at a modest pace, in
particular for manufacturing, nonfinancial services, and
tourism. Nonauto retail sales improved to a modest pace
as auto sales slipped to a modest decline. The construction and real estate sectors changed little. On balance,
employment, wages, and prices continued to grow modestly.

Ninth District economic activity grew moderately. Although employment levels dipped, hiring demand appeared to remain strong. District manufacturers indicated
that a solid 2017 would continue, with upbeat expectations for the year to come. Holiday retail spending was
strong, but winter tourism got off to an uneven start.
Commercial construction increased; homebuilding was
mixed, but residential sales were up.

Cleveland

Kansas City

The economy continued to expand at a moderate pace.
Labor markets tightened, with wage pressures coming
primarily from workers in low- and middle-skills jobs.
Retailers reported higher-than-expected revenues for the
early part of the holiday shopping season. Homebuilders
saw little evidence of a seasonal downturn in the housing
market.

Economic activity and employment expanded modestly
in late November and December. Retail sales increased
sharply, and consumer spending remained well above
year-ago levels. The manufacturing and energy sectors
expanded further, and capital spending plans were positive. A majority of contacts in the services sector reported labor shortages, and strong wage growth was anticipated in the months ahead.

Richmond
The regional economy grew at a moderate pace in recent weeks. Robust growth was reported by trucking and
tourism firms. Retailers generally reported better-thanexpected holiday sales. Meanwhile, commercial real
estate activity and commercial lending improved moderately. Labor markets tightened further and wage pressures broadened. Price growth remained modest.

Dallas
Economic activity grew robustly, a pickup in pace from
the more moderate expansion seen throughout most of
2017. The manufacturing sector remained a bright spot,
although growth accelerated in most other sectors as
well. Employment growth picked up, and wage and price
pressures remained elevated. Labor shortages persisted, with several reports that difficulty hiring was impeding growth to some extent.

Atlanta
Economic activity improved modestly since the previous
report. The labor market remained tight and wage increases were stable. Non-labor input costs picked up
slightly. Retailers were optimistic when reporting on
holiday sales. Home sales were mixed and prices increased modestly. Commercial real estate contacts
continued to indicate improving demand. Manufacturers
noted an increase in new orders.

San Francisco
Economic activity in the Twelfth District continued to
expand at a moderate pace. Sales of retail goods picked
up noticeably, and growth in the consumer and business
services sectors remained strong. Conditions in the
manufacturing sector remained solid. Activity in residential real estate markets remained robust, while conditions
in the commercial sector were strong. Lending activity
grew at a modest pace.

Chicago
Economic activity picked up to a moderate pace. Employment, consumer spending, and manufacturing production increased moderately, construction and real
estate activity rose slightly, and business spending was
unchanged. Wages increased modestly, prices rose
slightly, and financial conditions improved some. Crop
and dairy farmers continued to face challenging conditions.

St. Louis
Economic conditions continued to improve at a modest
pace. In positive news, retailers’ reports of holiday sales
were generally upbeat, and real estate activity has
picked up somewhat. However, auto dealers continued
to report mixed sales results, and agriculture conditions
in the District remain weak.

2

Federal Reserve Bank of

Boston
The Beige Book ■ January 2018

Summary of Economic Activity
Business activity expanded modestly in the First District as 2017 came to a close. Most contacted retailers, manufacturers, and software and information technology (IT) services firms saw revenues increase, although a minority reported
flat to slight declines in revenues or sales from a year earlier. Among responding retailers, online sales performed better
than in-store sales. Revenue increases among software and IT services firms were strong, ranging from 10 percent to
20 percent year over year. Commercial and residential real estate markets continued much as in the last report, with
commercial rents and residential prices increasing in general, while sales were mixed. Labor markets continued to be
tight and difficulty in hiring workers has constrained expansion for some firms. Few contacts mentioned price changes.
Most responding firms in the region retained a positive outlook for their business.

Employment and Wages
Contacts in many sectors cited tight labor markets, but
only modest wage increases, if any. A local retailer said
2018 merit raises would be on the order of 2.5 to 3.0
percent. A restaurant contact said labor shortages continued to constrain the industry. Only one manufacturing
contact reported significant increases in employment and
many said labor markets were very tight. One manufacturer was three months behind schedule in trying to hire
workers for a new plant. Another industrial firm had 20
unfilled openings in a plant with 100 employees and said
they were making up for it with significant overtime.
When asked why they didn’t increase wages to fill the
openings, the contact said they would have to pay all the
existing workers more which would be uneconomic.
Another industrial-firm contact said that when a worker
leaves, they typically end up paying the replacement 10
percent more than the departing worker. Software and IT
services contacts have kept headcount close to flat in
recent months, though they plan to increase staff by up
to 10 percent during 2018. These contacts noted that
shortages for technical roles such as engineers were
getting worse.

they had some ability to pass through cost increases to
their customers.

Retail and Tourism
Retail respondents for this round reported that from midNovember through early January, year-over-year comparable-store sales remained flat or posted low-to-middle
single-digit increases. For contacts concluding their fiscal
year, 2017 comparable-store sales increased by about
2.5 percent from 2016, though some firms, due to business expansion, saw overall sales revenue increase by
double digits. Sales via online channels have expanded
faster, and contacts said they planned to invest in information technology supporting the growth of data analytics and e-commerce channels in 2018; some view an
online presence as an increasingly critical complement
to their traditional brick-and-mortar stores, even as they
continue to plan on opening new store locations. The
outlook for 2018 is generally optimistic.
A contact in the Massachusetts restaurant industry reported that year-over-year restaurant sales ranged from
flat to up 2 percent. Net margins have narrowed and
restaurant contacts said that new business expansion is
likely to be very subdued in 2018.

Prices
Price movements were somewhat mixed. Retailers
reported that prices remained steady. Some manufacturers noted input price increases, but most appeared to be
idiosyncratic (new environmental regulations in China
limiting supply, for example). Manufacturing firms said

A-1

Federal Reserve Bank of Boston
down in 2017 as a result of low vacancy rates and low
sales inventories. In Boston, office rents edged up further in recent weeks and significant absorption of office
space was seen in the Seaport and Back Bay neighborhoods. In Providence, office rents started to increase in
recent weeks amid an increasingly tight vacancy environment. Contacts in all three of these metro areas
expressed uncertainty concerning the impetus for new
office and industrial construction in 2018, but nonetheless expect some. On the one hand, vacancy rates in
both of these sectors are low by historical standards and
rents are on the rise, but on the other hand construction
costs are described as very high, a fact attributed in part
to a tight market for construction labor. A Boston-area
contact noted that some apartment construction projects
are taking longer to complete than anticipated because
of worker shortages. Contacts were generally cautiously
optimistic about 2018.

Manufacturing and Related Services
Of nine firms contacted this quarter, five reported higher
sales versus the year-earlier period, two reported flat
sales and two lower. Of the firms with improved sales,
most said it was a continuation of recent trends. A manufacturer of industrial parts said that sales had finally
recovered to their 2014 peak; the fall in oil prices that
started in 2014 had led to a big slowdown in sales to
extractive industries. To date, most of their recent growth
comes from replacement parts. A manufacturer of toys
said that sales in the holiday period were lackluster. The
weakness was partly due to the fact that there was only
one blockbuster movie with tie-in potential but, in addition, the contact cited uncertainty among consumers,
particularly regarding tax reform. No contacts reported
major revisions to capital spending plans.
In general, manufacturing respondents continued to
have a broadly positive outlook. No contacts expected
the just-passed tax reform package to have a big effect
on investment. Two said that tax reform would mainly
benefit shareholders. One suggested that the reduced
deductibility of state and local taxes would lead them to
increase pay in high-tax states to compensate workers. A
firm that provides support to financial services firms
expected an increase in demand for tax-related services
as firms try to manage the changes in the code.

Residential Real Estate
Heading into the end of the year, residential real estate
markets in the First District showed slight to moderate
increases in sales and ongoing struggles with inventory.
(Data for all six states refer to changes from November
2016 to November 2017, while Boston data were for
October-to-October changes.) For single family homes,
closed sales increased in all reporting areas except
Connecticut. For condos, closed sales increased in all
areas. As usual, shortage of inventory prevailed and
contacts expressed concern that short supplies will hurt
the market in the long run.

Software and Information Technology Services
Tech contacts in the First District are doing well on the
whole, with strong demand across the board and revenue growth between 10 percent and 21 percent yearover-year, excepting one enterprise software firm which
has been struggling of late. Even that firm has a healthy
outlook. All respondents identified software and technology as a strong space to be in, and anticipate growth
from 5 percent to 20 percent over the foreseeable future.
Multiple contacts noted particular strength in recent
cloud and browser-based offerings, as companies continued to embrace newer technologies. Multiple contacts
also indicated that the new tax legislation would help
their business, though only as a one-time boost.

Median sales prices increased across the region, with
the exceptions of Connecticut for single family homes
and Vermont for condos. Despite high prices, contacts
expressed confidence about the residential outlook.
However, many contacts indicated that new legislation
passed by Congress could discourage homeownership,
as shrinking the cap on the mortgage interest deduction
for primary homes and the loss of most deductions for
interest on home equity loans will increase costs for
most property owners.■

Commercial Real Estate
Contacts reported that commercial real estate markets
ended the year on a relatively high note. Leasing activity
held roughly steady in recent weeks, with deals proceeding mostly as expected. In the Portland area, office and
industrial rents increased 10 percent on a year-over-year
basis, while retail and apartment rents were roughly
unchanged over the same period. Also in Portland, however, transactions volume for both leasing and sales was

For more information about District economic conditions visit:
www.bostonfed.org/regional-economy

A-2

Federal Reserve Bank of

New York
The Beige Book ■ January 2018

Summary of Economic Activity
Economic activity in the Second District continued to grow at a moderate pace in the latest reporting period, and the
labor market has remained tight. Input prices increased at a slightly faster pace, while selling prices continued to rise
modestly. Fairly robust growth was reported in most service and distribution industries. Manufacturers reported that
growth has slowed somewhat from its rapid pace during last summer and fall but remains fairly robust. Manufacturers
also plan to increase capital spending substantially in 2018. Consumer spending has generally been flat. Housing markets have been steady overall, with continued weakness at the high end of both the sales and rental markets. Commercial real estate markets were also steady, on balance. Finally, banks reported a decline in loan demand, particularly
from the household segment, while delinquency rates continued to decline across all loan categories.

Employment and Wages

Prices

The labor market has been steady and tight. Employment agencies generally report that labor market conditions have been strong, though one agency noted that
the market is hard to gauge this early in the year—
particularly due to the recent snowstorm. Businesses
across all industries have had increasing trouble finding
qualified workers, with some retailers struggling to find
adequate seasonal staff. One large retail chain noted
that they hired more holiday season workers than in
2016.

Input prices have accelerated, according to contacts in
the manufacturing, wholesale, transportation, education
& health, and leisure & hospitality sectors. In other industries, however, cost increases have remained subdued.
Selling prices continued to rise only modestly in most
industry sectors and even edged down in the transportation and information sectors. Two exceptions have been
in manufacturing and wholesale trade, where selling
prices have picked up noticeably. Retailers mostly report
that prices have been flat or up modestly, whereas prices for Broadway theater tickets have continued to increase at a roughly 20 percent pace. Looking ahead, the
only sectors in which businesses planned noticeable
price hikes were in wholesale trade and leisure & hospitality.

Business contacts generally indicated that they continue
to increase staffing levels modestly, though firms in the
manufacturing and information sectors have scaled back
hiring. However, hiring plans for the months ahead have
grown increasingly strong.

Consumer Spending

Wages have accelerated modestly, and a growing proportion of firms said they expect to hike wages in the
months ahead. The minimum wage across New York
State rose by 7 to 18 percent, varying by location. An
employment agency contact noted that recent New York
City legislation restricting employers from asking about
job candidates’ salary histories may boost salary offers
overall.

Retail contacts reported that holiday season sales were
mixed but steady overall. Retailers in upstate New York
indicated that customer traffic was brisk, while sales
were more lackluster. On the other hand, a large retail
chain reported that sales picked up in December and
were ahead of plan and up modestly from a year ago.
The ongoing shift from brick-and-mortar to online sales
reportedly accelerated this past season. Retailers re-

B-1

Federal Reserve Bank of New York
mained mildly optimistic about the outlook. Inventories
were generally reported to be at satisfactory levels.

prices rising and some pickup in activity at the high end
of the market.

Auto sales in upstate New York were steady to somewhat softer as 2017 drew to a close. Vehicle inventories
were said to be in fairly good shape. Dealers continued
to characterize retail and wholesale credit conditions as
favorable.

New York City’s sales market has been softer. Median
prices of existing condos and co-ops have been flat
overall—rising at the entry level, where inventories are
lean, but declining at the high end, where there is a large
supply.

Consumer confidence in the Middle Atlantic states (NY,
NJ, PA) held steady near a multi-year high in December.

New York City’s rental market has continued to soften,
mainly at the high end. Landlord concessions on higherend rentals have remained prevalent, and more recently
face rents have declined. A major real estate appraiser
estimated that effective rents are down 5-7 percent from
a year ago on higher end units but up modestly on smaller, entry-level apartments.

Manufacturing and Distribution
Both manufacturers and wholesalers reported that activity grew at a fairly strong pace, though not as briskly as in
the prior reporting period. Transportation firms, on the
other hand, noted that activity picked up noticeably,
growing at a robust pace. Looking ahead, manufacturers
continued to express widespread optimism about the
near-term outlook and plan to substantially ramp up
capital spending in 2018. Wholesale distributors have
become increasingly sanguine, while transportation firms
remained moderately optimistic.

In areas around New York City, there has been some
concern that the new federal tax legislation, which limits
deductions for mortgage interest and especially property
and state income taxes, will weaken the housing market,
especially the high end. However, this is seen as much
less of a concern in upstate New York.
Commercial real estate markets have been mixed but
mostly steady overall. Office availability rates have
climbed modestly in New York City, remained steady in
Long Island and Fairfield County, and have edged down
in northern New Jersey. Asking rents for office space
have remained essentially flat. The industrial market has
been more robust: vacancy rates have steadied at very
low levels, and asking rents have risen briskly. The retail
market, in contrast, has softened further, with vacancy
rates rising, while asking rents have been flat to up
slightly.

Services
Service-sector firms noted continued modest growth.
Contacts in leisure & hospitality and professional & business services continued to report fairly widespread increases in activity, while information industry firms indicated some weakening in activity. Education & health
service firms noted that activity picked up modestly after
declining for a number of months. Service sector businesses were generally optimistic about the near-term
outlook—particularly those in business & professional
services and leisure & hospitality.

Banking and Finance

Broadway theaters reported mixed results for December.
Attendance was down about 7 percent from a year earlier, but revenues were up nearly 10 percent, reflecting a
sizable increase in ticket prices.

Small to medium-sized banks in the District reported
weakening demand for consumer loans, residential
mortgages, and C&I loans, but no change in demand for
commercial mortgages. Bankers also reported a decrease in refinancing activity. Credit standards were
tightened somewhat on commercial mortgages but left
unchanged for other types of loans. Bankers reported
rising loan spreads for commercial loans and mortgages.
Finally, bankers reported continued improvement in
delinquency rates across all loan categories. ■

Real Estate and Construction
The housing market across the District has been mixed
but, on balance, stable. Real estate contacts in upstate
New York report that, despite a typical seasonal slowing
in sales activity, strong demand and tight inventories
continues to boost prices. In northern New Jersey, sales
volume has been subdued and prices have been flat to
up slightly. In the lower Hudson Valley and southwestern
Connecticut, sales volume has plateaued at a high level;
selling prices have risen moderately, except at the high
end of the market, where they have languished. Long
Island’s market has been somewhat more robust, with

For more information about District economic conditions visit:
www.newyorkfed.org/data-and-statistics/regional-datacenter/index.html

B-2

Federal Reserve Bank of

Philadelphia
The Beige Book ■ January 2018

Summary of Economic Activity
Aggregate business activity in the Third District continued at a modest pace of growth during the current Beige Book
period. Nonauto retail sales, tourist activity, manufacturing, and nonfinancial services grew modestly, while new home
construction and existing home sales appeared to grow slightly. Little change was noted by contacts in nonresidential
construction and nonresidential leasing markets. Auto sales appeared to have declined modestly. On balance, employment, wages, and prices continued to grow modestly. Most firms anticipated continued growth over the next six
months—a somewhat higher percentage than during the prior period.

Employment and Wages

Prices

Employment continued to grow at a modest pace during
the current Beige Book period, although reports of net
additions to staff edged lower for both manufacturing and
nonmanufacturing firms. Average hours worked edged
lower over the period for manufacturing firms but rose
among nonmanufacturers.

On balance, price levels continued to rise modestly,
although most contacts indicated no change in prices
paid and received. Across all contacts, the percentage
of firms reporting increases in prices received for their
own goods and services was somewhat higher during
the current period than the prior period. For prices paid,
the percentage of manufacturing firms reporting increases rose, while the percentage of nonmanufacturing firms
reporting increases fell.

On balance, wage growth held steady at a modest pace,
although the percentage of nonmanufacturing firms
reporting increases slipped below 40 percent. One manufacturing firm noted that significant annual increases in
health-care costs precluded the firm’s ability to offer
wage increases; several other firms cited difficulties with
rising benefit costs. A few contacts commented on the
recent news that numerous large firms had announced
plans to offer bonuses this year and/or to raise their
minimum wage rates.

Retailers and banking contacts reported few signs of
inflationary pressure, and builders noted little change to
the typical price increases for construction materials.
Overall, existing home prices continued to rise, with
some variation across markets and price categories.

Manufacturing
On balance, manufacturing activity continued at a modest pace of growth, with a few signs of slight improvement. The percentage of firms reporting increases in
new orders rose slightly compared with the prior period
but changed little for shipments.

In one of the District’s tighter labor markets, a staffing
firm reported that wages had risen 4 percent over the
year, while various firms from that same market noted
that they were very busy, but the lack of qualified labor
was constraining their growth. In the Poconos, the tight
labor market was impacting firms’ ability to fill low-skilled
jobs and middle management positions.

The makers of paper products, chemicals, primary metal
products, industrial machinery, and electronic equipment
continued to note gains in new orders and shipments;

C-1

Federal Reserve Bank of Philadelphia
firms in the lumber and fabricated metal sectors reported
declines in activity.

ing increased activity, marking little change since the
prior Beige Book period.

A majority of manufacturing contacts continued to expect
general activity to increase over the next six months. The
percentage of firms expecting future increases for general activity rose above 60 percent. By comparison, the
percentage of firms expecting increases in future capital
expenditures and future employment held mostly steady
at levels just above 40 percent. However, a somewhat
higher percentage of firms expected decreases in future
employment compared with the prior period.

Financial Services
Financial firms reported modest growth of overall loan
volumes (excluding credit cards)—similar to the prior
Beige Book period. Loan volumes grew modestly in
home equity lines and auto loans, while mortgages and
commercial real estate loans grew slightly. Growth in
commercial and industrial loan volumes was stronger,
while the volume of other consumer loans fell.
The significant seasonal increase in credit card volumes
anticipated for the recent holiday period did occur and
was comparable in size to the increase during the same
period last year.

Consumer Spending
On balance, nonauto retail sales appeared to grow modestly over the holiday season—an improvement over the
prior period. Contacts reported that sales started flat, but
growth materialized in the weeks before and after Christmas. The abnormally cold December temperatures lifted
sales of warm weather apparel, and long lines of lastminute shoppers were noted at mall jewelry stores.

Banking contacts described solid ongoing economic
growth in most parts of the District. Several noted that
previously hot sectors, including commercial real estate
and multifamily housing, appear to have plateaued or
cooled off a bit. Credit quality was portrayed as very
good; one contact reported telling bank staff to “take a
picture,” as the bank’s loan portfolio was so sound.

Auto dealers reported modest declines overall in yearover-year sales this period, a further deterioration from
slight decreases during the prior period. Nevertheless,
sales remain at high levels. While early reports from
Pennsylvania dealers suggested a slight increase, later
reports from New Jersey dealers noted that the cold
weather dampened sales, which are normally very
strong in late December due to year-end bonuses. However, this year dealers felt that “people with cash on
hand ran to the municipal tax office to prepay property
taxes, not buy cars.”

Real Estate and Construction
Homebuilders continued to report slight growth in activity
during the current period. One builder noted that the
company’s backlog of sales is off considerably from last
year and that other local builders are also feeling a slowdown that began last summer.
On balance, brokers in Third District housing markets
continued to report slight growth of existing home sales.
In most local markets, exceedingly low inventories of
houses constrain sales and place upward pressure on
house prices.

Tourism contacts continued to report modest growth
overall. A Poconos contact reported that ski resorts were
sold out on weekends and that visitors exhibited confidence by extending their stays and keeping restaurants
busy. In November, Atlantic City’s casino revenues
continued to grow modestly relative to the prior year.
However, the January 4 bomb cyclone limited activity
over this period’s final weekend as shore areas dug out
from heavy snows and skiers in mountain resorts were
greeted by single-digit temperatures.

Nonresidential real estate contacts reported no significant changes in the high levels of overall construction
activity. Commercial contractors focused on Philadelphia
noted that 2017 was a strong year and that activity
should continue through 2018. New project announcements are needed to extend current activity levels into
2019. Rising lease rates and new construction of industrial/warehouse space continued to be noted in many
Third District markets. Essentially, little change was
noted in the level of leasing activity, although markets
vary significantly by sector and geography. ■

Nonfinancial Services
On balance, service-sector firms have continued to
report modest growth in general activity since the prior
Beige Book period. The percentage of firms reporting a
higher level of sales has increased since the last period;
however, the percentage reporting greater orders has
declined. Expectations about future growth have remained positive, with well over half of the firms anticipat-

For more information about District economic conditions visit:
www.philadelphiafed.org/research-and-data/regionaleconomy

C-2

Federal Reserve Bank of

Cleveland
The Beige Book ■ January 2018

Summary of Economic Activity
Business activity in the Fourth District grew at a moderate pace since our last report. Labor markets continued to tighten. Challenges in attracting and retaining qualified workers, especially for low-skills jobs, contributed to wage pressures.
Manufacturers and professional services providers experienced pushback when attempting to increase their selling
prices. Retailers reported higher-than-expected sales for the early part of the holiday shopping season. Manufacturing
output grew, albeit at a slow pace. Freight transport and nonfinancial services firms saw moderate to strong gains in
activity. The housing and commercial real estate markets remained healthy.

Employment and Wages

materials prices to rebuilding efforts from last summer’s
hurricanes. Trucking firms cited rising prices for fuel and
maintenance products. Price spikes for petrochemical
products resulting from the hurricanes are beginning to
moderate. Reports on selling prices were mixed. Building
contractors, trucking firms, and railroads all reported rate
increases in response to higher input costs, including
labor costs, and a desire to widen margins. One construction contractor reported raising rates up to 10 percent during the past two months. A trucking firm cited
across-the-board rate increases of 6 percent to 12 percent. In contrast, reports indicated a decline in manufacturer selling prices on net, mainly because of competitive
pressures. Professional services firms described their
billing rates as flat. Some of these firms are feeling pressure from clients to lessen the rate of increase in billing
rates or to reduce rates overall for the next year or two.

District labor markets continued to tighten during the
survey period. The strongest activity was found in the
construction and nonfinancial services sectors. After
softening late in the second quarter, hiring by manufacturers has been trending slowly higher. A large majority
of contacts reported they are replacing departed workers; the share of firms creating new jobs was stable. The
main labor-related challenge reported was attracting and
retaining workers for low-skills and, to a lesser extent,
middle-skills jobs. In response, firms are raising wages
and creating career paths within these job categories. A
professional services contact reported boosting wages
for select low-skills jobs by up to 20 percent, while a fast
food executive said that wages at her restaurants are
now up to $11 per hour. Higher labor costs were difficult
to pass through to customers because of competitive
markets. Turnover is reportedly much less of an issue in
high-skills and STEM jobs.

Consumer Spending
An improving outlook, on the part of most retailers, continued into the holiday shopping season. Retail chains
that invested in technology to enhance customers’ shopping experiences saw improving same-store sales. One
chain reported that a growing share of online orders are
for in-store pickup. This model has been good for gener-

Prices
Upward pressure on input costs remained strong, especially in the construction and nonfinancial services sectors. Building contractors generally attributed higher

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Federal Reserve Bank of Cleveland
ating increased in-store sales when the customer comes
in to pick up an order. Another smaller chain is testing
same-day delivery options in order to keep up with consumer expectations set by big retail players. A fast food
chain observed that the average revenue per transaction
from recently installed self-service kiosks was higher
than transactions generated by cashiers. Anecdotes
suggest that revenues for the early part of the holiday
shopping season are moderately higher when compared
to those of the same period a year ago, and they are
also higher than expected. Cold weather across the
District and the use of promotional discounting are believed to be contributing to higher revenues. One large
chain reported that this is the first holiday season for
which gains from e-commerce are expected to offset
losses from brick-and-mortar operations. Year-to-date
unit sales through November of new motor vehicles rose
3 percent compared to those of a year ago. One dealer
commented that interest rate changes have not yet
made an impact on new-car transactions.

across the District, unit sales of new and existing singlefamily homes during November 2017 were almost 4
percent higher when compared to unit sales of November 2016. The average sales price rose more than 6
percent. Homebuilders are concerned about declining lot
inventory and the availability of land.
Demand for nonresidential construction services remains
at a high level. A majority of contacts cited their customers’ confidence in the economy as the primary driver for
the strong demand. Property development was broad
based. We heard reports about a pickup in office construction and owners’ expanding the scope of their projects. Backlogs increased during the survey period and
were at high levels. A moderate increase was reported in
selling prices for office and industrial properties during
the first nine months of 2017 compared to those of the
same period in 2016. During the same time frame, reports indicated a decline in the number of apartments
coming on the market. Apartment rents continued to
trend moderately higher.

Manufacturing

Financial Services

Manufacturing output continued to strengthen, albeit at a
slow pace. Several contacts cited an improving economy
as the primary reason for new orders, while others pointed to ongoing strength in the construction and motor
vehicle industries and stability in the energy sector.
Contacts linked to the petrochemical industry reported a
residual boost in activity resulting from hurricane-related
damage. Steel producers saw rising activity, which they
generally credited to increased manufacturing output.
One steel producer noted that some of his customers are
concerned that the domestic economy may be reaching
the peak of the current business cycle, resulting in a
dampening in capital investment. Year-to-date production
through November at District auto assembly plants declined about 20 percent when compared to that of the
same period a year earlier. The decrease can be attributed to retooling for a next-generation sport utility vehicle
and cutbacks in small passenger car production. Contacts reported a pull back on spending for plant expansions and product development after spending rose
during most of the second half of 2017. Our contacts’
outlook calls for a moderate pickup in the pace of growth
in the near term.

Business lending trended up slowly across loan products, and bankers saw higher loan balances on a yearover-year basis. Increasing confidence in the economy
was frequently cited for rising credit demand. Merger and
acquisition financing remains strong. An accounting
executive said that his firm has performed more acquisition work during 2017 than in the past five years combined. A large-bank contact reported that although his
pipeline for loans remains strong, the closure rate is
relatively weak. He attributed this situation to seasonal
factors and uncertainty spawned by political activity at
the federal level. Consumer lending weakened along
seasonal trends, with several contacts reporting declines
in credit card balances and drawdowns on HELOCs.

Nonfinancial Services
Freight volume increased at a moderate to strong pace
during the period. Demand was broad based but was
driven especially by demand for steel products and by
the energy sector. Strong growth in e-commerce was
also mentioned as driving up volume. Capacity constraints and labor shortages were cited as factors contributing to escalating shipping rates. Current freight
volumes are expected to continue in the near term.
Professional services firms experienced moderate gains
in activity. The strongest gains were reported by firms
that assist customers in applying digital technologies to
both production and back-office activities. ■

Real Estate and Construction
Several homebuilders reported that they have not seen
the typical seasonal decline in demand. One builder
attributed this situation to low interest rates, a healthy
economy, and low inventory of existing homes. Looking

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Federal Reserve Bank of

Richmond
The Beige Book ■ January 2018

Summary of Economic Activity
Since our previous report, the Fifth District economy expanded at a moderate pace. Manufacturing activity picked up
modestly, overall. Trucking firms continued to report robust growth compared to the prior period, while district ports
experienced a mild seasonal slowdown, but strong year-over-year increases. Retailers saw a moderate increase in
sales, with many stores citing better than expected holiday shopping this year. Tourist activity was strong in recent
weeks, particularly at ski resorts. Home prices generally rose. Meanwhile, commercial real estate activity increased
moderately. According to lenders, residential loan demand was flat while commercial loan demand rose moderately.
Nonfinancial services firms reported moderate revenue growth. Labor demand increased modestly and firms had difficulties finding workers across a broad range of occupations. Wage pressures broadened moderately and many employers planned to raise starting wages. On balance, prices increased at a modest pace.

Employment and Wages

modestly, in recent weeks, while steam coal prices
inched up and metallurgical prices rose modestly.

On balance, the demand for labor increased modestly in
recent weeks, but several firms indicated that hiring was
constrained by the tight labor market. Some of the most
hard-to-fill positions were restaurant workers and chefs,
construction workers and managers, nurses, retail workers, administrative assistants, software engineers, electricians, and truck drivers. A trucking company said that
the labor shortage left many trucks sitting idle and was
putting upward pressure on driver wages. In general,
wage pressures broadened moderately as more businesses reported increasing starting wages. Many also
planned to raise wages for existing employees, particularly for high performers.

Manufacturing
District manufacturing activity increased at a modest
pace, overall. A West Virginia rubber manufacturer said
that sales picked up in recent weeks after a somewhat
weak year, and they were optimistic that growth would
continue in the coming months. Packaging and metal
manufacturers reported moderate growth while a Virginia
food company noted a slight uptick in sales. In contrast,
a North Carolina machinery manufacturer reported one
of the worst months on record, and a South Carolina
paper product manufacturer reported a continued decline
in business. According to our survey, vendor lead times
increased on average, and many firms reported longer
delivery times despite higher delivery costs.

Prices
Prices grew at a modest pace overall, since our previous
report. According to our latest surveys, prices paid for
manufacturing inputs slightly outpaced a modest rise in
selling prices. Manufacturers of textiles, paper, wood
products, chemicals, and plastics saw the largest increases in input goods prices. Food manufacturers, on
the other hand, reported some of the smallest input price
increases. In the service sector, price growth continued
at a modest pace. Manufacturers and service sector
firms expected prices to grow at a slightly faster pace
over the next six months. Natural gas prices increased

Ports and Transportation
District ports reported robust year-over-year growth in
shipping volumes despite a slight seasonal slowdown in
recent weeks. Ports continued to handle more imports
than exports, but some expected the gap to narrow in
coming months. A Maryland port reported increased
exports to the Middle East, coinciding with the rise of oil
prices. Trucking companies continued to see robust
growth in the past several weeks, which was especially

E-1

Federal Reserve Bank of Richmond
noteworthy since they usually see a seasonal downturn
at the end of the year. Some firms were unable to meet
rising demand, as they were constrained by lack of truck
drivers. Trucking companies expressed concerns that
the newly mandated use of electronic logs could lead to
an even greater shortage of drivers and lead to more
mergers and acquisitions in the trucking industry.

white collar job creation in his market. He noted, however, that industrial leasing and construction activity was
strong, and that speculative building was occurring for
the first time since 2008. He also stated that multifamily
construction, while slowing, was still active. Finally, a
contact from D.C. reported that the skilled-labor shortage
in construction has been the root of rising costs for a
while, but the shortage recently started to manifest itself
in deteriorating work quality and project delays.

Retail, Travel, and Tourism
District retailers generally reported moderate sales
growth since our previous report, with many stores experiencing better-than-expected holiday sales. A Virginia
hardware store had robust sales growth, particularly for
power equipment and high-end grills. Meanwhile, a
furniture store reported strong growth and a slight increase in its profit margin. A high-end women’s clothing
store noted slightly weaker sales, attributing much of the
softening to online competition. A North Carolina autodealer saw a surge in sales and a Virginia auto dealer
reported a rise in sales of parts.

Banking and Finance
Loan demand grew modestly in recent weeks as gains in
commercial lending drove the overall increase. Residential mortgage lending was generally reported as flat to
down slightly compared to about a month ago, but up
from a year earlier. Deposits rose moderately, on balance, in recent weeks. On the commercial side, demand
picked up moderately. In South Carolina, industrial lending was the most active. In West Virginia, the demand for
coal and natural gas operating and expansion loans
were increasing. Credit quality remained high throughout
the District. However, credit standards loosened slightly
as competition for loans led to more concessions on
lending terms. Interest rates increased slightly, overall.

Fifth District tourism remained strong in recent weeks. A
West Virginia ski resort was booked to capacity through
the holidays and is on track for a record breaking season. Demand for hotel rooms rose across the District,
although some North Carolina hotels reported slowing
business and pressure to lower rates due to competition
from newly built hotels and by-owner rental units. Hotels
in D.C. and Virginia noted typical seasonal declines in
rates and occupancy.

Non-Financial Services
Nonfinancial services firms continued to report moderate
growth in revenues. The most upbeat reports came from
professional and business services, administrative and
support services, and legal services. A law firm in West
Virginia said they had the best quarter since the recession. An administrative support firm said that clients were
willing to pay higher fees for temporary staff, which was
helping to boost their profits. Utility companies continued
to report rising demand as temperatures declined.

Real Estate and Construction
Residential real estate markets improved modestly in the
past few weeks. Most contacts noted a seasonal slowdown, although one broker reported “unusually strong
traffic for December.” Sales prices were generally up and
inventories were down. In fact, there were numerous
reports of low inventories inhibiting activity, particularly at
the more affordable price points. Real estate professionals generally indicated that the higher the price level, the
broader the availability of homes for sale. In some markets, construction continued at a moderate pace—
including in multifamily—while others reported very
limited new home construction.

Agriculture and Natural Resources
Coal production was little changed in recent weeks but
was up considerably compared to the same time last
year. Exports of coal, particularly to China, were responsible for much of the growth. Meanwhile, natural gas
drilling and pipeline development work picked up moderately. A hardwood producer reported a modest rise in
export demand. ■

On the whole, commercial real estate activity picked up
moderately in recent weeks, with low vacancy rates,
strong absorption rates, and rising rents, despite the
usual seasonal slowdown in leasing. However, there
were some reports of softening activity particularly in
office and in retail. A broker from Baltimore expects more
retail store closures in 2018. In contrast, a broker in
South Carolina said that retail construction was very
active but office rents were flattening due to minimal

For more information about District economic conditions visit:
www.richmondfed.org/research/regional_economy

E-2

Federal Reserve Bank of

Atlanta
The Beige Book ■ January 2018

Summary of Economic Activity
Sixth District business contacts remained largely positive with most noting that economic conditions were improving at a
modest pace over the reporting period. Most contacts expect continued slow and steady growth in the near-term. Business contacts experienced on-going labor market tightness but limited wage growth. Non-labor input costs increased
slightly from the previous report. Contacts reported that holiday retail sales exceeded expectations, but auto sales softened. Reports from the hospitality sector were positive, reflecting strong advance bookings. Residential real estate
brokers and builders noted mixed sales activity for both existing and new homes. Home prices rose and inventory levels
were described as flat or down. Commercial real estate contacts reported increased demand in nonresidential construction, especially industrial and warehousing. Manufacturers indicated that new orders picked up since the previous report.

Employment and Wages

costs were up 1.8 percent in December, and respondents expect unit costs to rise 2.1 percent over the next
twelve months.

Job growth across the District returned to a steady pace
in November, following large hurricane-related losses in
September. In a survey of business contacts, a little over
half indicated that they expect their firms to increase
employment over the next 12 months, while about onethird responded that they expect employment to remain
unchanged. The remaining respondents expect some
staff reductions over the next 12 months. Contacts indicated the most important factor for adding to payrolls
was an expectation for high sales growth in their business while the top constraints to hiring were a desire to
keep operating costs low and an inability to find workers
with requisite skills. A number of contacts continued to
describe challenges filling and retaining highly-skilled/
specialized and low-skilled/entry-level positions. To find
and retain workers, firms continued to broaden their
geographical search for candidates and develop or
expand training programs.

Consumer Spending and Tourism
District retail contacts reported an uptick in sales levels
since the last report. Merchants noted that early holiday
sales activity was above expectations. According to
automobile dealers in the District, however, momentum
of auto sales slowed compared with year-earlier levels.
Holiday reports from District travel and hospitality contacts indicated much higher-than-anticipated tourism
activity. Further, the outlook among contacts remains
positive for the first quarter of 2018 with strong advance
bookings in the conference and business travel segments.

Construction and Real Estate
Reports from residential real estate contacts in the District signaled modest growth since the previous report.
The majority of builders reported construction activity
was slightly up in November compared with one year
earlier. Brokers indicated that home sales activity was
flat to slightly down from the year-ago level, yet builders
said home sales were flat to slightly up over the same
period. Many brokers reported buyer traffic was flat to
down; meanwhile, builders said buyer traffic was flat to
up. Most brokers indicated inventory levels were down
from one year ago, while builders reported that inventory

On balance, contacts noted steady but modest wage
growth; however, compensation negotiations were more
prevalent among highly-skilled/specialized workers.

Prices
Increases in non-labor input costs were reported as
mostly modest. Firms reported that pricing power continued to be limited. The Atlanta Fed’s Business Inflation
Expectations survey showed that year-over-year unit

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Federal Reserve Bank of Atlanta
levels remained unchanged. Builders and brokers continued to note home price increases in November. Over the
next three months, residential real estate contacts expect home sales activity to either hold steady or increase
slightly relative to the year-ago level, while many builders
expect the pace of construction activity to remain unchanged or increase slightly.

greater demand for services due in part to hurricane
rebuilding efforts and tighter capacity. All District contacts surveyed anticipate continued growth in activity for
2018.

Banking and Finance
Credit remained readily available for most qualified borrowers. Credit union contacts noted strong auto and first
mortgage lending and increased credit card activity.
Some banking contacts reported a diminished ability to
raise deposits.

Many commercial real estate contacts from the District
reported improvements in demand that resulted in rent
growth, specifically in industrial and warehouse/
distribution properties and to a lesser degree in office
and multifamily. Contacts cautioned that the rate of
improvement varies by metropolitan area, submarket,
and property type. The majority of commercial contractors indicated that the pace of nonresidential construction activity had increased from one year ago. Most
contacts continued to report a healthy pipeline of activity,
with the majority indicating backlogs greater than or
similar to the previous year’s level. While the majority of
reports indicated that the pace of multifamily construction
matched or exceeded the year-ago level, a growing
share continued to report that activity was down from
one year earlier. Commercial construction contacts’
outlook for nonresidential and multifamily construction
activity improved across the District since the last report.

Energy
Contacts indicated that overall, utilities continued to
move to natural gas power generation. Pipeline takeaway capacity from production to refineries continued to
be constrained. It was noted that liquid natural gas exports ticked up slightly with additional liquefaction capacity that came online.

Agriculture
Agriculture conditions across the District were mixed.
Drought conditions expanded in parts of Alabama, Florida, Georgia, Louisiana, and Mississippi and were classified as abnormally or moderately dry. The District’s
December cotton production forecast was up over last
year, mostly because of increased acres, although there
were some reductions in yields. The December forecast
for Florida’s orange crops was down from the previous
report. The USDA designated many counties in Florida
and Georgia as natural disaster areas due to damages
and losses attributed to Hurricane Irma. On a year-overyear basis, prices paid to farmers in November were up
for rice, oranges, beef, broilers, and eggs and down for
corn, cotton, and soybeans. ■

Manufacturing
Manufacturing contacts reported increases in overall
business activity. New orders continued to rise, while
production levels at District firms remained somewhat
subdued. Most contacts indicated that hiring activity
continued to increase at a healthy pace and suggested
that supplier delivery times were getting somewhat longer. Finished inventory levels were reported to have increased slightly and input prices also continued to rise.
Contacts’ outlook for future production was similar to
from the previous period, with about half expecting higher production levels over the next six months.

Transportation
Transportation contacts in the District noted increased
activity during the reporting period. Ports saw growth in
volumes across most sectors; however, automobile
shipments were flat year-over-year. Containerized exports and imports were up by double digits from year
earlier levels, and solid growth in lumber, iron and steel
break bulk cargo was attributed to increased manufacturing and construction activity. Available warehouse capacity was at record low levels. Year-to-date total rail
volume was flat compared with last year; intermodal
traffic was up modestly. Trucking companies experienced a robust peak season due to substantial increases
in e-commerce volumes, and logistics contacts noted

For more information about District economic conditions visit:
www.frbatlanta.org/economy-matters/regional-economics

F-2

Federal Reserve Bank of

Chicago
The Beige Book ■ January 2018

Summary of Economic Activity
Growth in economic activity in the Seventh District picked up to a moderate pace in late November and December and
contacts expected growth to continue at that pace over the next 6 to 12 months. Employment, consumer spending, and
manufacturing production increased moderately, construction and real estate activity rose slightly, and business spending was unchanged. Wages increased modestly, prices rose slightly, and financial conditions improved some. Crop and
dairy farmers continued to face challenging conditions.

Employment and Wages

Consumer Spending

Employment increased at a moderate pace over the
reporting period, and contacts expected it to continue at
that rate over the next 6 to 12 months. Contacts continued to indicate that the labor market was tight, with
difficulties filling positions at all skill levels. Hiring was
focused on professional and technical, production, and
sales workers. There was a notable increase in the
number of firms looking to hire professional and technical workers, and a staffing firm that primarily supplies
manufacturers with production workers reported an
increase in billable hours for the first time in many
months. Wage increases were spread across most
occupation categories. Wage growth remained modest
overall, though the number of contacts reporting increases for production workers continued to climb and a number of manufacturers reported raising their starting wages. In addition, most firms reported higher benefits costs.

Consumer spending rose at a moderate pace over the
reporting period. Growth in non-auto retail sales picked
up to a moderate pace, as holiday sales outpaced expectations. One contact indicated that holiday sales were
the best in many years. Contacts reported gains in the
electronics, appliances, building supply, tourism, and
personal service sectors, but declines in the food and
beverage sector. Growth in e-commerce remained
strong. New light vehicle sales in the District were flat in
spite of generous incentives. Used vehicle sales were
also flat. Dealers expected new light vehicle sales in
2018 to be about the same as in 2017.

Business Spending
Business spending was little changed in late November
and December. Retail contacts indicated that inventories
were generally at comfortable levels. While one auto
dealer noted that, with the pickup in light vehicle sales in
the final months of the year, inventories had finally returned to a comfortable level, another said that its inventory of crossovers was so low that it may not be able to
meet demand in January. Manufacturing inventories
were also generally at comfortable levels, with the exception of steel service centers, where inventories remained below historical norms. Capital spending was
little changed, though contacts expected spending to

Prices
Overall, prices increased slightly in late November and
December. Retail prices were little changed for most
categories, though one large grocery chain reported
slight price declines. A number of contacts indicated that
raw materials prices had risen.

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Federal Reserve Bank of Chicago
grow at a moderate pace over the next 6 to 12 months.
Outlays were primarily for replacing industrial and IT
equipment and for renovating structures. Demand for
residential, commercial, and industrial energy and for
transportation services all increased slightly.

ards, though one contact noted that competition for loans
was strong and that they had lost deals to lenders offering looser terms and lower rates. Consumer loan volume
also increased slightly, led by growth in auto loans.
Consumer loan quality and lending standards were little
changed.

Almost all contacts thought that the Federal tax bill would
have a positive impact on their firms. Most respondents
expected to spread the tax savings across outlays for
capital, labor, debt repayment, and profit distributions to
owners.

Agriculture
Crop and dairy producers faced further belt-tightening at
the start of 2018, while cattle and hog producers were in
relatively better shape, owing to the underlying trends in
prices received. Soybean prices dipped and corn prices
rose over the reporting period, but both remained below
last year’s levels as plentiful stocks kept a lid on prices.
Looking ahead, lower fertilizer costs and slightly lower
farmland rents provided limited improvement to crop
producers’ profit expected margins. Contacts indicated
that challenging conditions had led to more financing
requests from crop producers. Dairy producers also
struggled, and some smaller and less efficient operations
closed down. Cattle, egg, and hog prices moved higher,
to the point that producers could earn profits. ■

Construction and Real Estate
Construction and real estate activity increased slightly
over the reporting period. Residential construction increased modestly and contacts expected growth to pick
up to a moderate pace over the next six to twelve
months. New building was concentrated in the single
family segment in suburban locations. Overall, home
sales remained flat—low inventories in the starter home
segment restrained sales, while sales of higher-end
homes moved up. Home prices rose slightly overall, with
stronger increases in the starter home segment. The
pace of nonresidential construction was little changed,
but contacts expected a slight pickup over the coming
year. Commercial real estate activity increased slightly
from an already strong level, and contacts expected
modest gains going forward. One contact noted that
most lenders are maintaining conservative loan-to-value
ratio requirements. Commercial vacancy rates decreased slightly overall, but more so for office space.
Commercial rents increased a bit.

Manufacturing
Growth in manufacturing production picked up to a moderate rate in late November and December. Steel production increased at a strong pace as imports fell and
service centers struggled to replenish already low inventories in response to solid end-user demand. One steel
producer said demand was the strongest it had been in
10 years. Order books for specialty metals manufacturers increased moderately—growth was spread across a
wide variety of sectors, with particularly strong demand
from the oil and gas sector. Manufacturers of construction materials continued to report slow but steady increases in shipments, in line with the pace of improvement in construction. Auto production was flat.

Banking and Finance
Financial conditions improved slightly over the reporting
period. Financial market participants noted that volatility
continued to be low. Business loan volume increased
slightly, with growth spread across sectors. Contacts
reported little change in loan quality or lending stand-

For more information about District economic conditions visit:
chicagofed.org/cfsbc

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Federal Reserve Bank of

St. Louis
The Beige Book ■ January 2018

Summary of Economic Activity
Reports from contacts indicate that economic conditions have continued to improve at a modest pace since our previous
report. Labor market conditions remain tight, the pace of hiring remains slow, while wage growth has been moderate.
Reports on consumer spending were positive. Residential real estate conditions have improved modestly after a few
months of sluggish home sales. District bankers reported moderate loan growth across most categories. Unseasonably
cold weather has negatively impacted the quality of winter wheat in the District.

wood products prices increased moderately but sawtimber and pulpwood prices were flat or decreased.

Employment and Wages
Anecdotal evidence suggests little change in employment since the previous report. Contacts continued to
report difficulties finding experienced or qualified employees. Construction contacts in Louisville and Little Rock
reported labor shortages, while manufacturing contacts
reported difficulties hiring for both skilled and unskilled
positions. Labor demand in Missouri was particularly
high in healthcare services, leisure and hospitality, retail,
and wholesale trade.

In the energy sector, coal prices were flat. In the agricultural sector, prices generally rose at a moderate pace.
Corn feed, sorghum, and rice prices increased moderately, soybean prices were flat, and wheat and cornmeal
prices decreased slightly. Contacts in Memphis reported
strong increases in cotton prices, and Little Rock contacts reported rapid increases in large egg prices.

Consumer Spending

Contacts reported moderate growth in wages since the
previous report. A contact in Louisville reported increasing starting salaries multiple times a year to attract new
hires, as well as increasing wages to retain skilled employees in information technology. Construction and
manufacturing contacts across the District reported
increasing wages to attract new employees.

Reports from general retailers, auto dealers, and hoteliers indicate consumer spending has grown modestly
since our previous report. November real sales tax collections increased in Arkansas, Kentucky, Missouri, and
Tennessee relative to a year ago. Consumer confidence
continued to increase in West Tennessee, as households indicated their willingness to spend more in the
next few months relative to a year ago. Reports from
auto dealers were mixed: While multiple auto dealers
from Louisville and Little Rock reported improved traffic
and sales, Memphis auto dealers reported that sales
have softened the past two months. Auto dealers
throughout the District hold an optimistic outlook for
2018. Louisville hoteliers continued to report weaker
occupancy rates in the fourth quarter.

Prices
Price pressures have increased moderately since the
previous report. Residential real estate prices rose moderately, with especially strong growth in northwest Arkansas. Construction materials price pressures increased as
well. Steel prices rose moderately throughout the District, and a Louisville contact reported an uptick in construction costs. A contact in Arkansas reported solid

H-1

Federal Reserve Bank of St. Louis
Manufacturing

Banking and Finance

Manufacturing activity has increased modestly since our
previous report. Overall manufacturing activity was
stronger than one month earlier in both Arkansas and
Missouri, although the pace of growth slowed in Missouri. Production increased in both states, but at a slower rate than previously. Several companies in the District
reported new capital expenditure and facility expansion
plans, including firms that manufacture food and beverage products, chemical products, and transportation
equipment. Sales to auto manufacturers, however, were
flat to slightly down, according to contacts that supply the
auto industry. Most manufacturing contacts expect conditions in 2018 to be similar to those in 2017, although a
contact in the plastic products manufacturing industry
expects a decline in business in 2018, citing increased
foreign competition.

Banking conditions in the Eighth District have improved
at a moderate pace since the previous report. District
banking contacts report that outstanding loan volumes
expanded by 7 percent relative to year-ago levels, indicating that loan growth, which had been slowing since
the start of 2017, levelled off in December. Year-overyear growth in residential mortgage lending continued at
4 percent for the second consecutive quarter while commercial real estate lending grew by 9 percent. Commercial and industrial credit growth was also strong as loan
volumes rose by 9 percent compared with 6 percent
nationwide. Lending activity in open-ended home equity
loans declined by 1 percent relative to year-ago levels
and was the only major loan category that experienced
negative growth.

Nonfinancial Services

District agriculture conditions declined moderately from
the previous reporting period. Due to unusually low
temperatures across much of the District, the percentage
of winter wheat rated fair or better fell 4 percentage
points from the middle of November to the end of December; it is now 89 percent. Contacts are concerned
that crop conditions worsened further during the first
week of January, when temperatures plunged.

Agriculture and Natural Resources

Activity in the service sector has expanded modestly
since the previous report. Firms that provide transportation, logistics, and information technology services announced plans to increase employment, open new facilities, and renovate existing facilities. Demand for commercial trucking remains elevated because of Hurricane
Harvey relief efforts, exacerbating a shortage of drivers.
Reports from healthcare firms remain mixed. One major
healthcare employer is cutting employees to improve
operational management, while other healthcare providers began capital expansions.

Natural resource extraction conditions declined slightly
from October to November, with seasonally adjusted
coal production falling 2 percent. November production
was also down by 4 percent from a year ago. ■

Real Estate and Construction
Residential real estate activity has improved moderately
since the previous report. Seasonally adjusted home
sales for November increased sharply from the previous
month across the District’s four major MSAs. Local contacts continued to report shortages in inventory.
Residential construction activity was flat. November
permit activity within District MSAs was unchanged
relative to the previous month. Local contacts continued
to report that a shortage of labor is limiting new construction.
Commercial construction activity improved slightly. November nonresidential construction starts increased
moderately within the District relative to the previous
month while multifamily permits dropped slightly. Little
Rock construction contacts reported healthy levels of
activity that they expect will continue through the first half
of 2018 at least.
For more information about District economic conditions, visit:
www.research.stlouisfed.org/regecon/

H-2

Federal Reserve Bank of

Minneapolis
The Beige Book ■ January 2018

Summary of Economic Activity
Ninth District economic activity increased moderately overall since the last report. Employment declined slightly, but
labor demand remained strong. Wage and price pressures were both moderate. The District economy showed growth in
consumer spending, services, commercial construction, residential real estate, and manufacturing. Residential construction was mixed, energy and mining activity were steady, and agricultural conditions were stable at low levels.

Employment and Wages

Wages rose moderately since the last report. More than
half of the respondents to the Minneapolis Fed’s annual
survey of District manufacturers saw wages rise by more
than 3 percent over the past year, and similar growth
was expected in the coming year. A transportation union
in Minneapolis-St. Paul agreed to a three-year contract
with annual 2.5 percent increases. A transportation
executive in Montana said wages were rising between 2
percent and 3 percent. Contacts in rural areas of the
Dakotas said wage growth was more sluggish. Retailers
in South Dakota reported wage increases of about 3
percent in the past year, with slightly lower increases
expected in the coming year.

Employment declined slightly since the last report, as
seasonally adjusted November employment fell in
Minnesota, Montana, and North Dakota compared with
October. However, labor markets nonetheless appeared
healthy, with labor demand still quite strong and a
notable lack of large layoff announcements. A staffing
agency with offices in Minnesota and Wisconsin noted a
“continued strong uptick in hiring.” Several large
Minnesota employers announced expanded seasonal
hiring during the holidays. A December poll of South
Dakota retailers found that almost half were hiring
despite flat sales compared with a year ago; a similar
share said the labor market was very tight and getting
tighter. According to a state source, Minneapolis-St. Paul
had more job openings than at any time since at least
2001. Limited labor supply also continued to hamper
hiring. “Every business we talk to, they can’t hire enough
workers,” said a western Wisconsin banker. A
transportation company executive said it was failing to
see growth because it can’t find drivers. A manufacturing
firm in southeastern Minnesota said it consistently had
40 openings to fill, and was losing out on available work
because there were “not [enough] people to take the
jobs.” A central Minnesota finance company announced
layoffs of 130 workers, said a local source, and other
“companies were already discussing hiring the potential
labor.”

Prices
Price pressures were moderate since the last report. A
majority of respondents (55 percent) to the Minneapolis
Fed’s annual manufacturing survey reported that prices
charged for their products were unchanged over the past
year, while slightly more than a third reported increases.
For the coming year, 44 percent of manufacturers
surveyed expected to increase their prices, while 57
percent expected the rate of inflation in the broader
economy to increase. Retail fuel prices in District states
as of early January were slightly lower than in the
previous reporting period. Prices received by farmers for
wheat, hay, milk, hogs, cattle, chickens, eggs, and
turkeys increased in November compared with a year
earlier; prices for corn and soybeans decreased.

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Federal Reserve Bank of Minneapolis
Consumer Spending and Tourism

Residential construction was mixed. On the one hand,
single-family permit activity in November rose overall
across the District compared with a year earlier, with
notable growth in Fargo, N.D., Rapid City, S.D.,
Rochester, Minn., and Minneapolis-St. Paul. However,
single-family activity was flat or slightly negative in eight
District metros. On the other hand, the number of
permitted multifamily units fell considerably in November
compared with a year earlier, with only La Crosse, Wis.,
Missoula, Mont., and Sioux Falls, S.D., registering
prominent gains. Limited data (Billings, Mont.,
Minneapolis-St. Paul, and Sioux Falls) suggested a
similarly mixed pattern in December. Residential real
estate sales rose moderately since the last report.
Closed sales in November were up virtually across the
board; only Missoula saw sales decrease in November
compared with a year earlier. However, this performance
follows somewhat volatile, sluggish home sales for much
of the year due to limited inventory of homes for sale.

Consumer spending showed moderate growth since the
last report. Many retailers reported strong holiday sales.
A Minnesota contact said in-state retailers “are mirroring
the country, or doing slightly better.” In contrast, a survey
of South Dakota retailers indicated flat holiday sales
there compared with a year ago. A Minnesota
department store reported strong in-store traffic during
the holidays and a 1 percent increase in same-store
sales in November and December compared with a year
earlier. Retail expansion continued in Minneapolis-St.
Paul. An outdoor equipment retailer reopened the first of
multiple, rebranded stores that were previously closed.
Warehouse retail firms also opened new locations, and a
shopping center unveiled a major renovation, which
included new stores.
Winter tourism reports suggested an uneven start across
the District. Good snowpack was reported across much
of Montana ski country, with reports of early and broader
trail openings than last year. Snow conditions were
spottier in eastern District states, especially in northern
areas used to heavy snow. Bitter cold across much of
the District to end the year also dampened outdoor
activity. However, November hotel occupancy rates rose
in Minnesota, as did revenue per available room. A hotel
waterpark was reopened under new ownership after a
$30 million renovation.

Manufacturing
District manufacturing activity increased since the last
report. Respondents to the Minneapolis Fed’s annual
manufacturing survey indicated growth in orders,
production, investment, and productivity over the past
year, with expectations for more growth in 2018. An
index of manufacturing conditions indicated increased
activity in December compared with a month earlier in
Minnesota and the Dakotas. A producer of wind turbine
blades announced that a plant that was scheduled to
shut down would instead stay open at least through the
end of this year to accommodate new orders. An
electronics manufacturer and a producer of aerial lifts
announced expansions at facilities in Minnesota.

Services
Activity in the professional services industry increased
since the last report. Contacts in the accounting and
financial services sectors reported a year-end rush for
tax planning services in response to new federal tax
legislation. Several new retail technology startups have
opened or relocated to Minneapolis-St. Paul recently. A
commercial bank was expanding its presence in
Minneapolis-St. Paul.

Agriculture, Energy and Natural Resources
District agricultural conditions were stable at low levels.
Recent estimates of farm income for District states were
roughly unchanged from a year ago. Activity in the
energy and mining sectors was steady since the last
report. Oil and gas drilling in North Dakota and Montana
as of late December was unchanged from a month
earlier, though industry contacts indicated oil production
was up slightly. District iron ore mines continued to
operate near full capacity. ■

Construction and Real Estate
Commercial construction was up modestly since the last
report. An industry database showed that nonresidential
construction spending rose in November over a year
earlier, but was considerably lower than the previous
month due to normal seasonal slowdown. Industry
tracking showed that total active projects as of midDecember were moderately higher than the same period
a year earlier. A Minnesota labor construction contact
said average monthly hours among members reached
200 hours, up from an average of 170 hours. The 2018
outlook appeared to be a “continuation of a good 2017
… not huge, but better than average.”

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Federal Reserve Bank of

Kansas City
The Beige Book ■ January 2018

Summary of Economic Activity
Economic activity and employment in the Tenth District increased at a modest pace in late November and December,
and most contacts expected growth in the coming months. Labor shortages were reported by the majority of contacts in
the services sector, while wages rose modestly across most sectors. Retail sales grew sharply since the previous survey, but auto sales, restaurant sales, and tourism activity declined moderately. Overall activity and capital spending
plans within the manufacturing sector rose moderately. Contacts in the transportation and professional and high-tech
sectors noted growth in sales, while wholesale trade firms reported a sharp decline in overall activity. Real estate activity
in the District was mixed as the residential sector declined modestly while commercial real estate activity rose slightly.
Banking contacts reported steady overall loan demand, unchanged loan quality and credit standards, and stable-toincreasing deposit levels. Activity in the District energy sector increased modestly since the last survey period, and
expectations for capital spending, especially in exploration and development, were positive. Low crop prices continued
to weigh on District farm income expectations, and winter wheat production expectations declined further.

Employment and Wages

transportation sector noted moderate growth in both
input and selling prices. Prices in the construction sector
declined modestly for the first time in over two years, but
were expected to rise moderately in the next few
months. Manufacturers reported a slight increase in
prices for finished goods, while raw material costs continued to edge higher. Manufacturers anticipated moderate increases in both finished goods and raw material
prices in the coming months.

Employment across the District rose modestly in late
November and December, and employee hours increased slightly. Respondents in the retail trade, wholesale trade, transportation, professional services, real
estate, health services, manufacturing, and energy sectors noted an increase in both employment and employee hours compared to the previous survey period, while
contacts in the auto sales, restaurant, and tourism sectors reported a decline. Employment was expected to
increase over the next six months in all sectors except
for retail trade which was projected to be flat. Additionally, respondents anticipated an increase in employee
hours in most sectors.

Consumer Spending
Consumer spending activity grew slightly in late November and December, and was expected to increase moderately in the next few months. Retail sales increased
sharply compared to the previous survey period, and
remained well above year-ago levels. Several retailers
noted an increase in sales for lower-priced and discounted items, while higher-priced products sold poorly. Contacts anticipated retail sales to continue to rise, while
inventory levels were expected to decrease moderately
in the coming months. Auto sales fell moderately since
the previous survey but were above year-ago levels.
Dealer contacts anticipated a moderate pickup in sales
in the months ahead, and auto inventories were expected to remain stable. Restaurant sales also declined
moderately in late November and December but were
well above year-ago levels. In addition, restaurant contacts expected a strong pickup in activity heading for-

The majority of respondents in the services sector reported labor shortages, including shortages for commercial drivers, skilled technicians, and service workers.
Wages rose modestly in most sectors, and strong wage
growth was anticipated in the coming months.

Prices
Input prices and selling prices were modestly higher in
most sectors compared to the previous survey period. In
the retail sector, both input and selling prices increased
modestly, but at a slower pace than in the prior survey.
Restaurant contacts reported a slight rise in input prices,
while selling prices rose moderately. Respondents in the

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Federal Reserve Bank of Kansas City
ward. District tourism activity was moderately lower than
the previous survey period and slightly below year-ago
levels. However, tourism contacts expected activity to
increase moderately heading into the winter months.

respondents expected loan quality to remain stable over
the next six months. Credit standards remained largely
unchanged in all major loan categories. Overall, bankers
reported steady-to-increasing deposit levels.

Manufacturing and Other Business Activity

Energy

Manufacturing activity expanded at a moderate pace in
late November and December, while other business
activity was mixed. Manufacturers reported sustained
growth in production, particularly for food, aircraft, and
electronics products. Shipments, new orders, and order
backlogs grew at a modest pace since the previous
survey period, and overall activity was higher than a year
ago. Manufacturers’ capital spending plans rose moderately, and firms’ expectations for future activity remained
favorable.

Energy activity increased modestly since the last survey
period, and expectations remained positive. The number
of active oil and gas rigs rose slightly, particularly in New
Mexico and Wyoming. Respondents expected spending
in all categories to increase in 2018, with the largest
increases for exploration and development capital
spending. Firms also expected slightly positive impacts
in the near term due to tax reform. Abundant supply
continues to weigh on natural gas prices, but several
respondents stated that increasing LNG exports could
help push up prices.

Outside of manufacturing, transportation firms reported
strong sales increases and professional and high-tech
contacts noted moderate sales growth. In contrast, activity among wholesale trade firms declined sharply. However, all firms expected a strong improvement in sales in
the next six months. Professional, high-tech, and transportation firms reported moderate growth in capital
spending plans, while wholesale trade firms anticipated
spending to be relatively flat heading forward.

Agriculture
Farm income expectations remained weak in most of the
Tenth District, but the outlook for agricultural commodities was mixed. Revenues for corn and soybeans are
expected to be slightly lower than last year due to lower
prices and yields. Large inventories continued to weigh
on prices, and District contacts reported lower yields due
to abnormally dry conditions and wind damage. Production expectations for winter wheat declined further since
the last reporting period due to limited precipitation and
extremely cold conditions that could cause freeze damage. Lower production expectations, however, supported
moderately higher prices for winter wheat compared to a
year ago. In the livestock sector, prices were higher than
last year for cattle and hogs due to strong demand.
Despite generally weak agricultural conditions, farmland
values remained stable due to limited land sales. However, some bankers in the District expected more sales and
declining values in the months ahead. ■

Real Estate and Construction
District real estate activity was mixed, with residential
real estate conditions declining modestly and commercial real estate activity increasing slightly. Residential
home sales were well below levels from the previous
survey period and slightly below year-ago levels. Expectations for residential sales were positive in the coming
months due to abating adverse seasonal factors. Sales
of low- and medium-priced homes continued to outpace
sales of higher-priced homes. Residential selling prices
rose slightly, while inventories fell modestly. Residential
construction activity was flat as both new home starts
and construction supply sales remained at similar levels
to the previous survey period. Activity in the commercial
real estate sector increased slightly as sales rose modestly, absorption and construction underway edged
slightly higher, rents and vacancy rates remained flat,
and completions dropped slightly.

Banking
Bankers reported steady overall loan demand during the
period of late November and December. A majority of
respondents indicated a stable demand for commercial
and industrial, commercial real estate, residential real
estate, agricultural loans and consumer installment
loans. Most bankers indicated loan quality was unchanged compared to a year ago. In addition, most

For more information about District economic conditions visit:
www.KansasCityFed.org/Research/RegionalEconomy

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Federal Reserve Bank of

Dallas

The Beige Book ■ January 2018

Summary of Economic Activity
The Eleventh District economy expanded at a robust pace over the past six weeks. A broad-based acceleration in
growth was seen across the manufacturing, retail, nonfinancial services and energy sectors. Home sales continued to
increase over the reporting period, and loan demand grew. Hiring picked up, and wage and price pressures remained
elevated. Outlooks improved, although some uncertainty remained, and numerous contacts were optimistic that tax
reform would provide a tailwind to business growth.

Employment and Wages

Among energy firms, prices received for services continued to rise and were increasing at a much faster clip
than a year ago. Natural gas prices stayed in roughly the
same range as the prior reporting period, while oil prices
rose slightly. Energy executives responding to the Dallas
Fed Energy Survey expect oil prices to be about $59 per
barrel by year-end 2018, on average, and about $66 per
barrel longer term (three to five years).

Overall employment growth picked up from six weeks
ago, and upward wage pressure persisted at slightly
elevated levels. Hiring rose at a markedly faster pace in
manufacturing and retail, and at a somewhat faster pace
in the service sector, led by health, transportation, and
hospitality firms. In the energy sector, hiring slowed
among exploration and production firms in the fourth
quarter 2017 but ramped up notably among services
firms. Labor market tightness continued in most industries and across a wide range of positions, with several
contacts saying difficulty finding workers was constraining growth to some extent. Numerous contacts cited
rising labor costs, with some noting acceleration over the
past couple of months.

Manufacturing
Expansion in the manufacturing sector accelerated further at yearend 2017. Contacts reported stronger growth
in both demand and output, particularly among high tech
and transportation equipment manufacturing. Chemical
production has also been very robust, and contacts
along the border continued to see strong maquiladora
activity. Growth generally moderated among firms closely tied to energy or exports, but a sharp rise in growth in
the rest of the manufacturing sector more than offset that
deceleration. Overall capital spending plans increased
noticeably—half of the 104 firms responding to the December Texas Manufacturing Outlook Survey expect
increased capital expenditures six months from now, the
highest share since 2006. Optimism in firms’ outlooks
picked up notably, with some manufacturers indicating
the tax bill may be a tailwind for manufacturing going

Prices
Pressure on selling prices remained elevated over the
past six weeks, notably so in manufacturing and retail. A
pickup to above-average price growth was noted among
services firms, particularly in finance and transportation,
although airlines continued to report falling ticket prices
due to increased competition. Looking ahead, overall
price expectations increased, with some manufacturers
and retailers specifically noting plans to increase prices
in 2018 in response to higher labor and input costs.

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Federal Reserve Bank of Dallas
forward. However, difficulty hiring remains a headwind,
and uncertainty about NAFTA remains.

Leasing activity in the apartment market was little
changed since the last report, with rent growth in Fort
Worth ahead of other major Texas metros. Office demand stayed solid in Dallas, moderated in Austin, and
remained weak in Houston. The industrial market overall
was characterized as steady to strong.

Retail Sales
Retail sales accelerated slightly over the past six weeks.
The auto industry remained very strong, with a notable
pickup in auto sales after a lull in the prior reporting
period. In general, retail sales growth outpaced sales
growth among wholesalers, and contacts noted a continued increase in internet sales. A clothing retailer said
sales in the oil patch markets have stabilized versus last
year. Along the border, some contacts reported continued weakness in retail. Outlooks among retailers in
general remained quite positive.

Financial Services
Demand for loans increased over the reporting period,
and overall loan volumes rose at a faster pace. Residential real estate loans picked up markedly, with more than
40 percent of bankers surveyed noting an increase in
volumes over the past six weeks. Commercial real estate
loans also increased at an accelerated clip, while commercial and industrial loan growth held steady at a modest pace. Contacts also noted an increase in consumer
loan volumes for the first time since February 2017.
Bankers reported a notable increase in loan pricing and
a tightening in credit standards and terms. Contacts
expressed higher levels of optimism about overall business activity and total loan demand going forward, with
nearly two-thirds of bankers expecting stronger loan
demand six months from now.

Nonfinancial Services
Nonfinancial services activity picked up pace over the
reporting period, ending 2017 with fairly robust growth. A
sharp rise in revenue growth among leisure and hospitality firms was a boon to the service sector, while relatively
slow growth among administrative and support services
firms was a drag. However, staffing services companies
reported broad-based demand growth, particularly in the
manufacturing and health sectors. Contacts in smaller
tourist areas affected by Hurricane Harvey such as
Rockport and Port Aransas reported continued struggles
in rebuilding and retaining business. Cargo volumes
among transportation services firms generally increased.
For rail cargo, petroleum and frac sand shipments were
up over the reporting period, as were shipments of building products, with recent increases driven largely by
hurricane reconstruction. Courier cargo volumes were up
from six weeks ago and year over year. Overall, outlooks
were more optimistic, although uncertainty remained—
particularly surrounding trade negotiations and government regulations. A number of contacts expect the new
tax bill to boost activity in 2018.

Energy
Energy activity was up from six weeks ago, as drilling in
the Permian Basin and Eagle Ford increased and well
completions continued to grow. Demand for oilfield services remained healthy in the Permian Basin, and activity in the Eagle Ford firmed. Some energy contacts noted
an increase in lending and investment deals. Outlooks
for 2018 improved, but remain conservative, with contacts expecting drilling activity, production and employment to grow this year.

Agriculture
The 2017 row crop harvest wrapped up, with generally
favorable crop conditions after a dry spell in November.
Texas cotton production was up notably from 2016 due
to more acres planted and higher yields. Cotton prices
rose over the past six weeks, and contacts expect the
relatively strong prices to prompt a shift of more acres
from grain to cotton this year. Agricultural producers
remained concerned about revenue, as grain prices
continued trending at unprofitable levels. Loan demand
has been decreasing for the last two years while loan
renewals and extensions have increased, according to
the Dallas Fed Agricultural Survey. Uncertainty about
NAFTA is also a headwind for the agriculture sector, as
many producers rely on export markets to move their
production. ■

Construction and Real Estate
Home sales continued to increase over the past six
weeks, with sales remaining strong at low- to mid-price
points. Contacts in Houston noted that sales and traffic
were returning to a normal pace after Hurricane Harvey,
and were flat or slightly ahead of last year. Contacts said
new home sales in Dallas-Fort Worth were somewhat
better than expected. Homebuilders generally did not
report concern about the changes in the mortgage interest and property tax deductions in the new tax bill, but
they did note ongoing pushback from buyers on new
home pricing.

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Federal Reserve Bank of

San Francisco
The Beige Book ■ January 2018

Summary of Economic Activity
Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of midNovember through early January. Overall price inflation edged down. Conditions in the labor market continued to tighten, and upward wage pressures increased. Sales of retail goods picked up noticeably during the holiday season, and
growth in consumer and business services remained strong. Conditions in the manufacturing sector remained solid, and
activity in the agriculture sector improved modestly. Contacts reported that residential real estate market activity remained robust and conditions in the commercial real estate sector were strong. Lending activity grew at a modest pace.

nology sector, prices for cloud services and tablets continued to trend downward due to increased competition
and economies of scale. Prices for potatoes increased
following the end of the fall harvest.

Employment and Wages
Conditions in the labor market continued to tighten, with
wage pressures increasing as contacts noted shortages
of qualified labor in various sectors. Widespread reports
of continued shortages of skilled trade and construction
workers resulted in a notable increase in wage pressures
for those occupations. In Eastern Oregon, shortages of
workers in both agriculture and manufacturing sectors
pushed up wages significantly. Businesses in the banking sector reported an increase in the duration of job
vacancies and continued difficulty finding qualified applicants. Rising labor costs in the District prompted some
businesses to open new operations in cheaper locales.
Contacts across the District noted that planned minimum
wage increases to go into effect in 2018 are likely to
affect their labor costs at all compensation levels.

Retail Trade and Services
Growth in retail sales picked up noticeably over the
reporting period, helped by a solid holiday shopping
season. E-commerce sales continued to outpace sales
at traditional brick-and-mortar retailers. However, contacts noted that foot traffic at large shopping centers was
better than expected during the holiday season. Vehicle
dealers reported strong in-store traffic and sales, as
activity rebounded from the previous months. A contact
noted that online channels continued to disrupt the grocery industry, resulting in overcapacity and soft sales at
brick-and-mortar stores.

Prices

Activity in the consumer and business services sector
continued to grow at a strong pace over the reporting
period. The hotel industry reached peak capacity, having
experienced steady increases in activity throughout the
holiday season. Air travel was robust at the close of the
year, driven by foreign demand. Demand for cloud computing and security software remained strong, supported
by financial and business services sectors. In Hawaii,
tourist spending and hotel revenues saw a notable increase in December. Contacts in Eastern Washington
noted continued expansion of healthcare services in the
region as the industry consolidates around a few large

Overall price inflation ticked down slightly over the reporting period. Contacts reported increasing deflationary
pressures for generic drug prices partly due to a rise in
FDA drug approvals. The elevated dollar continued to
put downward pressure on agricultural commodity prices. Overcapacity in electricity production continued to
restrain price growth over the reporting period. Contacts
in the restaurant industry noted only slight upward price
adjustments. Higher input costs and a strengthening
global trade environment contributed to a moderate
increase in scrap and finished steel prices. In the tech-

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Federal Reserve Bank of San Francisco
service providers. Animal boarding and health service
activity increased as pet owners traveled over the holiday season.

Real Estate and Construction
Activity in real estate markets continued at a strong
pace. Construction activity in the residential market
remained robust, held back only by shortages of land
and labor. High-end home construction grew faster than
that of more-affordable units, due largely to narrowing
profit margins in lower-end markets. Contacts in Oregon
noted that milder and drier weather helped spur an increase in home sales. Low inventory levels and strong
demand pushed up house prices and rents in Eastern
Washington and Idaho. One contact expected that recent changes to the federal tax system could slow mortgage lending. Commercial construction continued at a
strong pace, driven in part by an increase in construction
of warehouse and distribution centers. Contacts in Northern California noted elevated demand for commercial
office space.

Manufacturing
Conditions in the manufacturing sector remained solid.
Contacts in Eastern Washington reported energy usage
by major manufacturers in metals production and aerospace was consistent with a modest growth in output.
Production of steel and manufactured metals picked up
further due in part to a reduction in overseas competition. However, capacity utilization rates in the steel sector ended the year below long-run levels. Semiconductor
production moderated as contacts cited uncertainty over
government policy.

Agriculture and Resource-Related Industries
On balance, activity in the agriculture sector improved
modestly. Demand for organically grown crops remained
strong. Conditions in the swine industry improved over
the previous year. Farm equipment dealers reported
higher-than-anticipated year-end demand based in part
on an improved outlook. Crop yields in Central California
slipped slightly at year-end, driven by the weak performance of certain nuts. The strong dollar continued to
hold back exports of some agricultural commodities,
particularly for wheat exports. Contacts noted minimal
load growth in electricity as efficiency initiatives offset an
increase in demand by customers.

Financial Institutions
Lending activity firmed somewhat over the reporting
period. While loan demand was relatively unchanged in
most of the District, contacts in the Mountain West reported continued strong gains. Contacts in California
reported typical seasonal increases in automotive loans.
Demand for deposits outpaced supply, pushing up deposit rates. Interest margins remained narrow. Contacts
noted that liquidity was still very strong and overall delinquencies remained low. ■

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102