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July 18, 2018

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

July 2018

Federal Reserve Districts




New York


San Francisco
Kansas City

St. Louis



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


First District

New York


Second District



Third District




Fifth District



Sixth District



Seventh District

St. Louis


Eighth District


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
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

How is the information collected?

Fourth District


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.


Ninth District

Kansas City


Tenth District



Eleventh District

San Francisco
Twelfth District


This report was prepared at the Federal Reserve Bank of Boston based
on information collected on or before July 9, 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 ■ July 2018

Overall Economic Activity
Economic activity continued to expand across the United States, with 10 of the 12 Federal Reserve Districts reporting
moderate or modest growth. The outliers were the Dallas District, which reported strong growth driven in part by the
energy sector, and the St. Louis District where growth was described as slight. Manufacturers in all Districts expressed
concern about tariffs and in many Districts reported higher prices and supply disruptions that they attributed to the new
trade policies. All Districts reported that labor markets were tight and many said that the inability to find workers constrained growth. Consumer spending was up in all Districts with particular strength in Dallas and Richmond. Contacts
reported higher input prices and shrinking margins. Six Districts specifically mentioned trucking capacity as an issue
and attributed it to a shortage of commercial drivers. Contacts in several Districts reported slow growth in existing home
sales but were not overly concerned about rising interest rates. Commercial real estate was largely unchanged.

Employment and Wages
Employment continued to rise at a modest to moderate pace in most Districts. Labor markets were described as tight,
with most Districts reporting firms had difficulty finding qualified labor. Shortages were cited across a wide range of
occupations, including highly skilled engineers, specialized construction and manufacturing workers, IT professionals,
and truck drivers; some Districts indicated labor shortages were constraining growth. Districts noted firms were adding
work hours, strengthening retention efforts, partnering with local schools, and converting temporary workers to permanent, as well as raising compensation to attract and retain employees. On balance, wage increases were modest to
moderate, with some differences across sectors; a couple of Districts cited a pickup in the pace of wage growth.

Prices increased in all Districts at a pace that was modest to moderate on average; reports showed upticks in inflation
in several Districts. The prices of key inputs rose further, including fuel, construction materials, freight, and metals; a
few Districts described these input price pressures as elevated or strong. Tariffs contributed to the increases for metals
and lumber. However, the extent of pass-through from input to consumer prices remained slight to moderate. Movements in agricultural commodities prices were mixed across products and Districts. Pricing pressures are expected to
intensify further moving forward in some Districts, while in others the outlook is for stable price increases at a modest to
moderate pace.

Highlights by Federal Reserve District

New York

Business activity continued to expand at a moderate
pace, with contacted manufacturers, retailers, hotels,
and software and IT firms reporting year-over-year increases in revenues. Some contacts saw higher prices
and lower margins. Contacts reported difficulty hiring in
skilled occupations.

The regional economy continued to expand at a moderate pace, and labor markets have remained tight. Input
price increases have remained fairly widespread, and
selling prices continued to increase moderately. Housing markets have continued to firm, on balance, while
commercial real estate markets have softened a bit.


National Summary

St. Louis

Economic activity continued to expand at a modest pace.
With tightening labor markets, job growth also remained
modest, but wages are now rising moderately. On balance, contacts continued to observe modest price increases with few concerns for future inflation. Notably,
nonresidential construction activity has begun to decline
from its prior high levels.

Economic conditions improved slightly. Labor market
conditions remained tight and wage growth was modest.
Local contacts reported robust increases in shipping
costs across all sectors due to higher fuel prices and
driver shortages. Businesses’ reports on the impact of
tariffs have varied by industry.


Economic activity in the Ninth District grew moderately,
led by strong growth in manufacturing. Hiring demand
remained strong, but workers were harder to find. Wages
grew moderately with some signs of stronger growth
among union wages. Professional services firms saw
growth across the board, and lodging demand appeared
robust heading into the summer tourism season.


The District economy grew moderately. Labor markets
tightened, with wage pressures noted broadly. Rising
fuel and metals costs are pressuring manufacturers,
construction firms, and transportation companies.
Stronger confidence in the economy boosted demand in
nonfinancial services and the retail sector. Construction
activity remained strong.

Kansas City


Economic activity expanded moderately since the previous survey, and growth was expected to continue in the
months ahead. Most sectors expanded, including a slight
pickup in energy activity, modestly higher consumer
spending and business services, moderately stronger
real estate activity, and continued robust gains in the
manufacturing sector. Capital spending plans across the
District were positive.

The regional economy grew at a moderate rate. Manufacturing and retail sales strengthened, but firms in both
sectors faced transportation constraints and rising input
costs. Trucking firms saw record demand, which was
partially unmet due to the driver shortage. Port activity
remained strong. Labor demand increased moderately,
and some firms reported shortages. Price growth accelerated slightly but remained moderate, overall.



Economic activity continued to grow at a solid pace.
Manufacturing output rose, and broad-based expansion
in the services and energy sectors continued. Retail
spending rose while drought conditions became more
widespread. Hiring remained solid despite a tight labor
market, and wage and price pressures stayed elevated.
Expectations regarding future business activity were
optimistic, although uncertainty arising from U.S. trade
policy weighed on outlooks.

Economic activity modestly expanded since the previous
report. The labor market remained tight. Reports of wage
growth were mixed. Some commodity input prices continued to increase. Consumer spending improved since
the last report. Nonresidential construction increased;
however, multifamily construction showed signs of slowing. Manufacturing activity grew.

Growth in economic activity slowed to a modest pace.
Manufacturing production increased moderately, while
employment, consumer spending, business spending,
and construction and real estate activity grew modestly.
Wages and prices increased modestly, and financial
conditions improved modestly. The outlook for agriculture income dimmed some.

San Francisco
Economic activity in the Twelfth District continued to
expand at a moderate pace. Conditions in the labor
market remained tight, and price inflation increased
moderately. Sales of retail goods picked up slightly, and
activity in the consumer and business services sectors
edged down. Activity in the manufacturing sector and in
residential and commercial real estate markets was
solid. Lending activity ticked up moderately.


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
First District economic activity continued to expand at a moderate pace, with nearly all responding retailers, manufacturers, hospitality providers, and software and IT firms citing year-over-year increases in sales and revenues in recent
weeks. Residential real estate markets saw price increases but fewer closed sales although contacts reported higher
listings and expected higher sales in the future. Commercial real estate markets were generally expanding, although
growth in retail was mixed. Hotels reported slower growth which they attributed to the expansion of on-line short term
rentals. Contacts across a range of industries said trucking capacity continued to be a major issue. Overall, the outlook
continued to be positive. Contacts expressed concerns about tariffs but none cited trade issues as affecting demand or
hiring and capital expenditure plans.

10 percent year-over-year. One firm noted that higher
freight costs contributed to higher overhead costs and
that a shortage of workers led to a 10 percent increase in
labor costs compared to a year ago. Despite these higher operating costs, the retail outlook for the rest of the
year remains positive, provided that consumer sentiment
does not abate.

Employment and Wages
Many responding firms have done some hiring; most
reported tight labor markets and modest increases in
pay. Retail contacts reported that labor supply was tight
and one contact said labor costs were up 10 percent
over the previous year. All surveyed manufacturers were
hiring or maintaining current levels of employment. Manufacturing contacts said the labor market was tight, but
the exceptional difficulties were mostly in highly skilled
areas like engineering. Labor shortages continued to be
an issue in the hospitality industry, particularly in seasonal destinations like Cape Cod. Contacts in the software
and information technology areas expressed concerns
about restrictive immigration policies.

Two travel industry sources reported that business was
either flat or slightly down in late May, but appeared to
have rebounded strongly in June. Both contacts reported
that traditional lodging providers, such as hotels and bed
-and-breakfast establishments, were encountering increased competition from online platforms offering shortterm rentals. This shift in consumer preferences was
expected to continue. Labor shortages continued to be a
concern, and in places like the Outer Cape, the average
hourly wage for some low-skilled hospitality workers was
reportedly about $20 per hour. Through May, domestic
travel to Boston is up 8.1 percent year-over-year, while
international travel is up 7.1 percent year-over-year. The
outlook is positive, but there was some concern that
escalating trade tensions could put a damper on international tourism to the United States.

Most respondents reported modest increases in prices.
Although contacts were concerned about the effect of
tariffs, none of our contacts reported any material impact
so far. Higher freight costs continued to be an issue
across a wide array of industries, with the shortage of
commercial truck drivers being cited as an important
factor. Several manufacturing contacts said that they
were only able to pass through a portion of the higher
costs to customers. As a result, margins were declining.
House prices continued to rise throughout the region.

Manufacturing and Related Services
Of nine firms we contacted this cycle, all but one reported higher sales. The one exception was a toy manufacturer and our contact said that the weakness was expected and attributable to the closure of a major toy

Retail and Tourism
The retailers consulted for this round reported recent
comparable-store sales gains ranging from 3 percent to


Federal Reserve Bank of Boston
retailer. While several contacts expressed concern about
the effect of the trade war on sales, none reported any
sales declines as a result. Four of our contacts said that
costs were rising faster than sales revenue. Rising costs
were attributed to raw material prices and a lack of trucking capacity. One contact in the container industry said
that they had planned to increase output and hire additional workers but had not because of delays in the
delivery of new capital equipment.

Residential Real Estate
Entering the summer, the residential real estate market
in the First District continued to display a sellers’ market
environment, highlighting high demand and increasing
prices. Closed sales were down in all reporting areas but
pending sales increased. Contacts cited insufficient
inventory as the reason for the drop in sales but remained optimistic about the outlook on the heels of
strong buyer demand and increasing new listings. A
representative from Rhode Island noted that
“Competition is fierce and buyers are finding themselves
in a race to the finish line. Inventory is so tight that properties are being sold as soon as they go on the market,
often in multiple bid situations.” Median sales price increased in all areas but Vermont. Contacts expressed
concerns about the rapid price appreciation as many
potential buyers were priced out of the market. Contacts
said that borrowers, despite high prices and changes to
the tax code, were still willing and able to finance purchases.■

Software and Information Technology Services
Software and IT contacts in the First District continued to
see activity expanding steadily. Revenue was up 3 percent to 10 percent year-over-year in the first half of the
year. Several noted increases in margins, despite some
seasonal sluggishness in demand. Contacts attributed
growth in margins to internal productivity improvements.
Firms across the sector expressed concern about acquiring and retaining talent in the tech industry. Further,
contacts unanimously expressed anxiety about shocks to
the broader economy, such as the potential for changes
in trade, tariffs, immigration, war, and the stock market.
Firms do not expect changes in headcounts or wages in
the short-run, but some noted upcoming and potential
capital investments. Overall, contacts felt positive about
their progress thus far and optimistic about the rest of
the year.

Commercial Real Estate
Commercial real estate market conditions were described as stable or improving in recent weeks. Although
mixed across locations and property types, activity levels
on balance were moderate to robust. Boston area contacts described the city’s office market as strong by
historical standards, with low and falling vacancy rates,
robust rents that increased slightly, and record-high
sales prices for select buildings. Industrial leasing activity
in the Boston area was seen as stable, although one
contact reported that sales demand for warehouse space
near Boston surged on the expectation of rising tenant
demand. In Providence office leasing activity was steady
at a moderate pace amid falling vacancy rates and rising
rents, but industrial leasing activity was hampered by
that market’s 1 percent vacancy rate. Construction activity across multiple property types maintained a strong
pace in Boston and Providence, and increased further in
the Portland area, but remained scant in the Hartford
area. Contacts expect stable or improving commercial
real estate activity moving forward, although most cited
downside risks, such as rising interest rates, trade wars,
and local labor shortages.
For more information about District economic conditions visit:


Federal Reserve Bank of

New York
The Beige Book ■ July 2018

Summary of Economic Activity
Economic activity in the Second District has continued to expand at a moderate pace since the last report. The labor
market has remained tight, while wage growth has mostly stayed steady. Input price increases have remained fairly
widespread, and consumer price inflation continued to run a bit higher than earlier this year. Activity in the manufacturing and distribution industries grew at a fairly brisk pace, while growth in most service industries has been more subdued. Consumer spending has been steady to up slightly in recent weeks, with tourism remaining fairly robust. Housing
markets have been somewhat stronger, on balance, while commercial real estate markets have generally softened.
Finally, banks reported continued growth in loan demand and little change in delinquency rates.

gains were reported in retail & wholesale trade and
leisure & hospitality.

Employment and Wages
The labor market has remained tight across the District.
Businesses reported particular trouble filling senior positions and finding technically skilled workers, especially in
IT. One business contact observed that almost all jobseekers are already employed. A New York City employment agency noted that clients have had difficulty adjusting to a city law prohibiting prospective employers from
asking about salary history or using it as a guide to
compensating new hires.

Businesses reported ongoing widespread hikes in input
prices. The most widespread increases were in retail &
wholesale trade, education & health, and real estate.
Manufacturers and leisure & hospitality firms noted some
diminution in input price pressures since the prior report.
Contacts in almost all sectors anticipated further increases in the months ahead.

Hiring activity has been steady overall but mixed by
industry. Business contacts in manufacturing, wholesale,
retail, and finance reported a pickup in hiring activity,
while those engaged in information and professional &
business services noted some pullback in hiring. Contacts in the transportation industry noted further shrinkage in their workforce. Separately, a payroll service firm
observed that job growth at small businesses has slowed
somewhat recently. A major utility firm remarked that
devoting more resources to vocational training and building relationships with local high schools and colleges,
has made it easier for them to fill job openings.

As for selling prices, wholesalers continued to report
widespread price hikes, and businesses in leisure &
hospitality and real estate noted some acceleration.
Prices for Broadway theater tickets rose fairly sharply in
June and were up nearly 15 percent from a year earlier.
Retail contacts noted somewhat less discounting than a
year ago, resulting in a modest hike in effective selling
prices. Similarly, auto dealers reported some increase in
average used car prices and fewer incentive offers on
new vehicles. Businesses in other industries reported
that prices were mostly stable. Looking ahead, a sizable
share of firms in leisure & hospitality, wholesale trade,
and real estate said they anticipate price hikes.

Wage growth has generally remained steady overall but
somewhat more brisk than last year. Wages were reported to be flat in the education & health and transportation
sectors but rising in other sectors. The most widespread

Consumer Spending
Retail sales were steady to up slightly in May and June


Federal Reserve Bank of New York
ries driving up prices and producing many bidding wars.
One exception to this trend has been the Manhattan coop and condo market, where inventories have risen,
sales activity has receded, and prices have been flat to
modestly lower—partly attributed to some drop-off in
investor purchases and foreign buyers. In and around
New York City, the high end of the sales market continues to lag. One industry contact surmised that more
limited deductibility of homeowner costs under the new
tax law has been a factor in restraining demand.

running roughly on plan. A major retail chain noted that
sales were on plan and up modestly from a year earlier,
with New York City stores continuing to post relatively
strong results, in good part driven by tourism.
New vehicle sales in upstate New York were soft in May
and June, continuing to run short of year-earlier levels.
Sales of used cars have been more robust and continued to rise modestly. Vehicle inventories remained at or
above desired levels. Dealers indicated that retail and
wholesale credit conditions remained in good shape.

The apartment rental market has been mixed. Effective
rents are flat to down modestly across New York City,
though demand for larger rental apartments has picked
up recently—reportedly reflecting both rent reductions
and a shift away from homeownership. In northern New
Jersey, upstate New York, and the suburbs around New
York City, however, demand has been robust and rents
have continued to trend up moderately.

Consumer confidence in the Middle Atlantic states (NY,
NJ, PA) edged up to a cyclical high in June, led by an
historically positive assessment of the job market.

Manufacturing and Distribution
Both manufacturers and wholesale distributors indicated
that activity continued to expand at a brisk pace since
the last report. Transportation firms reported more subdued growth. Regarding the near-term business outlook,
contacts in the wholesale and transportation sectors
continued to express widespread optimism. Manufacturers remained optimistic, on balance, but have become
less so than earlier in the year. A number of manufacturing contacts remarked that tariffs have raised their costs.
Moreover, uncertainty about future trade policy was cited
as a major concern, particularly in parts of upstate New
York, where there is substantial trade with Canada.

Commercial real estate markets have been steady to
softer. Office availability rates were steady to up slightly,
and asking rents continued to drift down across downstate New York, though they have risen modestly across
northern New Jersey and upstate New York. The market
for retail space continued to slacken, except in upstate
New York, where vacancy rates were steady and rents
were up moderately from a year ago. The industrial
market continued to strengthen in northern New Jersey
but has stabilized elsewhere across the District.

Service-sector firms continued to report minimal to modest growth in activity. Contacts in professional & business services, education & health, and leisure & hospitality indicated modest growth, while those in the information industry continued to report flat activity. Looking
ahead, leisure & hospitality businesses remained glum
about near-term prospects, but contacts in the other
service industries expressed fairly broad optimism.

New multi-family construction starts have been steady to
somewhat weaker. Office construction has picked up
slightly across upstate New York but has remained moribund across the rest of the District. New industrial development has slowed as well. While new construction—
both residential and commercial—has been sluggish,
ongoing construction activity has remained strong.

Tourism has been fairly robust in recent weeks. New
York City hotels reported a moderate pickup in both
occupancy rates and revenues. Similarly, Broadway
theaters reported a modest pickup in attendance and a
marked pickup in revenues, which were up roughly 16
percent from a year earlier in May and June.

Small to medium-sized banks in the District reported
increased demand for consumer loans, residential mortgages, and commercial mortgages, but no change in
demand for C&I loans and refinancing activity. Bankers
reported tightening credit standards for commercial loans
and mortgages. Banks noted an increase in the average
deposit rate and narrowing loan spreads across all categories. Finally, banks reported lower delinquency rates
for C&I loans but no change in delinquencies across all
other loan categories. ■

Banking and Finance

Real Estate and Construction
Housing markets across the District have been mixed
but, on balance, somewhat stronger since the last report.
Across much of the District, a limited supply of homes on
the market has restrained sales activity and boosted
prices. The market in the Buffalo metro area has been
particularly robust, with strong demand and lean invento-

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ July 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. Employment also continued at a modest pace; but with hiring constrained by a tightening labor market, wage
increases have become more widespread and accelerated to a moderate pace. Despite rising labor costs, most contacts are not yet concerned that inflation will exceed its current modest pace. While manufacturing activity and nonfinancial services maintained a moderate pace of growth, most retail sectors continued at a modest pace, at best. Meanwhile, the construction and real estate sectors tended to be flat or declining. In particular, nonresidential construction
activity has begun to decline from its previously high levels and represented the only sector with a significant shift in
activity this period. The growth outlook over the next six months remained positive, with over half of all firms anticipating
increases in general activity.

Employment and Wages

-third reported increases for prices paid, and about onethird reported increases for prices received – somewhat
higher than in the prior period. Reports of price increases
remained widespread among manufacturing firms this
period, with half noting higher prices paid and one-third
indicating higher prices received for their own goods.
Banking contacts expressed little concern over the path
of inflation.

Employment continued to grow at a modest pace during
the current Beige Book period. Manufacturing and nonmanufacturing firms reported ongoing net additions to
staff; moreover, hiring has broadened among nonmanufacturers since last period. Average hours worked rose
over the period for manufacturing firms and nonmanufacturers.

One service firm noted that it had been slowly raising
wages and was now starting to push prices up to meet
the added expense. However, one homebuilder reported
no ability to raise prices despite facing rising costs for
many building materials.

Staffing firms reported ongoing demand for workers, but
a scarcity of candidates, plus difficulty hiring and retaining employees. As the job market tightens, wages have
risen, and employers have converted more full-time
temporary workers to permanent employees than is
normal. However, according to one contact, many temp
orders continued to be for part-time work.

Looking ahead six months, manufacturing firms continued to anticipate higher prices, with two-thirds expecting
increases in prices paid and over half expecting increases in prices received for their own goods.

On balance, wage growth appears to have accelerated
to a moderate pace and was more widespread. Over half
of the nonmanufacturing contacts reported increases in
wage and benefit costs. Several banking contacts also
noted rising wages, especially for lower-wage jobs.

Manufacturing activity maintained a moderate pace of
growth. About 40 percent of the firms reported an increase in shipments and new orders; however, this
percentage was closer to 50 percent for new orders
during the prior period.

According to most contacts, price increases remained
modest. Among nonmanufacturing firms, a little over one


Federal Reserve Bank of Philadelphia
The makers of chemical products, paper products, fabricated metal products, and electronic equipment tended
to note gains in new orders and shipments; the makers
of lumber products, primary metals, and industrial machinery reported mixed results. One machinery manufacturer noted that the effects of the steel tariffs have been
chaotic to its supply chain – disrupting planned orders,
increasing prices, and prompting some panic buying.

became more widespread, with over two-thirds of the
firms anticipating increased activity.

Financial Services
Financial firms reported modest growth in overall loan
volumes (excluding credit cards) – a somewhat faster
pace than last period. Volumes grew moderately in mortgages and in commercial and industrial lending and grew
slightly in commercial real estate lending. However,
these gains were offset by slight declines in home equity
lines, auto loans, and in other consumer loans (not elsewhere classified). Compared with one year earlier, loans
grew modestly, and in all categories except for home
equity lines.

On balance, manufacturing contacts continued to expect
general activity to increase over the next six months; the
percentage of firms expecting future increases remained
just below 50 percent. About 40 percent of the firms
expected increases in future employment and future
capital expenditures, which represented an improved
outlook for capital expenditures since the prior period,
but a lower expectation for employment.

During the current period, credit card lending grew at a
moderate pace – slow by comparison to the same period
last year for this highly seasonal measure. Over the
year, credit card lending has grown modestly.

Consumer Spending
Contacts for nonauto retail sales continued to report
modest sales growth in May and June – aided by favorable weather and steady gas prices. Retailers were generally more optimistic than in recent periods due in part
to the corporate tax rate reduction; operators of brickand-mortar stores were further cheered by the recent
Supreme Court decision to allow states to tax online

Banking contacts continued to note competitive pressure
to raise deposit rates but flagged few concerns about
credit standards and no issues with credit quality. Bankers remained generally confident about future economic

Real Estate and Construction
Homebuilders reported no change in sales and construction activity. In most major Third District markets, sales of
existing homes continued to be down moderately compared with the same period last year. According to brokers, inventories remain at very low levels throughout the

Auto dealers in New Jersey and Pennsylvania reported
year-over-year sales that were flat to up slightly in May
and June. Year-to-date sales appear to be holding even
with 2017’s high levels. However, dealers noted greater
downside risk than normal for the second half of this
year, including disruptions from tariffs, volatile markets,
and rising interest rates.

Overall, nonresidential real estate contacts reported no
change in the modest growth in leasing activity. However, as several major projects reach or near completion in
Philadelphia, there has been a slow and steady decline
in labor hours from previously high levels of construction
activity. ■

Tourism contacts continued to report modest growth
overall. As temperatures climbed past 100 degrees in
Philadelphia, expectations rose that more city residents
would escape to the shore and the mountains in July and
August. Atlantic City’s casino revenues fell on a yearover-year basis in May, yet two large casinos reopened
in late June.

Nonfinancial Services
On balance, service-sector firms continued to report
moderate growth in general activity. Nearly half of the
firms contacted reported increases in sales and new
orders. One large firm reported that growth has been
better than it was in 2017 – which had been stagnant –
and the firm continues to see no problems with payment
collections from its clients. Expectations of future growth

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
Business activity in the Fourth District grew moderately during the survey period. Demand was strong in many sectors,
but hiring continued at about the same pace as in the previous survey period as a dearth of qualified workers constrained hiring. Wages rose moderately, and increases were in line with recent trends. Upward pressure on input costs
was strong, notably for fuel and metals. Contacts widely attributed the cost increases to import tariffs. However, final
selling prices rose only moderately. Firms raised their prices to cover, at least partially, their increased raw materials
and transportation costs. Otherwise, businesses were cautious about raising their selling prices. Consumer demand,
including for autos, was stable to slightly higher. Manufacturing capacity utilization rose to meet strong demand, but a
number of producers remarked that they were struggling to keep up with orders. Freight volumes trended higher. Construction activity remained strong.

Employment and Wages

cially for fuel and metals. Manufacturers and builders
commented widely that import tariffs were lifting steel
and aluminum prices. In some cases, manufacturers
noted a rush to purchase metals in anticipation of additional price increases. To a lesser extent, construction
contacts also noted lumber price increases. Aside from
the manufacturing, construction, and transportation
sectors, contacts noted moderate cost increases that
were consistent with recent trends. Retailers pointed out
that prices for cotton and raw food ingredients rose for
their suppliers. Final selling prices rose moderately, with
little change compared with those of the previous survey
period. Overall, firms managed to raise their prices to
compensate, at least partially, for rising raw materials
and transportation costs. Aside from that, firms either
held their prices or cautiously nudged them higher.

District businesses added workers at a pace that was
moderate and similar to that of the previous survey
period. Most firms reported strong customer demand and
optimism about the economy’s near-term prospects as
supporting their hiring decisions. Very few firms reduced
headcount, and a sizable share reported creating new
positions. Hiring was strongest among construction firms
thanks to high project volumes. Also, strong demand for
technology services enabled professional services to
add workers at a healthy clip. Contacts reported the
dearth of qualified workers constrained hiring across an
array of occupations. The problem was most often highlighted by manufacturing, construction, and transportation companies. One steel contact noted the company
had significantly increased overtime hours to cope with
the worker challenge. A nonresidential builder noticed
that worker turnover was somewhat higher than normal.
Despite tightness in the overall job market, wage pressures remained consistent with recent trends in the
District. In general, employers raised wages moderately
as part of cost-of-living increases or annual merit raises
or to fulfill union contracts.

Consumer Spending
Retail demand improved moderately, extending a streak
that started in the final months of 2017. In addition to a
seasonal boost, food retailers and clothing retailers
noted that continued strong consumer confidence lifted
sales. A few contacts noted slight improvement in sales
of discretionary items and higher quality products. Retail
sales in the Fourth District were reported to be mostly in
line with activity in the rest of the country. Inventories

Upward pressure on input costs remained strong, espe-


Federal Reserve Bank of Cleveland
and profits were stable.

constraints. Capital investment plans were mostly unchanged, although one commercial builder stated that
the firm boosted spending to use drones for surveying to
make up for the shortage of workers. Most contacts
expected the current momentum in customer demand to
continue in the near term. However, there was some
concern that demand from industrial clients could weaken depending on the course taken by trade disputes.

Auto demand and vehicle financing conditions held
steady. One auto dealer noted that leasing activity had
weakened as manufacturers reduced their support. All
contacts reported that sales of passenger vehicles
lagged those of crossovers, SUVs, and trucks. One
contact speculated that the market share for such vehicles would increase because of increased vehicle fuel
economy, older customers’ need for comfort, and a
younger generation of customers starting families. Expectations for vehicle sales in the near-term were mixed.
One dealer was concerned that price increases and
higher interest rates could sap demand. Another dealer
was optimistic that activity in the energy industry could lift
sales in the region.

Financial Services
Most banking contacts reported that steady economic
growth had kept loan demand stable. Deposits fell during
the last two months because of seasonal changes following the tax-filing season. Some bankers noted that
strong revenue growth combined with higher borrowing
costs drove some customers to fund capital expenditures
and expansions with cash rather than with credit. Most
contacts reported that delinquency rates remained
steady, although rising interest rates were cited as a risk
to the outlook.

The strong manufacturing demand seen earlier in the
year showed no signs of letting up in the current survey
period. Contacts mostly attributed the momentum to
strong US economic growth that broadly supported
demand in end markets. One pump and motor manufacturer noted increased demand from customers in primary
metals manufacturing and extractive industries. An industrial metals producer cited strong demand from the
construction sector. Some manufacturers noted that
capacity utilization had risen to meet demand and that a
few contacts mentioned they struggled to keep up with
orders. Contacts remarked that concerns about future
trade- and inflation-related price increases had prompted
some customers to accelerate purchases. Most manufacturers expected that continued economic growth
would lead to stronger customer demand in the near
term. However, one auto-related manufacturer expected
import tariffs to lead to weaker sales because of the

Nonfinancial Services
Nonfinancial services firms reported strong demand
thanks to generally favorable economic conditions. Business advisory firms and software developers reported
strong activity. In addition to tax savings and ongoing
strong confidence, contacts remarked that their services
were in demand because businesses were modernizing
their IT infrastructures and attempting to understand the
implications of worker scarcities. Capital investments
held steady, although one financial consultant remarked
that Chinese capital controls had caused an expected
investment to fall through. Transportation firms reported
continued increases in freight volumes. Railroad contacts attributed some of their volume growth to ongoing
capacity constraints in the trucking industry. One trucking contact noted an increase in demand for home deliveries. ■

consequent increase in prices.

Real Estate and Construction
Demand for new homes grew modestly in the current
survey period. Homebuilders noted that rising interest
rates and concern about rising materials prices motivated some customers to move their purchases forward.
Contacts widely expected stable demand in the coming
quarter. Real estate agents noted demand for Section 8
vouchers was stable. However, reports of first-time buyers’ home demand were mixed. Sales of houses priced
below $400,000 and those priced between $600,000 and
$800,000 strengthened, according to some contacts.
Financing conditions for homebuyers were mostly stable.

For more information about District economic conditions visit:

Nonresidential builders noted that the strong demand of
recent periods continued in the current period and that
backlogs ticked higher as firms struggled with labor


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
Since the previous Beige Book, the Fifth District economy has continued to expand at a moderate pace. Manufacturing
activity remained strong although firms reported rising input prices and shipping delays. Trucking firms experienced
robust growth and struggled to find drivers and keep up with demand. The volume of goods moving through District ports
remained high. Travel and tourism were strong in recent weeks; however, some businesses were unable to provide
services due to labor shortages. Retail and auto sales strengthened but firms continued to report concerns over increasing shipping delays and costs. Residential real estate activity increased modestly, and existing home sales continued to
be restrained by low inventory levels. Commercial real estate improved modestly as demand picked up for industrial and
restaurant leasing but slowed for retail space. Bank lending increased modestly, overall, especially for commercial loans.
Nonfinancial services firms reported a moderate increase in demand. Hiring increased at a moderate rate as the job
market remained tight. Price growth accelerated slightly but remained moderate, overall.

Employment and Wages

and thermal coal prices picked up in recent weeks, as
did crude oil prices.

Labor demand strengthened moderately in recent
weeks, and employment agencies reported growth in
new job openings across all the industry segments they
service. Employers continued to report tight labor markets, while candidates increasingly receive multiple jobs
offers. Firms reported difficulty filling positions for mechanics, construction workers, engineers, commercial
lenders, treasury and risk managers, accountants, IT
personnel, hospitality workers, and skilled trade positions. While wage increases remained modest across
sectors, reports suggested that wage pressures increased further.

Manufacturing remained fairly strong. However, several
manufacturers reported that while sales increased, profits dipped as price increases could not offset the rising
costs of materials and transportation. Manufacturers also
expressed concern about the potential adverse effects of
rising trade tensions. For example, a District foam manufacturer reported growth in business but growing costs of
raw materials resulting from tariffs. Additionally, a Maryland can manufacturer said he could not get the quality
of steel needed domestically and anticipated losing
business to foreign competitors who are not faced with
steel tariffs.

Price growth accelerated slightly in recent weeks but
remained moderate, overall. According to our most
recent surveys, manufacturers’ input prices increased
sharply. In particular, prices for raw materials such as
steel, aluminum, polyester, wool, acrylic, lumber, and
caustic soda were on the rise. Manufacturers selling
prices rose moderately, overall; however, several firms
mentioned being unable to pass higher input costs
through to consumers. On the whole, service sector
firms indicated a moderate increase in prices paid that
slightly outpaced growth of selling prices. Metallurgical

Ports and Transportation
Port activity was strong and continued to grow in recent
weeks. While export volumes fluctuated, imports continued to increase throughout the District, with ports seeing
robust year-over-year growth. An executive from one
port reported cutting back on volumes to allow for easier
flow during the port’s expansion. One port saw growth in
auto exports as demand for used cars increased in oilrich countries. In recent months, a District airport quadrupled the number of weekly flights to Europe to accommo-


Federal Reserve Bank of Richmond
date demand for cargo transportation. In addition, its
domestic business continued to grow, owing largely to
increasing e-commerce shipments.

were not enough workers and available lots to keep up
with the increased demand.
Commercial real estate leasing and sales rose modestly
in recent weeks. District brokers reported increased
demand for industrial space and a pickup in restaurant
leasing, while retail activity slowed slightly. New commercial office construction was soft, despite reports of some
build-to-suit projects. Agents said that office and retail
landlords were offering fewer incentives and concessions had tightened. Vacancy rates remained low across
sub-markets, and a few brokers noted a lack of available
product. Commercial rental rates were generally reportedly as stable to increasing modestly. Multifamily leasing
remained healthy, overall.

Trucking firms continued to see strong growth and record-setting months. A Virginia freight hauler increased
its fleet while other companies around the District said
they would expand more if they could hire more drivers.
Meanwhile, a North Carolina company built new distribution centers to increase capacity. As trucking firms again
struggled to meet demand, they were able to increase
rates. Demand remained strong for nearly every type of
cargo, although a company in North Carolina reported
particularly strong growth in retail goods.

Retail, Travel, and Tourism

Banking and Finance

Tourism remained robust in the District since our last
report. National parks saw large increases in the number
of visitors, and some restaurants experienced record
business. Rental properties in North Carolina began to
offer shorter stays in order to compete with other shortterm rentals. Meanwhile, a few North Carolina hotels
reported that occupancy rates remained high despite an
unprecedented supply of rooms as more hotels opened.
Several firms struggled to find employees; a Virginia
resort was unable to open pools for the summer because of a lack of lifeguards, and a large hotel reservation center in South Carolina closed because of a labor

On the whole, loan volumes increased modestly since
our previous report. Residential mortgage demand grew
at a modest pace; however, the low inventory of homes
for sale continued to restrain mortgage loan growth. A
banker in Virginia stated that business was particularly
strong for new home construction and home equity lines
to fund remodeling and refurbishing of existing homes.
Commercial lending activity rose moderately in recent
weeks. Loan growth was broadly based as bankers
noted increased demand for agriculture, commercial,
industrial, small business, commercial real estate development, and multifamily construction loans. Deposits
rose moderately, on balance. Bankers said that competition for deposits had strengthened considerably and that
interest rates moved higher. Credit quality remained
strong while credit standards were generally unchanged.

District retailers experienced strong sales in recent
weeks. A Virginia auto dealer reported a noticeable
uptick in business, and a North Carolina auto dealer
attributed high sales growth to manufacturer incentives.
A Maryland hardware store saw growing business, even
as competition increased, and worked to improve its
online presence with more sophisticated pricing technology. A West Virginia material handling equipment retailer reported that strong demand for goods was leading to
shrinking inventory, a concern echoed by retailers
around the District. Retailers also expressed concerns
over trucking shortages, which are causing long lead
times and higher shipping expenses.

Nonfinancial Services
Since our previous report, the demand for nonfinancial
services increased moderately, on balance. Specifically,
demand picked up for telecommunication, administrative
and support, technology, education, health, and legal
services. A law firm said that some of the new business
was due to the implementation of the EU’s General Data
Protection Regulation law that went into effect in May.
Meanwhile, a defense contractor reported strong growth
in recent months and was optimistic about the near
future based on the recently approved federal budget. ■

Real Estate and Construction
Residential real estate firms indicated modest growth,
overall. Home sales rose modestly in recent weeks,
although low levels of inventory persisted and buyer
traffic slowed. District agents said that new listings continued to sell quickly. Meanwhile, residential construction
activity reportedly picked up in southern Maryland, and
demand for new homes strengthened in the Carolinas.
However, builders continued to report that new home
production timelines were behind schedule as there

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
On balance, reports from Sixth District business contacts indicated that economic activity continued to expand at a
modest pace from mid-May through June. Although a number of contacts’ sentiment declined due to uncertainty related
to the impact of tariffs and tariff rhetoric, the overall outlook among businesses remains positive as most expect an
increase in activity for the second half of the year. District firms continued to report difficulties filling positions with quality
labor. On balance, wage growth remained steady. Businesses continued to report an increase in select non-labor input
costs. District merchants noted sales activity increased since the previous reporting period and sales of light trucks and
small SUVs improved from a year ago. The tourism sector experienced solid activity throughout most of the District.
Real estate contacts noted that new home sales were up slightly and existing home sales were flat to slightly down
compared to a year earlier. Overall, the housing market experienced modest price appreciation. Commercial real estate
contacts indicated that activity was solid. Manufacturers reported growth in new orders and increasing production levels.

Employment and Wages

Expectations survey showed year-over-year unit costs
were up 2.0 percent in June. Looking ahead, survey
respondents indicated that they expect unit costs to rise
2.1 percent over the next twelve months.

Broadly, business contacts across the District cited low
availability of quality labor as a growing challenge. Contacts noted that this was a problem often not solved by
increasing pay but by focusing on developing and training internal staff. Although firms in particular geographies
struggled to fill certain positions, overall, most continued
to add to headcounts. Some contacts cited persistent
challenges with turnover; as a result, they were increasingly investing resources in retention efforts.

Consumer Spending and Tourism
On balance, District retailers reported an increase in
sales levels compared to the last report. Discount stores
and on-line sales continued to be a leading competitive
driver in the industry. Vehicle dealers reported an uptick
in the level of sales of light trucks and small SUVs for the
month of May compared to the same time period last

The intensity of wage adjustments remained mixed
across the region. On average, three percent annual
increases were the norm; however, a growing number of
firms noted that when they were not able to meet demand with existing staff, wage increases were around
five to ten percent (or greater) as an effort to attract and
retain workers. Business contacts continued to report
using benefits, bonuses, incentives, and other forms of
compensation that are temporary or can be withdrawn if

Tourism activity for the summer season across the District was described as healthy. The hotel market in south
Florida continued to experience strong demand. While
this was on par with expectations, there were some
opportunities for growth based on higher-than-expected
demand in weekend leisure and group bookings. Contacts in New Orleans reported an uptick in the number of
conventions being held in the city over the summer. Year
-to-date Mississippi casino gaming revenue increased
compared to the same time period last year.

District firms reported some increases in non-labor input
costs, particularly for steel, aluminum, and transportation, with limited accounts of an ability to pass along
these increases. Expectations of rising costs related to
tariffs continued to contribute to vendor price increases
for commodities. The Atlanta Fed’s Business Inflation

Construction and Real Estate
On balance, reports from District residential real estate
contacts indicated modest but ongoing growth. Many
builders reported that construction activity was up from
the year-ago level. The majority of builders noted that


Federal Reserve Bank of Atlanta
buyer traffic was up with sales slightly higher, while
several brokers indicated there was no change in buyer
traffic relative to the year-earlier level and that sales
were flat to down slightly. Reports on inventory levels
were mixed and most brokers and builders reported
home price gains. District brokers and builders expect
that home sales activity over the next three months will
primarily hold steady.

Banking and Finance
District financial institutions’ earnings normalized following a quarter when earnings were negatively impacted
by tax reform. Asset growth slowed as higher interest
rates impacted some loan demand, especially for real
estate products. Asset quality metrics at financial institutions were strong. Transaction accounts remained a
significant portion of the deposit base and provided the
majority of funding, but borrowings were steadily rising
as asset growth recently started to outpace deposit
growth. Financial institutions in urban markets note a
greater level of deposit pressure in contrast to more rural
markets where deposits are stable.

Many District commercial real estate contacts noted
continued strong demand. Contacts cited that vacancy
rates have been steady or falling and the rate of concessions had been steady over the last 90 days. The majority of commercial contractors indicated that, on balance,
the pace of nonresidential construction activity at least
matched the year-ago level, with the exception of multifamily construction which was characterized as unchanged to down. Most contacts reported a healthy
pipeline of activity, with backlogs greater than or equal to
the previous year. The outlook for nonresidential and
multifamily construction among commercial construction
contacts across the District remained positive, with the
majority anticipating activity to match or exceed the
current level.

Overall, District energy sector activity continued to pick
up. Industrial projects were reported across the District.
Onshore shale drilling activity remained strong. Although
offshore exploration and production remained subdued,
there was a slight uptick in activity over the reporting
period. Production and exports of refined chemical products and crude oil continued to grow as refineries increased capacity. Contacts from the utilities sector noted
that the industrial segment still outpaced residential and
commercial growth.



The majority of District manufacturing contacts described
overall business activity as solid during the reporting
period. Firms indicated that growth in new orders was
strong and that production levels were increasing. Purchasing managers reported that supply delivery times
were getting notably longer and finished inventory levels
were rising. Relative to the previous reporting period,
expectations for future production were less upbeat, with
about one-third of contacts expecting higher production
over the next six months.

Agriculture conditions across the District were mixed.
Significant rain improved drought conditions in Alabama,
Florida, and Georgia; however, there were abnormally
dry conditions reported mostly in Louisiana and to a
lesser degree in Mississippi and Tennessee. There
were also some areas that experienced above-normal
temperatures and locally heavy rains, resulting in some
crop stress. June’s forecast for Florida’s orange crop
was unchanged from May, but down significantly from
last season’s production. On a year-over-year basis,
prices paid to farmers in April were up for corn, rice,
soybeans, broilers, and eggs and down for cotton and
beef. ■

Transportation activity was largely unchanged since the
previous report. District port contacts continued to note
significant year-over-year increases in containerized
shipments, and bulk and breakbulk cargoes; automobile
and equipment freight also rose. Trucking companies
noted an increase in activity from year earlier levels;
demand for freight services was high, which was attributed to an improved economy and increased e-commerce
shipments. Trucking capacity remained tight due to a
lack of skilled truck drivers. Contacts at District railroads
noted that total traffic year-to-date was flat to slightly
down as compared with the same period last year, but
intermodal activity saw a modest uptick. Most transportation contacts expect higher levels of activity over the
second half of the year.

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
Growth in economic activity in the Seventh District slowed to a modest pace in late May and June, though contacts
expected it to pick up to a moderate pace over the next 6 to 12 months. Manufacturing production increased moderately, while employment, consumer spending, business spending, and construction and real estate activity grew modestly.
Wages and prices increased modestly, and financial conditions improved modestly. The outlook for agricultural income
dimmed some as prices for most commodities fell.

Employment and Wages

Consumer Spending

Employment growth slowed to a modest pace over the
reporting period, and contacts expected gains to continue at that rate over the next 6 to 12 months. Hiring was
focused on production and professional and technical
workers, though there was also an increase in the number of firms seeking to hire sales workers. As they have
for some time, contacts indicated that the labor market
was tight and reported difficulties filling positions at all
skill levels. Manufacturers continued to report that they
had delayed or turned down projects because of difficulties in finding workers. A staffing firm that primarily supplies manufacturers with production workers reported no
change in billable hours. Wage growth remained modest
overall, with wage increases most likely to be reported
for managerial, professional and technical, and production workers. Most firms reported rising benefits costs.

Consumer spending increased modestly over the reporting period. Nonauto retail sales rose modestly, with
gains in the grocery, hardware, home improvement,
jewelry, and personal services segments and declines in
the furniture and sporting goods segments. Light vehicle
sales increased slightly and used vehicle sales rose
moderately. A number of contacts indicated that vehicle
sales for the first half of 2018 had exceeded expectations.

Business Spending
Business spending increased modestly in late May and
June. Retail contacts indicated that inventories were
generally at comfortable levels. Most manufacturing
contacts did so as well, though a fabricated metals contact indicated that inventories were low because many of
his firm’s suppliers were capacity constrained. In addition, steel service center inventories remained below
historical norms. Capital spending increased modestly
and contacts expected growth to continue at that pace
over the next 6 to 12 months. Outlays were primarily for
replacing industrial and IT equipment and for renovating
structures. Contacts again indicated that lead times for
purchasing new equipment were elevated. Demand for
energy from commercial and industrial users increased
modestly, and demand for transportation services increased moderately from an already high level.

The pace of price increases edged up in late May and
June, but remained modest overall. Contacts expected
prices to continue to rise modestly over the next 6 to 12
months. Retail prices increased slightly overall. Producer
prices rose modestly, reflecting in part the pass-through
of higher labor, materials, energy, and freight costs.
Contacts in the agricultural sector noted heightened
price volatility related to uncertainty over U.S. and foreign tariff policies.


Federal Reserve Bank of Chicago
Construction and Real Estate

Banking and Finance

Construction and real estate activity increased modestly
over the reporting period. Residential construction increased slightly, led by growth in suburban single-family
homebuilding. Home sales were up modestly overall,
though a contact in the Detroit area reported slower
sales. Contacts across the District indicated that low
inventories of starter homes continued to hold back
sales. Home prices increased moderately overall and
rents rose modestly. The pace of nonresidential construction was little changed. Commercial real estate
activity increased modestly, led by growth in the industrial sector. One contact noted that demand for office
space from technology firms was strong. Commercial
rents increased modestly, vacancy rates declined modestly, and the availability of sublease space increased

Financial conditions improved modestly over the reporting period. Financial market participants reported little
change in equities prices or volatility, but some increase
in short-term interest rates. Business loan demand increased slightly, with growth predominantly coming from
small businesses. Loans were primarily for financing real
estate and capital equipment. One contact noted slightly
higher balances on business lines of credit due to higher
input costs for energy and metals. Loan quality and
lending standards were little changed. Consumer loan
demand also increased slightly, driven by increases in
loans for autos and other durable goods and in mortgages. Consumer loan quality and lending standards were
little changed. Contacts reported a high level of competition for both business and consumer loans.


The outlook for agriculture income dimmed some over
the reporting period as prices for most commodities fell.
Crop farmers reported that in general, field conditions
were excellent and better than last year. Both corn and
soybean prices fell, reducing expected profits from the
upcoming harvest. Livestock farmers continued to struggle overall, with some reports of asset sales by hog
producers and closures of dairy operations. Contacts
throughout the District expressed heightened concerns
about the impact of trade disputes and tariffs on the
agricultural industry. ■


Manufacturing production increased at a moderate rate
in late May and June. A number of contacts across manufacturing sectors reported operating at or near capacity.
Steel production increased moderately in response to
steady end-user demand and declining imports. One
contact said that demand for domestic steel was the
strongest it had been in 20 years. Demand for heavy
machinery and heavy trucks continued to grow at a solid
pace. Order books for specialty metals manufacturers
increased modestly, helped by 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 increased modestly and remained at a solid level.

For more information about District economic conditions visit:


Federal Reserve Bank of

St. Louis
The Beige Book ■ July 2018

Summary of Economic Activity
Economic conditions in the District have improved slightly since our previous report. Firms reported modest increases in
employment despite continued difficulties finding workers. Wages continued to increase modestly. Price pressures have
increased modestly as freight costs have increased across all sectors. Reports from consumer spending contacts remained mixed. Manufacturers reported increases in production and new orders. Residential real estate activity improved
modestly while construction activity picked up slightly. District bankers reported increased lending activity as commercial
and industrial loan growth continued to be robust. Agriculture and natural resources conditions have been relatively
unchanged since the previous report.

restrictions have had a mixed effect on prices. U.S.imposed tariffs have raised the prices of steel and aluminum, increasing input costs for several business contacts. Those contacts in construction lamented that rising
prices pressured the industry before this tariff-induced
inflation of metal costs. In contrast, proposed tariffs by
China have led to an overall downturn in agricultural
commodity prices, particularly the price of soybeans.
These lower agricultural commodity prices have been
passed on to food retailers, who reported that lower food
prices have more than offset increased freight costs.

Employment and Wages
Employment has increased modestly since the previous
report. Several manufacturing companies, including
multiple steel producers, announced plans to expand
and hire new employees. Furthermore, survey-based
employment indexes indicated modest increases in June
manufacturing employment across Missouri and Arkansas. To attract and retain employees, firms reported
lowering hiring standards, offering more-generous nonwage benefits, and establishing training programs
through partnerships with local schools and non-profit
organizations. Contacts noted difficulties filling construction and trucking positions in particular.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate mixed consumer spending activity. Real
sales tax collections modestly increased in Arkansas
relative to a year ago, but declined slightly in Missouri,
Kentucky, and West Tennessee. The consumer outlook
in West Tennessee has improved since the first quarter,
and households, on net, expect to increase spending in
the next few months relative to a year ago. Retailers in
Tennessee indicated that year-to-date sales have been
above last year’s levels and expect this trend to continue
through the rest of the year. In response to the recent
Supreme Court ruling, internet-based retailers indicated
that they will likely “eat the cost” from collecting sales tax
in the medium term. However, they expect to pass the
cost to consumers in the long run through the prices they
charge for shipping and by changing eligibility for free

Wages have increased modestly since the previous
report. Contacts reported that the continued tight labor
market has led to increased wages in the services sector, particularly for entry-level positions. Retail and foodservice firms reported having to raise wages of existing
employees to match the higher rates for new employees.
One trucking company offered the largest one-time pay
increase in its history. Wages paid by small business in
the St. Louis metro area grew slightly.

Price pressures have increased modestly in general
since the previous report. Local contacts reported robust
increases in shipping costs across all sectors due to
higher fuel prices and driver shortages. Tariffs and trade


Federal Reserve Bank of St. Louis

noted that a healthy demand for single-family homes has
led to new prospective developments. St. Louis builders
expect 2018 permits to exceed the total from last year.

Reports from auto dealers were mixed: Memphis auto
dealers reported an increase in sales year over year,
while dealers in Louisville and Little Rock reported a
decrease. Memphis and Little Rock auto dealers also
indicated a shift in demand toward SUVs and crossovers. Hoteliers in Little Rock and Memphis reported
strong and stable demand, and St. Louis hospitality
contacts continued to express a positive outlook for the
coming months.

Commercial real estate activity has been unchanged
since the previous report. Contacts in Little Rock reported that the market is generally healthy across most
property types but were apprehensive over how future
interest rate increases may impact profits and cash
Commercial construction activity was flat. Some contacts
in Little Rock expressed concerns that new hotel construction under way risks oversaturating the market. A
Louisville contact reported continued robust multifamily

Manufacturing activity has increased at a moderate pace
since our previous report. Overall manufacturing activity
was stronger than one month earlier in both Arkansas
and Missouri, and the pace of expansion increased in
each. New orders and production also rose in both
states. Several companies that manufacture motor vehicles and motor vehicle parts reported plans to expand
facilities and increase production. Contacts in the paper
packaging manufacturing industry reported running at
nearly full capacity. Similarly, contacts in the recycled
metal industry noted record volumes, and contacts in the
mining equipment manufacturing industry reported experiencing backlogs. On the other hand, a manufacturer of
plastic products for appliances indicated that sales were
down. Several manufacturers noted increases in input
prices, which they linked to tariffs.

Banking and Finance
Banking conditions in the District have improved at a
moderate pace since the previous report. Outstanding
loan volumes at small and mid-sized banks grew by 6
percent relative to year-ago levels in the second quarter,
down from 7 percent in the first quarter and continuing
the steady decline in the rate of loan growth since the
end of 2016. Commercial and industrial lending remained strong, growing by 12 percent in year-over-year
terms, double the national rate. In contrast, residential
real estate lending grew slowly and lagged behind that of
the nation for the second consecutive quarter. Bankers
also continued to report sluggish deposit growth.

Nonfinancial Services

Agriculture and Natural Resources

Activity in the service sector has improved slightly since
the previous report. The number of posted vacancies for
nonfinancial services occupations in May was generally
unchanged in Louisville and Memphis relative to the prior
month and increased moderately in St. Louis. Arkansas
air passenger transit and river barge traffic volumes were
somewhat lower compared with the previous year, while
Louisville air passenger transit volume remained flat.
Contacts noted that a continuing shortage of commercial
truck drivers has led to higher demand for railroad shipping.

Agriculture conditions weakened slightly from the previous reporting period, but improved slightly from the same
time last year. The percentages of corn, cotton, and rice
rated fair or better in June declined slightly relative to the
prior month, while that of soybeans increased modestly.
However, both the corn and soybeans percentages were
higher than a year ago, the cotton percentage was little
changed, and the rice percentage was down slightly.
Estimated soybean acreage saw a substantial upward
adjustment in Illinois relative to March planting intentions
but was revised downward in Missouri.

Real Estate and Construction

Natural resource extraction conditions were essentially
unchanged from May to June, with seasonally adjusted
coal production up 0.1 percent. However, June production was 6 percent below prior-year levels. ■

Residential real estate activity has improved modestly
since the previous report. Seasonally adjusted home
sales were slightly higher in April. Inventory levels remained low, and contacts continued to report a shortage
of homes in the market with newly listed homes selling
Residential construction activity has improved slightly.
Permit activity in May was flat relative to the prior month.
A contact in Louisville reported seeing a robust level of
new construction under way, and a contact in Little Rock

For more information about District economic conditions, visit:


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
The Ninth District economy grew moderately overall since the last report. Employment grew modestly, with robust hiring
demand continuing to be restrained by tight labor supply. Wage and price pressures were moderate since the previous
report. The District economy showed growth in manufacturing, residential construction, commercial real estate, energy,
and tourism. But consumer spending and commercial construction were mixed, residential real estate slowed, and
agriculture remained weak.

Employment and Wages

Wage pressure was moderate overall, though recent
union contracts reflected larger increases. A Minneapolis
Fed poll of South Dakota retailers found recent wage
increases coalescing around 2 percent to 3 percent, with
roughly similar expectations for the coming year. A poll
of large Minnesota firms showed slightly stronger results.
Four recent union construction contracts in Minnesota
negotiated annual increases ranging from about 3
percent to 5 percent per year for three years. A new
contract for union service workers at a Minnesota health
care provider raised wages between 7 percent and 10
percent over three years; a contract for union utility
workers in the Upper Peninsula awarded raises of 11
percent to 14 percent over three years.

Employment grew modestly since the last report. Hiring
demand remained robust, but continued to be restrained
by tight labor supply. May job openings in North Dakota
and the Upper Peninsula of Michigan were both notably
higher than a year earlier. A jobs database for
Minneapolis-St. Paul showed that new postings for the
second quarter were up significantly over the same
period last year. An ad hoc poll of large firms in
Minnesota found that roughly half were currently hiring to
add to head count and expected that to continue over
the coming year. A May survey of manufacturing firms
showed strong hiring sentiment among respondents in
Minnesota and the Dakotas. However, tight labor
restricted firms’ ability to find workers. May
unemployment rates dropped across the District
compared with the previous month and a year ago.
District states saw a 13 percent decrease in initial
unemployment claims during the most recent six-week
period (though mid-June) compared with the same
period last year. Continuing claims also dropped slightly.
State workforce development offices widely reported
relatively stable or higher job postings, but fewer job
seekers. In Montana, May job postings with the state
rose by 2 percent over a year earlier, while active job
seekers fell by 21 percent. A Montana staffing firm
reported that “hiring demand and job orders are up, but
[worker] candidates are down.”

Price pressures increased moderately relative to the
previous report. Manufacturing contacts reported that
steep increases continued in aluminum and steel
material input costs in reaction to tariff announcements.
Construction materials costs continued to increase
briskly. A June survey of purchasing managers indicated
that inflation expectations were elevated, but decreased
slightly from the previous month. Retail fuel prices as of
late June were mixed across District states relative to the
previous reporting period; Montana and the Dakotas saw
prices increase slightly, while prices in Minnesota and
Wisconsin fell. Prices received by farmers for corn,


Federal Reserve Bank of Minneapolis
soybeans, wheat, hay, chickens, and eggs increased in
May compared with a year earlier; prices for hogs, cattle,
milk, and turkeys decreased.

Missoula, Mont., and the Minneapolis-St. Paul region;
but permit values were flat in Rapid City and Sioux Falls,
S.D., and lower in Fargo, N.D., and Rochester, Minn.

Consumer Spending and Tourism

Commercial real estate grew modestly since the last
report. In Minneapolis-St. Paul, multifamily vacancy rates
continued to be low despite strong delivery of new units
to the market, though lease rates have been mostly
steady. Despite the continued closure of large retail
stores in Minneapolis-St. Paul, this space was being
absorbed and “keeping vacancies tight,” according to an
industry source. Residential real estate fell, with a few
isolated exceptions. May home sales in Minnesota
dropped 11 percent compared with a year earlier and
also fell in western and northern regions of Wisconsin,
and in Bismarck. Sioux Falls sales were flat, and
Montana metro markets were mixed, with slower May
sales in Great Falls and Helena, but higher sales in
Bozeman and Missoula.

Consumer spending was mixed since the last report.
Official tax data suggested some slowing. For example,
sales tax collections in May were 5 percent lower in
Minnesota compared with a year earlier, while taxable
sales were flat in South Dakota. A contact at a restaurant
industry association described recent sales as generally
up moderately.
Tourism activity increased moderately. A survey of
Minnesota businesses revealed solid optimism for the
summer tourism season, with significantly more
respondents expecting higher revenues compared with
those expecting lower revenues. Minnesota’s hotel
sector also had a very strong May, with demand
increasing 7 percent over a year earlier. Said an industry
contact, “It looks like this will be a good summer for the
state’s hotel industry.” Lodging and accommodation tax
collections in Montana have been higher every month
this year, including May, compared with 2017. Gaming
receipts from casinos in Spearfish, S.D., were down
about 4 percent during the spring months, but summer
bookings at hotels and campgrounds in the region were
up, according to local officials.

District manufacturing activity increased briskly. An index
of manufacturing conditions indicated increased activity
in June compared with a month earlier in Minnesota and
the Dakotas. Contacts from across the manufacturing
sector reported very strong activity so far this year. A
dealer of stamping and metal forming machinery said
that the market for capital equipment was as busy as
they’d ever seen. Producers of hydraulic equipment
reported similarly strong demand, with some seeing
double-digit growth this year.

Activity in the professional services industry increased
moderately since the last report. Respondents to the
Minneapolis Fed’s annual services survey indicated
growth in sales, profits, productivity, and employment
over the past year, with expectations for more growth in
the coming 12 months. In contrast, several architecture
contacts said business had decreased recently.

Agriculture, Energy, and Natural Resources
District agricultural conditions were stable relative to the
previous report. Despite a late start to the planting
season, crop progress in District states as of late June
was generally in line with five-year averages, and the
majority of crops were rated in good or excellent
condition. However, some areas of the Dakotas and
Montana were experiencing dry or moderate drought
conditions. Activity in the energy sector increased
slightly. District oil and gas exploration activity as of late
June was roughly unchanged from the previous report;
oil and gas production as of April increased from a
month earlier. District iron ore mines continued to
operate at near capacity. ■

Construction and Real Estate
Commercial construction was mixed since the last
report. An industry database showed that commercial
and heavy construction spending in May rose overall
compared with a year earlier, particularly in North Dakota
and Minnesota, while South Dakota was flat. A
contractor in southeastern Minnesota said current
activity levels were “much better” compared with last
year. However, another database of new and active
projects across multiple states in the District showed that
recent activity levels through mid-June were slightly
lower than the same period a year earlier. The value of
commercial permitting in May was also mixed among the
District’s larger cities. Residential construction rose
modestly overall, though activity varied. Single-family
permit values rose in Bismarck, N.D., Billings and


Federal Reserve Bank of

Kansas City
The Beige Book ■ July 2018

Summary of Economic Activity
Economic activity in the Tenth District continued to increase at a moderate pace in late May and June, and expectations
were for additional gains in the coming months. Consumer spending and business services activity rose modestly compared to the previous survey period, and residential and commercial real estate activity climbed moderately higher.
Manufacturing activity continued to expand at a robust pace, and manufacturers and business services contacts anticipated stronger capital spending in the months ahead. Banking contacts reported increased loan demand, improved loan
quality, and slightly lower deposit levels. Respondents in the energy sector reported a slight pickup in overall activity and
expected strong levels of capital spending. Agricultural conditions weakened slightly as trade uncertainty and expectations of large supplies put downward pressure on crop prices. Employment increased modestly since the previous survey period, and a large share of contacts reported labor shortages. Wages, input prices, and selling prices moved moderately higher, and most contacts expected additional increases moving forward.

Employment and Wages

moderate pace. Input and selling prices in the transportation sector were moderately above year-ago levels.
Construction supply contacts noted moderately higher
prices, although the rate of growth was expected to slow
slightly moving forward. Manufacturers reported a modest increase in the prices of finished products, and raw
materials prices rose moderately. Manufacturers expected the pace of price increases to accelerate in the
months ahead for both finished products and raw materials.

District employment and employee hours continued to
increase at a modest pace in late May and June, and
additional gains were anticipated in the months ahead. A
majority of contacts in every sector noted rising levels of
employment since the previous survey period, with the
exception of those in the auto sales sector who noted a
modest decline. In addition to rising employment levels,
employee hours increased in the retail trade, wholesale
trade, real estate, restaurant, tourism, manufacturing,
and energy sectors. A high percentage of contacts in the
District reported labor shortages for some skillsets,
especially within the manufacturing sector. In particular,
contacts noted difficulty finding retail sales staff, skilled
IT workers, commercial drivers, and restaurant workers.

Consumer Spending
Consumer spending increased modestly compared to
the previous survey period, and firms were optimistic that
spending will continue to rise. Retail sales rose moderately since the previous survey period and remained
above year-ago levels. Several retailers noted a pickup
in sales for appliances, home improvement items, and
lower-priced goods, while higher-priced products sold
poorly. Retail contacts anticipated moderate increases in
sales and modestly higher inventories moving forward.
Auto sales rose modestly since the previous survey
period but were slightly below year-ago levels. However,
dealer contacts expected sales and inventories to rise in
the months ahead. Restaurant sales edged up slightly
compared to both the previous survey period and yearago levels, and respondents expected modest sales
growth in the next few months. District tourism activity

Wages increased moderately in most sectors, and firms
expected a similar pace of growth in the months ahead.

Input and selling prices rose further since the previous
survey period and were moderately higher than year-ago
levels. Respondents expected further increases in the
coming months. Contacts in the retail sector noted modestly higher input and selling prices compared to the
previous survey period, and both were moderately higher
than year-ago levels. In the restaurant sector, input
prices rose modestly and selling prices picked up at a


Federal Reserve Bank of Kansas City
expanded at a moderate pace compared to the previous
survey period, although tourism sales were below yearago levels. Tourism activity was anticipated to decline
modestly in the next few months.

decrease in deposit levels.

District energy activity expanded slightly since the last
survey period, while expectations for future activity continued to grow moderately. The number of active oil rigs
increased modestly, and the number of active gas rigs
remained unchanged. Most firms reported continued
strong capital spending plans, although several businesses expressed concern about pipeline capacity.
Despite persistent growth in global oil demand, contacts
projected slightly lower oil prices which a number of firms
attributed to the announcement of OPEC’s production
increases. Expectations for natural gas prices improved

Manufacturing and Other Business Activity
Manufacturing activity continued to expand robustly, and
the majority of other business contacts reported modest
sales increases. Factory activity grew at both durable
and nondurable goods plants, especially for computer,
electronics, and food products. Production, shipments,
and new orders increased moderately, and activity remained higher than a year ago. Manufacturers' capital
spending plans grew moderately, and manufacturers
expressed strong optimism about future levels of activity.


Outside of manufacturing, firms in the professional, hightech, wholesale trade, and transportation sectors reported modest sales growth, and expectations were for a
faster pace of growth in the months ahead. Transportation contacts anticipated a modest increase in capital
spending in the coming months, while professional, hightech, and wholesale trade firms expressed more robust
plans for capital expenditures.

The Tenth District farm economy weakened slightly, and
drought persisted in some regions. Trade uncertainty
and expectations of larger supplies in 2018 put downward pressure on crop prices. Corn prices were slightly
lower than a year ago following a sharp decline in June,
while soybean prices declined even more rapidly and
reached an eight-year low. Although prices for wheat
remained steady and slightly higher than a year ago,
revenues in Kansas and Oklahoma could remain
strained as nearly half of winter wheat acreage was
rated as poor or very poor due to dry conditions. Livestock prices were slightly lower than one year ago following modest declines in June. Hog prices, which continued to be supported by expectations of increased U.S.
exports and relatively strong global demand, increased
slightly in June but remained slightly below levels from
one year ago. ■

Real Estate and Construction
District real estate activity rose at a moderate pace, and
additional growth was expected in the months ahead.
Contacts in the residential real estate sector noted moderately higher home sales, prices, and inventories compared to year-ago levels. Continued moderate growth
was expected for home sales and prices, while inventories were projected to remain flat. Residential construction activity strengthened slightly in late May and June
including stronger housing starts and sales of construction supplies. However, traffic of potential buyers declined modestly since last year. Residential construction
contacts expected a slight pickup in activity in the
months ahead. The commercial real estate sector grew
at a moderate pace as absorption, completions, and
sales rose while vacancy rates declined. Commercial
real estate activity was projected to expand at a slightly
faster pace moving forward.

Bankers reported a moderate increase in overall loan
demand in late May and June. Respondents reported a
modest increase for commercial and industrial, commercial real estate, residential real estate, consumer installment, and agricultural loans. Bankers indicated loan
quality improved modestly compared to a year ago and
expected further improvement in the next six months.
Credit standards remained largely unchanged in all
major loan categories, and bankers reported a slight

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ July 2018

Summary of Economic Activity
Expansion in the Eleventh District economy continued at a solid pace. Manufacturing output increased, and loan demand and retail spending rose. Broad-based expansion in the energy and service sectors continued. Home sales rose
modestly, while apartment markets softened slightly. The ongoing drought negatively affected crop and grazing conditions. Hiring remained strong, and widespread labor shortages continued putting pressure on wages. Price pressures
stayed elevated largely due to increases in input costs, particularly steel and aluminum. Although outlooks remained
fairly optimistic, tariffs and trade-related concerns were creating uncertainty.

Employment and Wages

firms, in part due to rising freight costs and the new
tariffs on steel, aluminum, and lumber. Auto dealers
reported higher new vehicle prices and financing costs,
and transportation service firms noted climbing fuel
prices. Many other retailers and service firms also cited
rising input and other costs such as health care. A number of contacts said they plan on increasing selling prices to offset higher costs. West Texas Intermediate oil
prices rose to their highest levels since 2014 driven by
falling inventories, rising geopolitical risks in the Middle
East, U.S. policy on Iran, and other oil supply concerns.

Job growth was solid and widespread across sectors,
with most firms bullish in their expectations for long-run
employment. Labor market tightness continued across a
wide array of industries and skill sets, with several contacts saying difficulty finding workers was constraining
growth to some extent. Oilfield services firms noted
shortages of mechanics and truck drivers, and one contact said hiring and retaining workers in the bottom 20
percent of their payroll was a challenge. A staffing firm
said they had partnered with a manufacturing company,
where workers could attend a paid, six-week welding
course and receive fulltime employment following successful completion. Nearly half of the firms responding to
a set of special questions indicated that new technologies were not impacting employment levels, although 25
percent said it was changing the types of workers needed.

Expansion in the manufacturing sector continued, although the overall pace of growth eased in June from the
highs seen in May. Output growth was led by transportation equipment and food manufacturing. Growth in machinery production receded in June from May's elevated
rates, while demand for fabricated and primary metals
increased. Chemical production expanded further, and
the Gulf Coast refinery utilization rate climbed up to 97.6
percent toward the end of June. Refiners and chemical
producers reported optimistic outlooks, buoyed by relatively low domestic feed costs and expectations of
healthy global demand for their products. Overall, outlooks among manufacturers remained positive, although
contacts said that the new tariffs had heightened uncertainty in expectations for activity and prices.

Wage pressures remained elevated, and firms expected
to give employees a larger increase in wages this year
compared with 2017. Several firms were employing
multiple strategies to recruit and retain employees, such
as intensifying recruiting, raising wages, offering on-thejob training and/or increasing variable pay/bonus.

Price pressures remained elevated. Input costs increased among energy, manufacturing, and construction


Federal Reserve Bank of Dallas
Retail Sales

tions in industrial markets were characterized as solid,
and reports on demand for retail space mostly indicated
flat but healthy levels of activity.

Retail sales rose sharply in May but growth slowed in
June, with many retailers noting either flat or softening
activity. Internet sales grew moderately over the reporting period. Auto sales were strong, but contacts reported
increased pressure on margins in part due to rising
financing costs among other expenses. Sales increased
among durable goods wholesalers, while falling for nondurables. While outlooks overall remained positive, rising
interest rates and the newly imposed tariffs were negatively impacting some retailers’ expectations.

Financial Services
Loan volumes and demand expanded over the reporting
period. Growth remained broad based, with continued
strength in commercial and residential real estate lending. Consumer loan volumes increased slightly, and
commercial and industrial loan volumes grew at a slower
pace than during the last reporting period. Loan pricing
rose further, and credit standards remained unchanged
or tightened moderately. The volume of deposits ticked
up, and some contacts noted raising rates to compete for
deposits. Outlooks remained optimistic, although regulatory compliance, difficulty expanding the existing deposit
base, and potential inversion of the yield curve were
concerns cited by banking contacts.

Nonfinancial Services
Growth in nonfinancial services activity was broad based
across industries. Strong revenue growth among transportation services and finance and insurance firms
boosted service sector activity. Rail traffic remained
close to record levels, with shipments increasing broadly
across business lines. Air cargo volumes expanded as
well, in part due to a pickup in international shipments.
Airline passenger demand was stable, and leisure and
hospitality contacts saw a pickup in activity. Revenue
growth in the professional and business services sector
was solid, with staffing services firms noting persistently
high demand, driven by widespread increases in activity
across geographies and sectors. Expectations regarding
future business conditions remained optimistic, although
higher fuel prices, rising costs, labor shortages, and
uncertainty surrounding trade policies were sources of
concern among contacts.

Energy sector activity expanded strongly. Demand for
oilfield services rose further, and firms noted increased
equipment utilization. Drilling activity ticked up in the
District even as the U.S. rig count dipped. Expectations
regarding future business conditions remained positive,
supported by a favorable outlook for oil prices, but contacts expressed concern about steel tariffs, pipeline
capacity constraints, and worker shortages.

Drought conditions became slightly less severe but more
widespread over the reporting period. Texas farmers
were concerned because the drought will likely suppress
crop yields, and crop prices are lower due to trade restrictions and strong U.S. production prospects. Grazing
conditions remained well below average, and cattle
prices experienced a slightly higher-than-average seasonal decline over the last six weeks, despite strong
export and domestic demand for beef. ■

Construction and Real Estate
Home sales edged up over the reporting period, with
year-to-date sales on or ahead of plan for most builders.
Buyers remained price sensitive, putting pressure on
builders’ margins. Contacts expressed trepidation about
the impact of rising interest rates and uncertainty surrounding trade and immigration policies on future activity
and/or costs. Nevertheless, outlooks remained positive.
A large number of new apartments are putting pressure
on rents, particularly in areas where there was a lot of
availability. Rent growth in Dallas and Austin was modest and below its long run average, though occupancy
was generally holding up well. A slowing pace of deliveries combined with a pickup in economic growth has
boosted occupancy and rent growth in Houston. Investment activity remained solid despite the recent softening
in overall performance.
Net absorption in DFW’s office market improved in the
second quarter but remained modest compared with the
highs seen last year. Office leasing activity was steady in
San Antonio, but remained sluggish in Houston. Condi-

For more information about District economic conditions visit:


Federal Reserve Bank of

San Francisco
The Beige Book ■ July 2018

Summary of Economic Activity
Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of mid-May
through June. Conditions in the labor market remained tight, and wage pressures picked up. Price inflation increased
moderately. Sales of retail goods picked up slightly, while activity in consumer and business services edged down.
Activity in the manufacturing sector remained solid, and conditions in the agriculture sector deteriorated modestly. Contacts reported that residential real estate market activity expanded at a solid pace, and activity in the commercial real
estate sector was also solid. Lending activity ticked up moderately.

Employment and Wages

for freight costs at lumber businesses in California and
Oregon and for petroleum-based products like asphalt.
Across the District, contacts noted a pickup in price
growth for finished steel and for metal inputs to manufactured products. A few contacts in manufacturing attributed recent inflationary pressures for metal products and
declines in the duration of price guarantees to the implementation of tariffs. Solid construction sector activity
continued to exert upward pressure on prices for building
materials. Contacts in California reported moderate price
inflation for cherries, nuts, and raisins after yields fell due
to poor growing conditions. A few contacts reported that
grocery stores passed on increased food safety costs to
consumers, increasing food prices somewhat. Excess
capacity in power generation and low input costs continued to limit increases in electricity prices in Southern
California. Generic drug prices continued to fall modestly
due to a relaxation in regulation and heightened competition among the largest drug sellers.

Tight labor market conditions persisted across all sectors, leading to a pickup in wage growth. Contacts continued to report challenges retaining workers. In the
Mountain West, a few major national employers attracted
low-skilled warehouse workers from smaller businesses
that could not match their starting wages. Across the
District, contacts observed higher starting salaries and
increased bonuses to attract skilled financial service and
information technology professionals. Demand for skilled
lending officers increased moderately due to stronger
loan growth over the reporting period. Shortages of
plumbers, electricians, and other specialized workers
drove wage pressures for these positions and led to
construction project delays in some cases. A contact in
Oregon’s banking sector reported an uptick in lending to
manufacturers for automation projects to stem increases
in labor costs that have weakened profitability. Crop
harvesting and processing businesses noted difficulties
hiring for on-site managerial positions in rural areas. A
contact in financial services in central California reported
that employment levels fell slightly as the number of
mergers and acquisitions in the region picked up, creating some job redundancies.

Retail Trade and Services
Sales of retail goods picked up slightly over the reporting
period. Contacts in the Mountain West reported an overall increase in vehicle sales in the region, with truck
sales lagging passenger car sales somewhat. Demand
at consumer hardware and home improvement stores
increased moderately. In the food and beverage industry, contacts reported flat sales at grocery stores.

Price inflation increased moderately over the reporting
period. Recent oil price increases spurred price inflation
in a variety of sectors. Pricing pressures strengthened


Federal Reserve Bank of San Francisco
Activity in the consumer and business services sectors
edged down. Sales at quick service restaurants were
generally flat. In the Mountain West, the livestock health
services sector saw growth slow moderately because of
disruptions to the medication supply chain. Activity at
transportation businesses was constrained slightly due
to continued shortages of truck drivers. Growth in the
pharmaceutical industry slowed modestly as continued
deflationary pressures for generic drug prices negatively
affected profitability at producers of branded drugs.

Real Estate and Construction
Activity in real estate markets expanded at a solid pace.
Construction in the residential market was strong, constrained only by the shortage of labor and rising material
costs. Contacts across the District reported that home
prices and residential rents picked up due to still-low
inventory levels and strong demand. In the Mountain
West, price growth was most evident at more affordable
price points where inventory was especially low. A contact in the Seattle area noted that listing durations for
single-family houses continued to trend downward due to
brisk selling activity. A few contacts noted that rising
borrowing costs might limit demand, although there was
no tangible impact over the reporting period. Commercial
real estate activity was also solid. In Oregon, construction starts for industrial and warehouse spaces picked up
noticeably, as did leasing demand for these spaces.
Contacts in Southern California reported that commercial
rents and sales prices increased moderately.

Activity in the manufacturing sector remained solid. A
contact in the Mountain West noted that demand from
the mining industry for equipment jumped, leading businesses to expand operations. Deliveries of commercial
aircraft increased noticeably from the same period last
year, while new orders grew moderately. A steel producer in Oregon observed that there was sufficient capacity
to meet the continued elevated demand for their products.

Financial Institutions
Lending activity ticked up moderately over the reporting
period. Loan demand increased overall, with contacts
across the District reporting solid loan growth. Deposit
growth picked up in the Mountain West. Contacts in
California and Oregon observed strong asset quality and
liquidity levels. A few contacts noted tighter lending
standards for borrowers in the agriculture sector because of weakening profitability in segments of that
industry. ■

Agriculture and Resource-Related Industries
Conditions in the agriculture sector deteriorated modestly. In California, yields for various crops fell because of
weak precipitation levels in recent months. In the Mountain West, feedlot profits fell noticeably on a year-overyear basis, and profits at dairy and pork producers declined moderately. A pickup in global demand for raisins
and nuts resulted in a slight increase in exports of these
crops. Potato yields in Idaho were solid, and inventory
levels improved from the same period last year.