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May 30, 2018

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

May 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



Fourth District



Fifth District



Sixth District



Seventh District

St. Louis


Eighth District


What is The Beige Book?
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?
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 Cleveland
based on information collected on or before May 21, 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 ■ May 2018

Overall Economic Activity
Economic activity expanded moderately in late April and early May with few shifts in the pattern of growth. The Dallas
District was an exception, where overall economic activity sped up to a solid pace. Manufacturing shifted into higher
gear with more than half of the Districts reporting a pickup in industrial activity and a third of the Districts classifying
activity as “strong.” Fabricated metals, heavy industrial machinery, and electronics equipment were noted as areas of
strength. Rising goods production led to higher freight volumes for transportation firms. By contrast, consumer spending was soft. Nonauto retail sales growth moderated somewhat and auto sales were flat, although there was considerable variation by District and vehicle type. In banking, demand for loans ticked higher and banks reported that increased
competition had led to higher deposit rates. Delinquency rates were mostly stable at low levels. Homebuilding and
home sales increased modestly, on net, and nonresidential construction continued at a moderate pace. Contacts noted
some concern about the uncertainty of international trade policy. Still, outlooks for near term growth were generally

Employment and Wages
Employment rose at a modest to moderate rate across most Districts. Again, the Dallas District was the exception,
where solid and widespread employment growth was reported. Labor market conditions remained tight across the
country, and contacts continued to report difficulty filling positions across skill levels. Shortages of qualified workers
were reported in various specialized trades and occupations, including truck drivers, sales personnel, carpenters, electricians, painters, and information technology professionals. Many firms responded to talent shortages by increasing
wages as well as the generosity of their compensation packages. In the aggregate, however, wage increases remained
modest in most Districts. Contacts in some Districts expected similar employment and wage gains in the coming

Prices rose moderately in most Districts, while the remainder reported slight or modest increases. There were several
reports of rising materials costs, notably for steel, aluminum, oil, oil derivatives, lumber, and cement. A few Districts
noted that these reports of rising materials costs were becoming more common across contacts. Input cost increases,
along with labor shortages in some sectors and strengthening demand, put upward pressure on prices in the transportation, construction, and manufacturing sectors. Some Districts also noted that their retail contacts were more able to
pass along price increases to their customers than in the recent past.

Highlights by Federal Reserve District

New York

Business activity continued to expand at a moderate
pace, with contacted manufacturers, retailers, and most
staffing firms reporting year-over-year increases in revenues. While some firms said prices were increasing
more than last year, others indicated no unusual pressure. Most hiring firms noted tight labor markets; some—
including staffing firms—said wages were rising.

Economic growth continued at a modest pace, while
labor markets have tightened further. Input price pressures have broadened, and selling price increases have
picked up somewhat. Housing markets have firmed
slightly, while commercial real estate markets have


National Summary

St. Louis

Economic activity continued to expand at a modest pace.
Wage pressures were emerging in some tighter labor
markets, but wage and price increases remained modest
overall, as did job growth. Notably, nonfinancial services
accelerated to a moderate pace, and auto sales appeared to reverse several periods of decline, posting a
slight increase.

Economic conditions improved slightly. Wage growth
was moderate. Some firms have begun relaxing drugtesting standards and restrictions on hiring felons to
alleviate labor shortages. District bankers reported weaker demand for new loans and a decline in creditworthiness of loan applicants. Firms surveyed in mid-May were
slightly less optimistic about the rest of 2018 as those
surveyed in mid-February.

The District economy expanded at a moderate pace.
Labor markets tightened, with wage pressures noted
broadly. Rising commodities prices and transportation
costs are pressuring goods producers. Stronger confidence in the economy boosted demand in manufacturing, banking, and nonfinancial services. Consumer demand increased modestly. Construction activity remained robust.

Ninth District economic activity increased moderately.
While labor demand appeared robust, employment
growth was restrained by a tight labor supply. Wage
growth was moderate, while price pressures increased
slightly, particularly at the wholesale level. District manufacturers were experiencing robust growth but also were
experiencing supply-chain disruptions as a result of
uncertainty over trade policy.

The regional economy expanded moderately. Robust
demand and a shortage of drivers led some trucking
firms to turn away business which, in turn, increased
demand for rail services. Home sales were steady, while
inventories remained limited. Labor demand continued to
strengthen and supply remained tight across industries.
Prices rose moderately, overall.

Kansas City
Overall economic activity in the Tenth District increased
moderately, with further growth expected in coming
months. Manufacturing activity expanded at a rapid
pace, while consumer spending, energy, and business
services grew moderately. Agricultural conditions weakened but at a slower pace, while District employment
and wages rose modestly.

Economic activity grew at a modest pace. Tightness
continued in the labor market with firms noting increased
efforts to attract and retain workers. Reports of wage
growth were mixed. Overall retail sales rose and light
truck sales were robust. Real estate activity improved
slightly. Manufacturers noted increases in new orders
and production. Loan growth remained firm.

Economic activity grew at a solid pace, with an acceleration in manufacturing activity. Expansion in the services,
energy, and real estate sectors continued at about the
same pace. Retail spending was mixed and drought
conditions persisted in parts of the District. Hiring remained solid despite a tight labor market, and wage and
price pressures stayed elevated. Contacts expressed
concern about trade uncertainty and rising interest rates,
although outlooks overall remained positive.

Growth in economic activity continued at a moderate
pace. Manufacturing increased strongly, employment
grew moderately, consumer and business spending rose
modestly, and construction and real estate increased
slightly. Wages and prices increased modestly and
financial conditions improved modestly. The outlook for
farm income brightened.

San Francisco
Economic activity in the Twelfth District continued to
expand at a moderate pace. Sales of retail goods edged
up, and activity in the consumer and business services
sectors expanded slightly. Activity in the manufacturing
sector was solid. Activity in residential real estate markets remained solid, and conditions in the commercial
real estate sector picked up notably. Lending activity
ticked up modestly.


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
First District economic activity continued to expand at a moderate pace, with all responding retailers and manufacturers
citing year-over-year increases in sales and revenues in recent periods; nearly all staffing firms also reported revenue
growth. Residential real estate markets saw price increases and mixed sales results, still largely attributed to very limited inventories of homes. Commercial real estate markets were mostly improved since the last report, or at least
steady. Some firms, including staffing firms, cited pick-ups in wages; most noted ongoing difficulty finding workers. One
retailer cited vendor-price increases of about 3 percent, which they intended to pass along to customers; manufacturers
noted no unusual price pressures although some were concerned about future effects on prices of tariffs or other changes in trade policy. Outlooks continued to be positive.

contributing to higher shipping costs. Manufacturing
contacts did not report any unusual pricing pressure.
Even a contact who said that his firm was having trouble
finding components said that although prices were up,
there was no gouging. Contacts expressed concern
about tariffs, with one manufacturer saying he expected
prices of certain inputs to rise 15 percent to 20 percent.

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 is tight for
some skills, like IT, and in some regions. All contacted
manufacturers were hiring or maintaining current levels
of employment; they said hiring was not unusually difficult. A contact in the semiconductor industry said the
firm was giving 6 percent raises to engineers and 3
percent to the rest of the staff. A contact in industrial
distribution said that finding salespeople was hard, while
a milk producer said truckers were in short supply. All
staffing-firm respondents reported increased labor demand across industries and occupations stemming from
both new job creation and increased vacancies from job
switchers. Labor supply continued to present a challenge
to most staffing firms, increasing search costs and leaving many unfilled jobs. All staffing contacts said that both
bill rates and pay rates were rising significantly.

Retail and Tourism
Retail contacts consulted for this round all reported yearover-year gains in their most recent comparable-store
sales, with growth ranging from mid-single-digit to double
-digit increases. Some contacts reported that in-store
customer traffic continued to decline, while online and ecommerce sales were up. Nonetheless, the retail outlook
was positive, with firms reporting that they plan to continue to make multiyear investments in their businesses.
A contact in the travel industry reported that Boston’s
Logan International Airport continued to see robust increases in passenger counts. Scheduled airline seats
increased year-over-year in recent months and total
passenger traffic was up 4.1 percent in 2018:Q1 compared with 2017:Q1, with domestic passengers increasing 4.6 percent and international traffic up 1.5 percent.
Cruise traffic in Boston has also increased significantly,
both as a home port and as a port-of-call. The outlook for
tourism to Boston and New England was reported to be

Most respondents reported modest upward movements
in prices. One retail firm, which noted that prices were
largely flat in 2017, reported recently seeing higher
prices from manufacturers and wholesalers that it is
passing through as higher retail prices; the increases
averaged 3¼ percent. Most of these vendor price increases were attributed to higher steel prices and to high
oil prices. Two retail contacts specifically noted that
higher fuel prices and a shortage of truck drivers were


Federal Reserve Bank of Boston
Manufacturing and Related Services

industrial leasing and sales demand remained strong.
Boston contacts noted that office construction—including
speculative construction— is set to increase but the
extent of the increase was uncertain because most
projects were still in the planning stages. Other new
construction included hotel projects in Portland and
Providence, student housing in Providence, offices in
downtown Portland, apartments in suburban Portland,
and numerous small condominium developments around
the region. Investment sales demand was seen as stable
in Boston and strengthening in Providence. Although the
outlook for Connecticut remained weak, most contacts
were optimistic that commercial real estate market conditions would remain favorable.

All eight responding manufacturing firms reported higher
sales, with strength across many sectors. A contact in
the industrial distribution business said that activity had
finally recovered from the 2014 fall in oil prices, reporting
that increased demand was broad-based but energy was
playing a large role either directly or indirectly. Technology firms also reported strong sales. A manufacturer of
transformers for big-ticket electronic devices described
enormous difficulty finding components and said they
were keeping inventories at twice normal levels to ensure that they could keep their lines running.
No manufacturing contacts cited revisions to their capital
expenditure plans. Two reported major share repurchase
programs. The outlook was positive for all respondents
this cycle. The major concern manufacturers expressed
was trade policy. Some worried about the effects of
tariffs on their costs, while a maker of testing equipment
said they might move some production to Europe to
avoid Chinese retaliation against the United States.

Residential Real Estate
Residential real estate markets in the First District saw
mixed sales results. (Rhode Island, Massachusetts,
Maine, and Vermont reported year-over-year changes
from March 2017 to March 2018, while Greater Boston
and New Hampshire reported changes through April
2018. An ongoing technical issue made recent data for
Connecticut unavailable.) For single-family homes,
closed sales increased in Boston and New Hampshire
but decreased in Rhode Island, Massachusetts as a
whole, and Maine. For condos, closed sales increased in
Rhode Island, Boston, and New Hampshire, while Massachusetts as a whole saw a decrease. Vermont reported that closed sales declined for single-family homes
and condos combined. Inventory decreased in all areas.

Staffing Services
New England staffing firms have experienced an upsurge in business during the second quarter to date, with
nearly all reporting revenue growth, both year-over-year
and quarter-over-quarter. Reports were mixed on whether labor shortages were greater in skilled or unskilled
occupations, but most said that temporary positions had
been difficult to fill without the possibility of permanent
hire at the end of the assignment; at the same time,
clients were reportedly becoming more likely to retain
temporary hires for permanent positions to avoid search
costs later on. Respondents said they were increasing
referral bonuses and professional development opportunities in order to build networks and long-term relationships with workers. Looking forward, contacts expressed
optimism: Many expected a short-term boost from a
seasonal influx of college graduates and students looking for temporary summer work; on a longer horizon,
most expected current labor market conditions to continue, bringing both the great opportunity of strong demand
and the difficulty of sparse labor supply.

Median sales prices increased in all reporting areas. Although rising prices are favorable for construction, contacts noted that homebuilders in New England faced
many obstacles. A Massachusetts contact mentioned
high costs, legislative hurdles, difficulties in acquiring
land, and the need for approval from local governments,
which made it very hard for homebuilders to enter new
markets. Contacts expressed a generally positive outlook for activity in the coming months. ■

Commercial Real Estate
Commercial real estate markets held steady or improved
modestly in the First District. Office leasing activity was
described as decent in Providence and Portland, robust
in greater Boston, and light in Hartford. Effective office
rents were up 2 percent to 3 percent in Providence over
the past six months, and office rents continued to rise
modestly in Boston. Office vacancy rates were down
from a year ago in Boston, Providence, and Portland,
and flat in Hartford. With the exception of Connecticut,

For more information about District economic conditions visit:


Federal Reserve Bank of

New York
The Beige Book ■ May 2018

Summary of Economic Activity
Economic activity in the Second District has continued to grow at a modest pace. The labor market has shown further
signs of tightening, with some reports of accelerating wages. Input price increases have become increasingly widespread, and consumer price inflation appears to have picked up slightly. Growth has remained fairly brisk in the manufacturing sector and has picked up somewhat in the service industries. Consumer spending has been steady to stronger
in April and early May, buoyed by increased tourism. Housing markets have firmed slightly, while commercial real estate
markets have shown scattered signs of slackening. Finally, banks continued to report rising loan demand and no
change in delinquency rates.

Employment and Wages


Hiring has picked up somewhat, as the labor market has
continued to tighten. A major employment agency in
upstate New York reported that workers in skilled trades
and information technology are in particularly short supply. A New York City agency noted labor shortages
across a broad array of occupations and industries, with
reasonably qualified job candidates receiving multiple
offers and getting snapped up quickly. Labor shortages
in upstate New York were attributed, in part, to an aging

Businesses in most industry sectors reported increasingly widespread hikes in input prices—particularly in manufacturing, wholesale trade, and leisure & hospitality.
Contacts in almost all industry sectors anticipated further
increases in the months ahead.
Wholesalers report widespread hikes in selling prices,
while those in other sectors reported more moderate
increases. Still, retailers in both upstate New York and
the New York City area noted that they have been less
aggressive in discounting merchandise in recent weeks,
boosting effective sales prices. New York City hotels and
Broadway theaters have reportedly raised prices somewhat in recent weeks, with Broadway theater ticket prices up more than 10 percent from a year earlier. Looking
ahead, businesses generally said they planned moderate price increases.

Business contacts in finance and information continued
to report fairly brisk hiring, while wholesalers and leisure
& hospitality businesses noted moderate hiring. Firms in
manufacturing, health & education, and professional &
business services reported modest staffing increases,
while retailers and transportation firms noted flat to declining employment. Looking ahead, contacts in finance
and real estate planned to hire more briskly than those in
other sectors.

Consumer Spending
Retail sales were steady to stronger across the District in
April and May. Retailers reported a noticeable pickup in
sales in New York City, part of which was attributed to
increased tourism. One retail chain noted that sales
moved ahead of plan in recent weeks. In contrast, retailers in upstate New York indicated that sales were little
changed, despite fairly brisk customer traffic, and a few
store closings were reported. Inventories were generally

Wage growth has remained modest across upstate New
York but has picked up in and around New York City.
While businesses in education & health services reported subdued wage increases, contacts across all other
major service industries reported increasing wage pressures.


Federal Reserve Bank of New York
prices have declined modestly. Though its effect on the
market is not yet clear, there is some concern about the
new federal tax legislation reducing the deductibility of
homeowner expenses.

reported to be at satisfactory levels, and retailers were
moderately optimistic about the near-term outlook.
New vehicle sales in upstate New York weakened in
April and early May and fell well short of comparable
2017 levels. In contrast, sales of used cars picked up.
Vehicle inventories were said to be at or somewhat
above desired levels. Dealers continued to characterize
retail and wholesale credit conditions as favorable.

The rental market has been mixed as well. Apartment
rents have risen modestly across northern New Jersey,
the Lower Hudson Valley, and upstate New York but
have been flat across most of New York City, with record
high landlord concessions. One exception has been The
Bronx, where rents have risen fairly briskly. Throughout
most of the region, the higher end of both the sales and
rental market has continued to be relatively soft.

Consumer confidence in the Middle Atlantic states (NY,
NJ, PA) climbed in April, reaching its highest level in
almost two decades.

Manufacturing and Distribution

Commercial real estate markets have slackened somewhat overall. Office rents edged down in New York City
and Long Island, while availability rates edged up and
leasing activity slowed. Office rents and availability rates
have been mostly steady across upstate New York and
northern New Jersey, though leasing activity has slowed
slightly. The market for retail space has also continued to
soften across much of the District, though it has been
steady across upstate New York. The industrial market,
which had grown increasingly tight over the past year,
has leveled off across much of the District, though it has
continued to strengthen in northern New Jersey. A real
estate industry contact noted that high rents and diminishing availability of industrial and warehouse space in
New York City’s outer boroughs has driven many businesses to relocate to northern and central New Jersey.

Manufacturers reported continued solid growth in business since the last report. Transportation firms noted a
modest pickup in activity, while wholesalers indicated a
fairly brisk increase. Looking ahead, manufacturers
remained generally optimistic about the near-term outlook, though less so than earlier in the year. Wholesalers
and transportation firms remained fairly optimistic.

Reports from service-sector firms continued to indicate
modest, if any, growth in activity. Contacts in professional & business services and leisure & hospitality reported
modest growth, while those in the information sector
reported activity was flat. Businesses in health & education services noted modest declines in activity, on balance. Looking ahead, professional & business service
and information firms indicated that they were fairly
optimistic about the near-term outlook.

New multi-family construction starts have been steady to
down slightly across the District. New industrial development has slowed as well, and new office construction
has virtually ground to a halt, except in northern New
Jersey, though it has slowed there as well. In all these
categories, however, there continues to be a substantial
volume of space under construction.

Tourism in New York City has picked up further since the
last report. Broadway theaters reported a pickup in both
attendance and especially revenues, and retailers attributed some of a recent pickup in sales to increased
tourism. New York City hotels noted an increase in occupancy rates and revenue per available room, even with a
growing number of available hotel rooms.

Banking and Finance
Small to medium-sized banks in the District reported
higher demand for residential mortgages, commercial
mortgages, and C&I loans, but unchanged demand for
consumer loans and decreased refinancing activity.
Banks reported tighter credit standards for consumer
loans but unchanged standards across all other categories. Loan spreads narrowed for residential mortgages
and C&I loans. Widespread increases were reported in
average deposit rates. Finally, bankers reported unchanged delinquency rates across all loan categories. ■

Real Estate and Construction
Housing markets across the District have been mixed
but, on balance, a bit firmer since the last report. Real
estate activity in both the Buffalo and Rochester areas
picked up noticeably, as strong demand, combined with
lean inventories of homes on the market, have driven up
prices and sparked increasingly widespread bidding
wars. Low and declining inventories have also held down
sales volume and driven up prices in downstate New
York and southwestern Connecticut. Manhattan has
been the exception: Inventories have been at moderate
levels and edging up, and both sales activity and sales

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ May 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. Nonfinancial services appeared to accelerate to a moderate pace, and manufacturing activity continued to grow
moderately. Meanwhile, nonauto retail sales, tourist activity, and nonresidential leasing markets continued at a modest
pace. Contacts from new home construction and nonresidential construction reported no change in activity. Following
several periods of decline, auto sales appeared to have increased slightly, while existing home sales continued to decline moderately. On balance, employment, wages, and prices continued to grow modestly. However, many contacts
raised concerns about rising oil prices and prices for commodities linked to tariffs. The growth outlook over the next six
months remained positive, with over half of all firms anticipating increases in general activity.

Employment and Wages


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

While reports of rising prices are becoming more widespread, on balance, price increases remained modest.
Among nonmanufacturing firms, one-third reported increases for prices paid, and less than one-fourth reported increases for prices received – about the same as the
prior period. Reports of price increases were more widespread among manufacturing firms this period, with over
half noting higher prices paid and over one-third indicating higher prices received for their own goods.

On balance, wages also continued growing modestly,
although reports have risen of firms losing skilled employees to competitors and struggling to attract and
retain new qualified workers. Increasingly, firms are
responding by adjusting their wage structures. The share
of nonmanufacturing firms reporting increases remained
greater than 40 percent. Banking contacts noted few
signs of general wage inflation.

Builders continued to report rising prices, particularly for
materials containing lumber, steel, and oil derivatives.
Several manufacturers (and their bankers) cited rising
prices for aluminum ingot, steel, and oil – some passed
along the costs; however, margins shrank for others.
Looking ahead one year, nonmanufacturing firms anticipated receiving significantly higher prices for their own
goods and services – a moderate increase from one
quarter earlier. Manufacturing firms expected even higher prices, reflecting a small increase from their expectations last quarter. Overall, firms also reported slightly
higher expectations for annual consumer inflation.

Staffing firms continued to report steady demand for
temporary workers and direct hires in several local labor
markets, with increased wage pressures in the tightest
markets. According to one contact, clients are hiring
faster now compared with a few years ago when they
were indecisive about whether to hire and whom.


Federal Reserve Bank of Philadelphia

growth remained high, in fact, the percentage of firms
anticipating increased activity rose over 60 percent.

On balance, manufacturing activity maintained a moderate pace of growth. Nearly half of the firms reported an
increase in new orders, and somewhat fewer reported an
increase in shipments – just a slight drop from the prior
period. Moreover, the percentage of firms that reported a
decrease in new orders fell by half since last period.

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

The makers of lumber products, paper products, fabricated metal products, industrial machinery, and electronic
equipment tended to note gains in new orders and shipments; the makers of chemicals and primary metals
reported mixed results. One primary metal manufacturer
felt that the current slowdown was due to “customers
waiting for clarity on the issue of steel tariffs.”

During the current period, credit card lending began
growing at a moderate pace – ending its long seasonal
decline. However, credit card loan volumes have grown
moderately when compared with the same period last

Manufacturing contacts continued to expect general
activity to increase over the next six months; however,
the percentage of firms expecting future increases
dropped below 50 percent. The percentage of firms
expecting increases in future employment rose to nearly
one-half, but for future capital expenditures, the percentage fell to less than one-third.

Banking contacts continued to describe credit standards
as unchanged, credit quality as sound, and consumer
sentiment and business confidence as high and growing.
Numerous bankers noted growing pressure to raise
deposit rates, especially from municipal clients.

Consumer Spending
On balance, nonauto retail sales continued to grow
modestly. Mall retailers noted sales gains across nearly
all categories. As gas prices neared $3 a gallon in parts
of Pennsylvania, one contact noted concern but saw no
negative impact on spending yet.

Real Estate and Construction
Homebuilders reported little overall change in sales and
construction activity. A banking contact noted that a
former local builder is now earning more by renovating
existing homes and managing the rentals.

Pennsylvania auto dealers reported year-over-year gains
in sales for April, while New Jersey reported declines.
Dealers in both states noted that sales in early May
appeared stronger; however, year-to-date sales are still
a bit below last year’s very high levels.

Sales of existing homes continued to fall moderately in
most major Third District markets compared with the
same period last year. Brokers continued to blame a lack
of new listings for moderately priced homes.
Overall, nonresidential real estate contacts reported no
change in high levels of construction activity and in the
modest growth in leasing activity. Construction of industrial warehouse space continued apace – “a frenzy,”
according to one banking contact – faster than the labor
supply, according to another banker. ■

Tourism contacts continued to report modest growth
overall. A Philadelphia analyst cited gains in hotel occupancy despite absorbing new supply. Shore contacts are
generally optimistic for the summer season ahead. Atlantic City’s casino revenues fell on a year-over-year basis
in March and April.

Nonfinancial Services
On balance, service-sector firms reported moderate
growth in general activity – an uptick from the modest
pace of the prior Beige Book period. In particular, the
percentage of firms reporting increases in sales rose,
and the percentage reporting increases in new orders
rose significantly. A contact from one large firm also
noted that the delinquency rate on customers’ accounts
remained steady and very low. Expectations of future

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
Business activity in the Fourth District expanded at a moderate pace as customer demand held steady and confidence
remained high. Hiring improved slightly, though it remained moderate. Contacts continue to report difficulty finding qualified candidates in a broad array of occupations. Employers are raising wages to attract talent, but the increments are
moderate and in line with recent trends in the District. Rising commodity prices, especially for lumber and steel, are
pressuring goods producers. Construction firms and transportation companies were generally successful at raising their
selling prices. Also, retailers managed to increase their prices to cover higher fuel costs. Consumer demand, including
for autos, was stable to slightly higher. Housing and commercial real estate markets remained strong, although builders
are increasingly concerned about rising input costs. Manufacturing output trended higher.

Employment and Wages

not change much from the previous survey period, although there were notable shifts within industries. Pricing
power for banks fell sharply, which contacts attributed to
heightened competition. However, an increasing share of
construction contacts were able to pass along their increased costs, thanks to strong demand and higher
backlogs. Retailers, who had been holding their prices
steady for a long stretch of time, managed to raise their
selling prices recently to cover higher fuel costs. Transportation companies across the board raised freight
rates, as they have been doing in recent months, without
pushback from customers.

Hiring in the District improved slightly, though the pace
remained moderate. Contacts generally reported stable
demand for their products and stronger confidence,
which resulted in fewer firms reducing headcount. The
majority of firms reported replacing staff or making seasonal adjustments. The nonresidential construction
sector was a standout, as high project volumes motivated the majority of builders to add workers. Overall, contacts reported continued difficulty finding qualified candidates across a broad array of occupations. Nevertheless, no meaningful changes to wage pressures were
noted. In general, employers are raising wages to stay
competitive, but the increases are in line with recent
trends in the District.

Consumer Spending
Consumer demand increased modestly during the survey period. Seasonal factors aside, clothing retailers,
department stores, and food retailers noted stable demand. Retail sales activity in the District was reported to
be in line with or weaker than activity seen throughout
the United States. One grocery chain operator noted that
population loss in his region and increased use of alternatives to physical store locations had led to weaker
regional sales activity relative to the rest of the country.
Looking ahead to the next several months, most respondents expect stable demand. However, uncertainty
surrounding tariffs on Chinese imports is a source of

Input price increases gained momentum, especially for
construction materials. Builders widely noted ongoing
lumber cost increases. Also, the threat of tariffs was
reported as having led to hikes in steel prices. To a
lesser extent, cement price increases were also noted.
As with builders, manufacturers observed similar upswings in metals prices and added rising transportation
costs to their list of concerns. Overall, firms’ ability to
pass along input price increases to their customers did


Federal Reserve Bank of Cleveland
concern for some retailers that have operations overseas
or use imported goods as inputs.

mand for speculative lease products.

In the auto industry, customer demand improved modestly, thanks to improving labor markets, better weather,
and higher consumer confidence. Furthermore, most
auto dealers expect customer demand to remain stable
going into the next quarter. Some auto dealers reported
weaker sales in the region relative to the rest of the
country, a situation which they partly attributed to prolonged cold weather conditions. Additionally, some auto
dealers indicated that lenders are tightening credit and
that loan and lease payments made by consumers are
rising because of higher interest rates.

Bankers reported stronger demand for financial services
as construction lending, home equity lines, and mortgage activity picked up with the warmer weather. Demand for commercial credit increased as customers
drew down cash reserves at the beginning of the year
and pivoted back to relying on credit. Business confidence remained high, and some contacts reported that
their customers increased their capital expenditures.
Core deposits increased over the past two months. In
some areas, deposit increases were driven by royalty
checks and bonuses from increased shale activity. That
aside, most contacts cited seasonal changes following
tax filing season as boosting deposits. Businesses that
had drawn down deposits to pay taxes at the beginning
of the year have since increased their balances, while
many consumers received refund checks that they have
yet to spend. In addition, one contact noted that increased competitive pressure had led to higher deposit
rates and special incentives to win deposits from nonbank competitors.

Financial Services

Most contacts in manufacturing indicated that demand
was better during the past two months because of strong
consumer confidence, seasonal factors, and the fear of
future price increases leading to accelerated purchasing.
Many fabricated metals and durable goods producers
noted increased demand for heavy machinery and other
capital goods. Some even moved up capital expenditures and plant expansions to keep up with increasing
demand. Extractive industries, transportation equipment,
and agriculture were noted as strong end markets. Because of trade-related price increases, most contacts did
not believe that this strong demand would continue
during the remainder of 2018. Finished goods inventories were down because of increased demand and uncertainty about future prices.

Nonfinancial Services
Nonfinancial services firms reported strong demand,
thanks to generally favorable economic conditions. Notably, transportation firms cited an uptick in industrial production, construction, and activity in the energy industry
as leading to higher freight volumes. Railroad contacts
attributed some of their volume growth to ongoing capacity constraints in the trucking industry. Within the professional services sector, business advisory firms and software developers reported the strongest activity, which
they attributed to improved business earnings, profits,
and confidence. One contact noted increasing digital
transactions as driving demand for his firm’s software. A
number of professional services firms reported boosting
their capital investments, namely for cybersecurity and IT
infrastructure. ■

Real Estate and Construction
Homebuilders reported that overall customer demand
was either steady or improving and that current trends
are expected to continue into the next few months. A
stronger job market, higher mortgage rates, and rising
home prices were noted as enabling and motivating
purchases. Financing conditions for homebuilders were
reported to be stable. Real estate agents noted stable
demand for first-time home purchases and Section 8
vouchers. Some contacts reported increases in housing
inventory. Sales of homes in the lower price range
strengthened, according to some contacts, while sales of
higher-priced homes softened. Financing conditions for
homebuyers remain generally stable.
Business conditions for nonresidential builders improved
from what was an already strong environment. Contacts
noted decreased uncertainty and pent-up demand as
supporting activity and leading to increased backlogs.
One contact noted his company had a record month for
contracts because of manufacturing and distribution
projects. Another contact noted a recent uptick in de-

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
The Fifth District economy expanded at a moderate pace in recent weeks. Manufacturing conditions improved moderately and port activity remained strong. Trucking demand remained robust, and driver shortages have led some trucking
companies to turn some business away. As a result, some shippers turned to rail. Reports from retailers were mixed as
furniture and equipment sales picked up but new car sales declined. Travel and tourism remained strong, despite some
adverse weather limiting outdoor recreation. Residential real estate markets improved modestly as home sales were
steady, while inventories remained limited. Commercial real estate leasing activity increased, particularly for retail and
industrial space. Overall, loan demand grew modestly and competition for deposits intensified. Nonfinancial services
firms reported a modest rise in demand. Natural gas and coal production picked up in recent weeks while agriculture
reports were mixed. The demand for labor continued to strengthen while supply remained tight across industry sectors.
Prices rose moderately; firms reported rising steel and aluminum prices and increasing transportation costs.

Employment and Wages

changed in recent weeks while thermal coal prices rose

Labor demand continued to strengthen moderately in
recent weeks, while supply remained tight across industry sectors. Employment agencies noted a slight decrease in job openings compared to the strong spring
recruiting levels. Staffing firms reported increased demand for warehouse managers, customer service representatives, and medical and legal professionals. Meanwhile, business owners reported difficulty filling positions
for carpenters, machinists, electricians, engineers, truck
drivers, IT professionals, and construction workers.
Wage increases remained modest across sectors, but a
few firms reported increased wage pressures.

Manufacturing business conditions improved moderately.
A cabinet manufacturer attributed an increase in demand
to companies beginning to spend more after the tax cuts.
A Virginia engine manufacturer said that high demand
was causing the firm to produce as fast as it could get
raw materials. Meanwhile, a West Virginia wood products manufacturer reported record business but thin
profit margins because of high costs of lumber and rising
trucking prices. Many manufacturers continued to express concerns about the negative impact that rising
steel prices could have on their businesses, and a North
Carolina door frame manufacturer anticipated a bad year
because of high aluminum costs.

On the whole, prices grew at a moderate rate since the
previous Beige Book. According to our most recent
surveys, manufacturers reported moderate growth in
input prices while selling prices rose at a more modest
pace. Manufacturers saw input prices rise for steel and
aluminum, corrugated boxes, specialty chemicals, paint,
and hardware. Additionally, rail and truck transportation
prices moved higher. Homebuilders continued to report
higher prices for raw materials and for land and lots.
Service sector price growth remained modest, overall,
but firms expected prices to rise at faster pace over the
next six months. Metallurgical coal prices were little

Ports and Transportation
Activity at District ports remained robust in recent weeks
as contacts reported record volumes and expectations
for continued strength. One port executive said that
volumes remained strong despite some volatility in shipments resulting from delays at other east coast ports.
Increasing shipments led one port to increase loading
hours for trucks, but it still had to shift more of its volumes to rail as truck capacity dwindled. At least one port


Federal Reserve Bank of Richmond
was investing in more terminals with the expectation that
strong year-over-year volume increases will continue
well into the future.

down new home production. However, in most markets,
new residential development picked up in recent weeks.
Commercial real estate leasing rose moderately in recent weeks as brokers reported strong demand for retail
and industrial space; however, reports on office demand
were mixed. Vacancy rates remained low across markets, while rental rates were reportedly stable to increasing modestly. Commercial sales rose modestly, according to a few brokers, with warehouse and industrial building sites representing the majority of transactions. Commercial construction increased modestly in some regions. Multifamily leasing remained healthy in most

Trucking remained strong in recent weeks as companies
struggled to meet the high demand with a shortage of
drivers. A Virginia trucking company said they were
investing in better equipment in an effort to recruit drivers. Meanwhile, a North Carolina trucking company
reported quadrupling rates for high-risk customers in
order to ease demand but found that some customers
were willing to pay the new rates. Higher shipping rates
allowed trucking companies to increase profits despite
rising labor costs. Many shippers had to turn to rail as
trucking firms turned them away. A Virginia rail company
reported seeing record profits so far this year but also
struggled to keep up with demand.

Banking and Finance
Since our previous beige book, loan demand grew modestly. Overall, bankers said that consumer demand was
increasing at a healthy rate; however, reports on demand for business and commercial loans were mixed. In
the District on the whole, residential mortgage demand
grew at a modest pace. Deposit rates increased, and
contacts reported that competition for deposits had intensified. Credit quality remained strong while credit standards were generally unchanged. Interest rates rose
slightly in recent weeks.

Retail, Travel, and Tourism
Retailers reported mixed business conditions recently. A
Virginia hardware store said that sales were volatile,
which was largely weather-related, but a West Virginia
equipment company reported record high sales. A Virginia furniture store saw strong business but struggled
with high inventory. Several retailers expressed concerns about future profits because of rising steel and
labor costs. Auto dealers in North Carolina and Virginia
reported weakening sales, particularly in new cars, as
high prices and rising interest rates reduced affordability.

Nonfinancial Services
Overall, the demand for nonfinancial services rose modestly in recent weeks. Demand strengthened for warehouse and storage leasing and for management and
administrative support services. Creative services, such
as marketing, also saw stronger activity. Meanwhile,
demand softened for telecom services, health and social
services, and for some professional and business services that rely on federal spending.

Travel and tourism activity remained strong, overall, in
recent weeks despite some adverse weather conditions.
For example, a Virginia resort reported strong bookings
despite the weather but low participation in outdoor
activities. Graduations brought business to many hotels
and leisure travel picked up in Washington, D.C. In
Charleston, South Carolina, hotels and restaurants saw
stronger sales but were concerned about the number of
new establishments scheduled to open in the next year.
Despite reporting high revenue, a West Virginia adventure center expressed worries about low state tourism

Agriculture and Natural Resources
Natural gas production rose moderately and pipeline
construction picked up since our previous report. Coal
production increased slightly as coal exporting was
buoyed by supply disruptions in Australia. Agricultural
reports were mixed as poultry demand rose but dairy
farm activity declined. ■

Real Estate and Construction
Home sales increased modestly in recent weeks. District
Realtors reported that single family inventories remained
low, new listings continued to sell quickly, and traffic was
slightly lower. A Washington, D.C., agent saw more
homes selling before being listed, and the median days
on the market declined to just eight days. In other areas,
average days on the market edged down further from
existing low levels, while home prices continued to rise
modestly. New home sales and construction slowed
slightly as overburdened subcontractors were slowing

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
Sixth District business contacts reported that economic activity continued at a modest pace from April through mid-May.
The outlook among contacts remains optimistic with most firms expecting modest growth to continue over the next three
to six months. District firms still report difficulties finding candidates across a broad range of industries and skills, and
reports of wage pressure varied widely based on geography and job type. Most nonlabor input cost pressures were
subdued; however, there were reports of rising steel and aluminum prices as a result of the new tariffs. On balance,
District merchants reported a slight increase in sales levels since the previous report, and auto dealers noted light trucks
sales were solid. The tourism sector continued to note positive activity. According to residential real estate contacts,
home sales were mixed and prices continued to modestly appreciate compared with a year ago. Builders reported that
new home construction increased since the previous report. Commercial real estate contacts indicated that demand
continued to improve. Manufacturing purchasing managers cited increases in new orders and production.

Employment and Wages


Business contacts continued to report a tightening labor
market across some geographies, industries, and skill
sets. Finding and retaining hospitality workers, long-haul
drivers, technicians, skilled craft laborers, distribution
workers, nurses and other medical staff, and information
technology professionals was especially difficult. Contacts also noted that geographic mobility was a major
challenge, as workers’ willingness to relocate for a position remained more challenging than in the past. Overall,
contacts expressed that recruiting and retention efforts
were much more aggressive and creative than they were
a year ago. Firms also continued to boost training efforts
and programs for existing employees and less experienced employees, to expand partnerships with workforce
development entities and community colleges, and to
broaden their geographical search for candidates.

Overall, contacts reported that input costs were mostly
flat with some reporting limited pricing power. However,
most manufacturing contacts reported increases in input
costs, particularly for steel, aluminum, and transportation. Some companies reported the ability to pass along
these commodity input cost increases due to expectations of rising costs related to tariffs. The Atlanta Fed’s
Business Inflation Expectations survey showed yearover-year unit costs were up 1.9 percent in May. Looking
ahead, survey respondents indicated that they expect
unit costs to rise 2.0 percent over the next twelve

Consumer Spending and Tourism
On balance, District retail contacts reported a slight pickup in sales levels since the last report. Retailers expect
modest increases in spending over the summer months.
Sales of light trucks continue to remain strong according
to auto dealers.

On average, annual wage increases remained in the two
to four percent range. The intensity of wage pressure
varied greatly across the region. Firms reporting mild
pressure typically responded by offering nondirect wage
benefits, like increased vacation time, flexible scheduling, and marketing a positive culture to both existing and
potential workers. In cases where wage pressures were
described as “acute,” if firms were still not able to meet
demand with their existing labor supply after implementing nonwage benefits, they typically raised wages, often

Tourism and hospitality contacts across the District
reported growth in the number of visitors and activity in
April compared to a year ago. Expectations among most
contacts are for a strong summer season in leisure and
business travel.

Construction and Real Estate
Reports from District residential real estate contacts


Federal Reserve Bank of Atlanta
signaled modest but continued growth. Builders reported
construction activity in May was slightly up compared to
one year earlier. Builders indicated that home sales and
traffic were flat to up slightly from the year-ago level;
while broker reports were mixed. Most builders said
inventory levels remained unchanged from one year ago;
while brokers noted that inventory levels were down. The
majority of builders and brokers continued to report
home price increases in May. Southeast builders expect
home sales to meet or exceed the year-ago level over
the next three months; while brokers expect home sales
activity to increase slightly over the same period. Many
builders expect the pace of construction activity over the
next three months to hold steady or increase slightly.

raise overall costs and slow activity. However, while
uncertainty over trade policy had not negatively impacted
capital projects already underway, a number indicated
that they have tapped the brakes on projects in the planning phases. Even so, the majority of contacts expect
activity over the next 12 months to increase.

Banking and Finance
District financial institutions continued to report solid loan
growth. However, as interest rates increased, bankers
expressed concerns about the impact on deposits and
liquidity. Community bank contacts reported that they
were experiencing deposit pressure as competitors
begin to raise rates. Overall, growth in borrowing exceeded growth in deposits; however, the majority of loan
growth was still being funded by nonmaturity deposits.

Many District commercial real estate contacts noted
improvements in demand that continued to result in rent
growth and increased absorption, but cautioned that the
rate of improvement varies by metropolitan area, submarket, and property type. The majority of commercial
contractors indicated that the pace of nonresidential and
multifamily construction activity matched the year-ago
level. Most contacts reported a healthy pipeline of activity, with backlogs greater than or equal to the previous
year. Commercial construction contacts’ outlook for
nonresidential and multifamily construction across the
District remained positive, with the majority anticipating
activity to match or exceed the current level.

Energy sector contacts described overall industry activity
as steady to up from the prior report. Onshore shale
drilling activity continued to accelerate, though offshore
exploration and production remained depressed. Contacts expect a record year of natural gas supply growth
in 2018, which, along with growing crude supply, generated pipeline construction projects in order to increase
capacity. Chemical refining companies experienced
continued, steady demand. Exports of refined chemical
products and crude oil continued to surge as many refineries increased capacity. Rising crude exports also
reduced demand for storage needs, leading some firms
to pull back from creating or constructing storage capacity. Contacts from the utilities sector noted that while
industrial segment growth was up, behavioral trends
among residential and commercial customers to reduce
energy usage lowered electricity sales.

District manufacturers indicated that overall business
activity remained strong over the reporting period. Contacts reported that sales levels and demand for new
orders were solid, and production levels continued to
increase. While there were scattered reports of firms
decreasing or holding employment levels steady, most
firms suggested they were adding to their payrolls. Expectations for future production levels decreased from
the previous period, as a little less than half of contacts
expected higher production over the next six months.

Agriculture conditions across the District were mixed.
Drought conditions abated in parts of Alabama and
Georgia but deteriorated slightly in south Florida. May’s
forecast for Florida's orange crops was down from April.
On a year-over-year basis, prices paid to farmers in
March were up for corn, rice, soybeans, broilers, and
eggs, flat for beef, and down for cotton. ■

Most District transportation firms cited increased activity
from April through mid-May. At District ports, container
volumes, along with roll-on/roll-off auto and machinery
cargo, bulk and breakbulk cargoes, continued to grow.
Railroads reported modest gains in intermodal traffic
from year earlier levels. However, overall year-to-date
rail volumes were down slightly, driven by declines in the
movement of nonmetallic minerals (including phosphates), iron and steel scrap, waste and nonferrous
scrap, and metallic ores. Freight forwarders and logistics
firms noted strong demand for delivery services. Contacts cited concerns that steel and aluminum tariffs will

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
Growth in economic activity in the Seventh District remained at a moderate pace in April and early May, and contacts
expected growth to continue at that pace over the next 6 to 12 months. Manufacturing production increased strongly,
employment grew moderately, consumer and business spending rose modestly, and construction and real estate activity increased slightly. Wages and prices increased modestly and financial conditions improved modestly. The outlook for
farm income brightened, due largely to improvements in the crop sector.

Employment and Wages

“highly competitive.” Producer prices rose modestly,
reflecting in part the pass-through of higher labor, materials, and freight costs. Numerous contacts noted that
freight costs had increased dramatically.

Employment growth remained at a moderate 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 on professional and
technical workers. As they have for some time, contacts
indicated that the labor market was tight and reported
difficulties filling positions at all skill levels. There continued to be reports from manufacturing and construction
firms that they had delayed or turned down projects
because of difficulties in finding workers. There were
also reports of firms choosing not to lay off workers
during production lulls so that they would not have to find
new workers when activity picked up again. Wage
growth remained modest overall, though a number of
contacts noted that wage pressures had intensified in
recent months, and there were more reports of pay
increases for production workers. Most firms reported
rising benefits costs.

Consumer Spending
Consumer spending increased modestly over the reporting period. Nonauto retail sales rose slightly, with gains
reported in the furniture, appliances, home improvement,
and personal services segments. One contact noted an
increase in purchases using credit, particularly for durable goods. Contacts were generally optimistic about the
coming summer sales season. Light vehicle sales rose
slightly. The sales mix of new light vehicles continued to
shift toward light trucks, particularly toward crossover
utility vehicles. Used vehicle sales increased modestly.

Business Spending
Business spending increased modestly in April and early
May. Retail contacts indicated that inventories were
generally at comfortable levels. Most manufacturing
contacts did so as well, though some noted that strong
demand had led to shortages of some of their products
and others said that lead times from parts and materials
suppliers had increased. 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

In general, prices rose modestly in April and early May,
and contacts expected prices to continue to increase at
that rate over the next 6 to 12 months. Retail prices were
flat overall, though there were reports of price increases
in the home improvement and the lawn and garden
segments. One contact indicated that retail pricing was


Federal Reserve Bank of Chicago
for renovating structures. Dealers reported that sales of
medium-duty trucks remained robust. Contacts again
indicated that lead times for purchasing new equipment
had increased. Demand for energy by commercial and
industrial users increased modestly. Demand for transportation services increased moderately from an already
high level.

Banking and Finance
Financial conditions improved modestly over the reporting period. Financial market participants reported little
change in equities prices or volatility but some increase
in interest rates. Business loan demand increased slightly, led by growth in small business lending. Loans were
primarily for financing real estate and capital equipment.
While competition remained strong, contacts reported
little change in lending standards or loan quality. Consumer loan demand increased modestly, driven by increases in residential mortgage activity. Consumer loan
quality and lending standards were little changed.

Construction and Real Estate
Construction and real estate activity increased slightly
over the reporting period. Residential construction increased slightly, led by growth in suburban single-family
homebuilding. Multiple contacts noted strong demand for
single-family starter homes but stated that low inventories continued to hold back sales. Prices were up notably
in this market segment. In contrast, demand and prices
for higher-end homes changed little. Contacts also indicated that rising labor and materials costs were making it
difficult for homebuilders to turn a profit. Nonresidential
construction was little changed overall, though contacts
again said they expected building to pick up in the coming months because vacancy rates were low, particularly
in the industrial segment. Commercial real estate activity
was flat but at a strong level. Commercial rents, vacancy
rates, and the availability of sublease space were all

The outlook for farm income for 2018 brightened again,
with improvements concentrated in the crop sector.
Nonetheless, several contacts expressed unease over
the potential impact of international trade policies on the
farming sector. After weather-related delays, corn and
soybean planting proceeded quickly in Illinois and Indiana, to the point that it was running ahead of normal
progress. However, Iowa and Wisconsin were somewhat
behind their typical paces for planting. Corn prices rose
during the reporting period, while soybean prices drifted
down. Dry weather and the late spring hindered the
development of pastures, which led to shortages of and
higher prices for hay, cutting into margins for some livestock producers. Cattle and egg prices were down, but
hog and dairy prices moved up. Dairy prices were still
quite low, however, and there were reports of a bump up
in operators exiting the sector. ■

Growth in manufacturing production continued at a
strong rate in April and early May. Steel production increased moderately, in response to steady end-user
demand. Imports slowed after the steel and aluminum
tariffs were enacted, and contacts noted ongoing uncertainty about whether there would be further changes in
tariffs policy. Demand for heavy machinery increased
strongly, reflecting both end-user demand and dealers
rebuilding inventories. Demand for heavy trucks remained at a high level and one contact noted that heavy
truck producers were running at close to full capacity.
Order books for specialty metals manufacturers increased modestly. 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 ■ May 2018

Summary of Economic Activity
Economic conditions in the District have improved slightly since our previous report. Firms reported slight increases in
employment despite continued difficulties finding workers. Wages and nonlabor costs increased at a moderate pace.
Prices and price pressures grew modestly. Reports from consumer spending contacts were mixed. Manufacturers reported declines in production, capacity utilization, and new orders. Contacts in nonfinancial services indicated modest
growth across their sectors. Residential real estate contacts reported sluggish sales resulting from low inventories and
slightly lower demand, while construction activity increased modestly. District bankers reported slightly weaker demand
and a decline in the creditworthiness of loan applicants. Agriculture conditions improved modestly. Overall, the outlook
among contacts weakened somewhat but remains optimistic. On net, 27 percent of contacts expect conditions in 2018
to be better or somewhat better than in 2017.

Nonlabor input costs rose modestly, though at a slower
pace than the previous survey three months ago. On net,
29 percent of contacts reported that costs were higher
than a year ago. Multiple contacts noted that construction costs increased. In particular, a contact in Little Rock
reported a strong increase in lumber prices, and several
contacts in Louisville reported that the proposed steel
and aluminum tariffs caused metals prices to rise. Automotive and corrugated products manufacturers also
reported increases in raw materials prices.

Employment and Wages
Employment has increased slightly since the previous
report. Of the contacts surveyed, on net, 13 percent
reported that second-quarter employment was higher or
slightly higher than a year ago. Several firms across a
variety of industries announced plans to expand and hire
new employees, including manufacturers of chemical
products, wood products, and primary metals. Contacts
in Missouri and Arkansas also reported difficulties filling
skilled technical and engineering positions. Some local
employers have begun relaxing drug-testing standards
and reducing restrictions on hiring convicted felons in
order to alleviate labor shortages.

Commodity price movements were mixed. Sorghum and
soybean prices decreased modestly; coal, corn meal,
cottonseed, rice, and soybean meal were flat; and corn,
corn feed, cotton, and wheat prices increased modestly.

Contacts reported moderate wage growth since the
previous report. On net, 51 percent of contacts reported
wages were higher or slightly higher than a year ago,
and 43 percent reported increases in labor costs. Several contacts noted that the tight labor market has exerted
upward pressure on wages for both entry-level and
skilled positions.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate mixed consumer spending activity. Real
sales tax collections increased in Arkansas and Tennessee relative to a year ago, remained flat in Missouri, and
declined in Kentucky. Reports on sales from general
retailers were mixed. On net, 40 percent of auto dealers
indicated that sales were below expectations in the
second quarter. About the same net percentage noted a
shift in demand toward used vehicles. Hospitality and
tourism contacts in Missouri reported business activity
that met or exceeded expectations and have a positive
outlook for the next few months.

Overall, prices charged to consumers increased at a
modest pace. On net, 31 percent of contacts reported
that prices were higher than a year ago. This is higher
than three months ago, indicating an increase in growth
from earlier this year.


Federal Reserve Bank of St. Louis

Banking and Finance

Overall manufacturing activity has declined slightly since
our previous report. Most contacts reported that production, capacity utilization, and new orders were down in
the second quarter relative to one year ago, with greater
shares reporting declines in production and new orders
than in our previous survey. The percentage of contacts
reporting increases in new orders has fallen for over a
year. However, contacts were more optimistic about the
next quarter.

Banking market conditions in the District have weakened
slightly since the previous report. Banking contacts reported that demand for mortgage and auto loans fell
modestly in year-over-year terms while demand for
business loans was flat. Bankers also reported that the
creditworthiness of loan applicants declined relative to
last year, particularly among applicants for auto loans
and credit cards. Delinquencies fell across all loan categories but to varying degrees; mortgage and auto loan
delinquencies dropped slightly, while delinquencies on
business loans and credit cards decreased at a moderate rate.

Nonfinancial Services
Activity in the service sector has expanded modestly
since the previous report. Transportation and service
contacts generally reported that sales met expectations
in the current quarter. On net, 23 percent of contacts
reported higher dollar sales in the current quarter than
this time last year, and 43 percent expect sales to be
higher in the next quarter relative to the same time a
year ago.

Agriculture and Natural Resources
District agriculture conditions improved modestly from
the previous reporting period and robustly from the same
time last year. After contacts reported concerns about
weather being too wet and cold for a strong early planting season, mid-May planned acreage planted for corn,
cotton, and soybeans were, respectively, 13, 12, and 24
percentage points above the same time last year. Rice
planting progress was slightly behind 2017. Contacts
indicated that the prospective Chinese tariffs on U.S.
soybeans would be damaging to exporters but at this
point seemed unlikely.

Real Estate and Construction
Residential real estate activity has declined slightly since
the previous report. Seasonally adjusted home sales
dipped slightly in March across the four major MSAs in
the District. On net, a third of contacts reported that
sales halfway through the second quarter have fallen
short of expectations. Contacts attributed this shortfall to
a decline in inventory and a slight drop in demand relative to the same time last year. However, demand is
expected to return to year-ago levels in the third quarter.

Natural resource extraction conditions were roughly
unchanged from the previous report and year. Seasonally adjusted coal production fell 1 percent from March to
April, and April production was also down 4 percent from
the same month last year. ■

Residential construction activity has increased modestly
since the previous report. There was a moderate uptick
in March permit activity across most of the District’s
MSAs. On net, only 10 percent of contacts reported that
residential construction increased in the second quarter
compared with a year earlier, but around twice that number expect activity to increase in the coming quarter.

Commercial real estate activity improved slightly. Local
contacts, on net, reported increased demand for industrial and office properties relative to a year ago. They also
state that inventories for both property types have declined. These trends are expected to continue into the
third quarter.
Commercial construction activity improved modestly. On
net, contacts reported higher demand for construction of
all property types and noted that inventories for industrial
and retail property types have improved. The majority of
contacts continued to have an optimistic outlook for the
remainder of 2018.
For more information about District economic conditions, visit:


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
The Ninth District economy grew moderately since the last report. Employment grew modestly and continued to be
restrained by a tight labor supply. Wage growth was moderate, while price pressures increased slightly. Growth was
noted in consumer spending, services, commercial construction, commercial real estate, manufacturing, energy, and
mining. Agriculture and residential real estate conditions were mixed, while residential construction was broadly lower
across the District.

Employment and Wages

stronger growth. A majority of Minnesota staffing firms
said wages paid by clients in the first quarter of 2018
were more than 3 percent higher than a year earlier.
However, a notable majority of staffing respondents
expected wages at their own firms to grow less than 3
percent. A poll of Montana human resource
professionals found that close to half expected average
wages this year to increase by more than 3 percent.
However, a poll among Minnesota construction firms
showed that 2018 wage expectations were more modest
despite persistent reports of labor shortages.

Employment grew modestly since the last report and
continued to be restrained by a tight labor supply. Hiring
demand appeared robust. A job fair in northwestern
Wisconsin had a full roster of interested employers and
had to turn away others. A job fair in eastern Minnesota
was also sold out with 50 employers, who reported
almost 1,700 open positions. North Dakota saw April
online job postings rise 9 percent over a year ago.
Minnesota construction firms reported strong hiring,
especially among skilled workers. A poll of human
resource professionals in Montana found near-universal
hiring, along with more unfilled jobs compared with last
year. A poll of Minnesota staffing firms found that a
majority saw job orders increase in the first quarter of
2018 compared with the same period a year earlier, and
similar results were expected in the second quarter.
However, hours booked did not grow at a similar rate,
reflecting an inability to find workers for available jobs.
There were some signs of softness. Through the end of
April, initial unemployment insurance claims were higher
in Minnesota and Wisconsin, temporarily halting a
lengthy downward trend; continuing claims were also
higher in Minnesota and South Dakota. The bankruptcy
of a major retailer has affected or will affect an estimated
2,000 or more workers across the District.

Price pressures increased slightly relative to the previous
report, while certain input prices were growing more
rapidly. An April survey of purchasing managers
indicated increased inflation expectations relative to the
previous month. Contacts from manufacturing, energy,
and construction reported that prices of steel products
continued to increase sharply in response to recently
announced tariffs. Retail fuel prices in most District
states as of mid-May increased briskly from the previous
reporting period. Prices received by farmers for corn,
soybeans, wheat, hay, chickens, and eggs increased in
March compared with a year earlier; cattle prices were
flat, while prices for milk, hogs, and turkeys decreased.

Consumer Spending and Tourism

Wage pressures were moderate but with some signs of


Federal Reserve Bank of Minneapolis
Consumer spending rose modestly since the last report.
Several Montana bankers noted an increase in
consumer retail loans, especially home equity loans,
which were being used for home improvements and
general spending. An operator of several car dealerships
reported that new car sales were up every month this
year relative to last, while used car sales were flat. While
gaming revenue this spring in Deadwood, S.D., declined
by 5 percent compared with a year earlier, total hotel
stays and occupancy rates in the region rose compared
with last year; Minnesota lodging demand also increased
by 1 percent over a year earlier. Thanks to heavy
snowfall, Montana resorts reported strong ski seasons;
one resort bested its previous record for visitors by 10
percent. However, a cold and wet spring—including
record April snowfall in some parts of the District—
delayed or otherwise dampened fishing-related visits and
spending in northern areas, where lakes remained
frozen as long as a month later than normal.

also lower in Rochester, Minn., Fargo, N.D., and Billings,
Commercial real estate grew modestly since the last
report. In Minneapolis-St. Paul, industrial activity saw
continued growth, with solid levels of new construction
and low vacancy rates. Office sales in the region have
been brisk, and vacancy rates in this sector have been
stable. Apartment sales have slowed year-to-date in
Minneapolis-St. Paul compared with last year, though
2017 was a very strong year. The recent bankruptcy of a
national retailer will see the closure of almost 40 stores
and well over 1 million square feet of space in the
district; this comes on top of numerous earlier chainstore closures this year. While retail vacancy rates in
some cities have remained stable, others have risen,
including in Eau Claire, Wis. Residential real estate was
mixed. April sales in Minnesota were down 3 percent
from a year earlier, with Minneapolis-St. Paul seeing a
drop of almost 6 percent. However, Missoula and
Bozeman, Mont., saw notably higher sales, and Sioux
Falls home sales also rose slightly.

Activity in the professional services industry increased
moderately since the last report. Accountants reported a
strong tax season, partly due to recent changes in
federal tax policy. Contacts reported major disruptions in
international supply-chain management and importexport banking business due to uncertainty over trade
policy. While the health care sector has seen strong
growth overall, rural healthcare providers were
experiencing weaker demand, as the slowdown in
agriculture lingered.

District manufacturing activity increased robustly. An
index of manufacturing conditions indicated strongly
increased activity in April compared with a month earlier
in Minnesota and South Dakota; the index for North
Dakota indicated flat to slightly decreased activity.
Multiple contacts from a diverse group of industries
described strong orders so far this year, with some
experiencing record growth; strong demand was leading
to challenges filling orders and to increased lead times.
Contacts were also concerned about supply-chain
disruptions in the steel and aluminum materials markets
in response to recent tariff announcements.

Construction and Real Estate
Commercial construction saw moderate growth overall
since the last report, though activity levels differed
regionally. An industry database of project activity across
multiple states showed that current levels were similar to
last year’s solid activity. A Minnesota concrete contact
reported that commercial construction “continues to be
busy.” However, the aforementioned poll of Minnesota
construction firms found less optimism, with a majority
reporting flat or lower activity compared with a year ago,
likely the result of a cold and wet April. Certain markets,
including Sioux Falls, S.D., and Mankato and St. Cloud,
Minn., have seen strong permitting activity this spring.
Medical construction continued to show strength, with
major hospital expansions announced in Minnesota and
Montana. Residential construction was broadly lower
across most of the District. Following a strong March,
residential permits in Minneapolis-St. Paul fell
significantly in April. Single-family permits in April were

Agriculture, Energy, and Natural Resources
District agricultural conditions were mixed. While recent
increases in some commodity prices were viewed as a
positive sign, farmers were also concerned about access
to international markets. Late-season snows delayed
spring planting in much of the District, with crop progress
well behind five-year averages as of mid-May. Activity in
the energy sector continued to increase. District oil and
gas exploration increased from the previous report.
March natural gas production in North Dakota hit a new
record, while oil production declined slightly. District iron
ore mines were operating near capacity, and an idled
facility was reportedly considering restarting production.


Federal Reserve Bank of

Kansas City
The Beige Book ■ May 2018

Summary of Economic Activity
Overall Tenth District economic activity expanded at a moderate pace in April and early May, with many contacts expecting further growth in the months ahead. District manufacturing contacts reported a more rapid pace of expansion
compared to the previous survey. Consumer spending, energy, and business services activity increased at a moderate
pace, while District real estate firms reported a modest pace of growth. Bankers reported a modest increase in overall
loan demand and deposit levels, and a moderate improvement in loan quality. Agricultural conditions weakened, but at a
slower pace, as most commodity prices have risen slightly. Employment and employee hours continued to rise modestly, and contacts reported modest wage growth with moderate increases expected in coming months. Input prices were
up moderately compared to the previous survey period, while selling prices rose modestly.

Employment and Wages

rise in prices for finished goods, while raw material costs
continued to increase moderately. Manufacturers anticipated moderate price gains for both finished goods and
raw materials in the next few months.

District employment and employee hours continued to
rise modestly in April and early May, and expectations
were for a slightly faster pace of growth in the months
ahead. Contacts in the auto sales, education, restaurant,
and health services sectors noted a decline in both
employment and employee hours, while all other sectors
reported growth. All sectors expected an increase in
employment in the months ahead with the exception of
auto sales. Respondents noted a shortage of commercial drivers, salespeople, and service workers.

Consumer Spending
Consumer spending activity grew moderately in April and
early May, and firms expected strong growth in coming
months. Retail sales increased moderately compared to
the previous survey period, and remained well above
year-ago levels. Several retailers noted an increase in
sales for outdoor and lower-priced items, while higherpriced products sold poorly. Retail contacts anticipated
sales to rise considerably in the next few months, and
inventory levels were expected to increase moderately.
Auto sales rose rapidly after many months of decline and
were above year-ago levels. Dealer contacts anticipated
a moderate pickup in sales for the months ahead, and
inventory levels were expected to increase modestly.
Restaurant sales rose modestly and were above yearago levels. Restaurant contacts expected activity to
continue to increase moderately heading forward. District
tourism activity rebounded strongly after a slight decline
during the last survey period, and contacts expected
activity to increase modestly heading into the summer

Contacts in most sectors reported modest wage growth
and anticipated moderate wage gains moving forward.

In most sectors, input prices were up moderately compared to the prior survey period, while selling prices grew
modestly. In the retail sector, input prices rose moderately and selling prices increased at a modest pace. Restaurant contacts reported flat growth in input prices,
while selling prices edged up. Respondents in the transportation sector noted moderate growth in both input and
selling prices, and expected continued moderate rises in
both. Prices in the construction sector continued to expand moderately, with moderate increases expected in
the coming months. Manufacturers reported a modest


Federal Reserve Bank of Kansas City
Manufacturing and Other Business Activity

loan quality over the next six months. Credit standards
remained largely unchanged in all major loan categories.
Overall, bankers reported a modest increase in deposit

Manufacturing activity expanded more rapidly than in the
previous survey period, and the majority of other business contacts reported moderate sales increases. Factory activity accelerated at both durable and nondurable
goods plants, particularly for machinery, plastics, and
chemicals. Despite rising trade concerns, production,
shipments, and new orders grew moderately, and activity
was higher than a year ago. Manufacturers’ capital
spending plans remained solid, and optimism remained
high for future activity.

District energy activity increased moderately since the
last survey period with steady expectations for the future.
The number of oil rigs continued to increase modestly,
while the number of active gas rigs was mostly unchanged. Oil and gas production has increased and was
expected to continue increasing. Activity has picked up
in the Niobrara and Oklahoma shale plays. Oil prices
reached their highest level since 2014, which has encouraged additional production. In Wyoming, applications for drilling permits are at record levels as producers
seek opportunities to operate in the Powder River Basin.
Increased oil and gas production has put pressure on
energy transportation infrastructure, and new oil and gas
pipeline projects have been announced for Oklahoma’s
Anadarko region that should alleviate some of the pressure later in the year.

Outside of manufacturing, professional, high-tech, and
transportation firms reported moderate sales growth, and
wholesale trade contacts reported a strong increase in
activity. All firms expected sales to rise rapidly in the next
six months. Professional, high tech, and transportation
contacts anticipated moderate growth in capital spending
plans, and wholesale trade contacts expected strong
capital spending growth in coming months.

Real Estate and Construction
Overall District real estate activity increased modestly as
residential real estate sales were stable, residential
construction activity picked up moderately, and the commercial real estate sector expanded modestly. Residential home sales and inventories were flat compared to
the previous survey period, while home prices rose
modestly. Sales and inventories of residential homes
were expected to remain flat, while home prices were
projected to increase. Residential construction activity
increased moderately compared to the previous survey
period and the same time last year, including higher
housing starts, traffic of potential buyers, and construction supply sales. Contacts anticipated additional gains
in residential construction activity in the months ahead.
Commercial real estate activity continued to increase
modestly as absorption, completions, construction underway, and sales increased, while vacancy rates declined. Activity in the commercial real estate sector was
expected to expand further moving forward.

The Tenth District farm economy continued to weaken
but the pace of deterioration slowed due to a slight uptick
in agricultural commodity prices. Prices for all major
agricultural commodities in the District increased slightly
during the survey period. Despite the increase in prices,
farm income continued to decline and demand for financing remained high. Bankers generally expect the pace of
loan demand to increase in coming months and continued to report increased interest rates on all types of
agricultural loans, which could raise interest expenses
for farm borrowers. However, farmland values remained
relatively stable and loan delinquency rates remained
low. District contacts expressed concern about liquidity
in the farm sector due to further income declines, but the
relative stability of farmland values provided ongoing
support for both producers and lenders.■

Bankers reported a modest increase in overall loan
demand for the month of April. Respondents reported
modest increases for commercial real estate, commercial and industrial, and residential real estate loans.
Consumer installment loans were down slightly, while
agricultural loans were steady. Bankers indicated loan
quality improved moderately compared to a year ago. In
addition, respondents expected a modest increase in

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ May 2018

Summary of Economic Activity
The Eleventh District economy expanded at a solid pace over the past six weeks. Growth in manufacturing increased.
Expansion in the energy and service sectors continued at about the same pace, while retail spending was mixed. Home
sales continued to rise but apartment markets softened slightly. Hiring was solid across most sectors, and widespread
labor shortages continued. Wage and price pressures remained elevated, and several contacts noted a sharp rise in the
cost of steel and aluminum. Outlooks remained fairly optimistic, but tariffs and trade-related concerns were creating

Employment and Wages

and other input costs continued to climb, but several
firms noted they had limited ability to pass on higher
costs to customers. Input cost pressures increased
among energy, manufacturing, and construction firms, in
part due to the new tariffs on lumber, steel and aluminum. Upstream energy firms expressed concern about
the new tariffs adversely affecting their operations and
costs in the near term. One energy contact reported a
sharp rise in rates of drilling rigs. Some auto dealers
cited a higher-than-average increase in used-vehicle
prices, and transportation service firms noted rising fuel
costs. Gasoline and diesel prices rose, driven largely by
higher crude oil prices, while the average price for natural gas dipped during the reporting period.

Employment growth was solid and widespread across
sectors. Labor market tightness continued across a wide
range of industries and skill levels, with some contacts
saying difficulty finding workers was constraining growth
to some extent. One staffing services contact noted that
some firms were rehiring former retired employees on a
part-time basis to meet their staffing needs. In Houston,
shortages of painters, tile setters, carpet layers (workers
at the backend of the home construction cycle) were
noted, a departure from earlier in the year when mostly
sheet rock/drywall installers were in short supply. Upstream energy firms said all skill levels were in short
supply, but shortages were most acute for skilled workers.


Wage pressure remained elevated and picked up particularly among manufacturing firms. A large share of respondents noted increasing wages to recruit and retain
employees. One contact reported offering large bonuses
for trades, such as machinists and welders, who were
willing to commit to stay for three years. A health care
firm cited high vacancy rates for registered nurse positions.

Growth in the manufacturing sector strengthened after
having slowed in the prior reporting period. Output
growth rose, led by increases in primary metals, transportation equipment, machinery, and high tech manufacturing. Growth in food and nonmetallic mineral (stone,
clay, cement and glass) production picked up. Demand
for fabricated metals manufacturing increased, with one
contact noting strength in oil and gas related activity.
Chemical production expanded during the reporting
period, and refinery utilization rates were up in April but
dipped slightly in early May. Outlooks remained optimis-

Price pressures remained elevated. Raw material prices


Federal Reserve Bank of Dallas
tic, although several contacts noted that the new tariffs
were creating uncertainty in expectations. Refiners and
petrochemical producers expressed negative views
about the potential impact of tariffs and quotas on exports as well as new construction projects.

growth has been strong as well. Some contacts noted a
pickup in investment activity.
Office leasing activity and/or net absorption slowed in
Dallas-Fort Worth and remained sluggish in Houston.
Conditions in industrial markets were characterized as
solid, while reports on retail space activity were mixed.

Retail Sales
Retail sales, including companywide internet sales,
dipped in April but appear to have picked up in early
May. Seasonal retailers attributed the decline in April
sales to colder-than-normal weather. Reports on auto
sales were mixed, with sales weakening slightly in San
Antonio but increasing in Dallas and Houston. Sales
growth among durable wholesalers was solid. Outlooks
among retailers were positive on net.

Financial Services
Loan volumes and demand expanded at a faster pace
compared with the previous reporting period. Strong
growth was seen in commercial and industrial, and commercial and residential real estate lending. Consumer
loan volumes increased modestly. Credit standards
remained flat or ticked down, while loan pricing continued to increase. The volume of deposits increased at a
slower pace than in the last report, and a few contacts
noted increased competition for deposits. Banking contacts remained optimistic as they expect both loan demand and general business activity to improve.

Nonfinancial Services
Broad-based expansion continued in the nonfinancial
services sector. Transportation services was a particular
bright spot. Rail traffic was near record levels, with the
increase in shipments being broad based across business lines. Courier and sea cargo volumes expanded as
well, with growth in the latter being boosted by marked
increases in steel shipments as shippers rushed to bring
them in before the new tariffs were implemented. Reports on airline passenger demand were mixed, but
outlooks remained optimistic. Leisure and hospitality
contacts said spring break activity was mixed, but Easter
traffic was strong along the coastal area near Houston.
Revenue at professional and technical service firms
rose, and staffing services firms continued to note high
levels of demand, driven by widespread increases in
activity across geographies and sectors. Outlooks improved, although uncertainty surrounding trade policies
and rising interest rates negatively impacted some firms'

Energy activity continued to expand moderately. Drilling
and completion activity increased in the Eleventh District,
particularly in the Permian Basin. Large firms are driving
growth, and it remained difficult for small exploration and
production companies to expand operations despite high
oil prices. Outlooks remained positive, supported by
favorable oil prices, although contacts said pipeline
capacity, labor, and supply chain constraints may limit
further increases in production growth.

Drought conditions continued to plague much of West
Texas and Southern New Mexico, particularly in the
Texas panhandle. Crop conditions for winter wheat were
much poorer compared with last year due to the lack of
soil moisture. Row crop planting continued and crops
were in mostly fair to good condition, but there was
concern among producers about the dry weather potentially causing below-average yields. Given the current
level of prices, grain farmers need at least average
yields to be profitable this year. Cotton farmers were a
bit more optimistic due to higher prices over the last six
weeks and because cotton yields generally hold up
better than other crops during drought. Cattle prices
rose, largely due to seasonal factors but also buoyed by
very strong domestic and international demand. ■

Construction and Real Estate
Home sales rose during the reporting period, with continued strength in sales at the low- to mid-price points. Year
-to-date sales were generally on or ahead of plan for
builders. Buyers remained price sensitive, and builders
have been focused on housing affordability. One contact
noted that in Houston, some builders were downsizing
homes on large lots to bring the price point down. Contacts said several new deals are not being penciled in
partly due to high and/or rising land, development, and
other costs. Outlooks were positive, although margin
compression, climbing material costs, and rising interest
rates were a concern.
Ample supply coupled with modest demand has slowed
apartment rent growth in most major metros. In Houston,
however, net absorption has been solid and overall rent

For more information about District economic conditions visit:


Federal Reserve Bank of

San Francisco
The Beige Book ■ May 2018

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

continued to exert upward pressure on prices for building
materials. Contacts observed modest price inflation for
manufactured medical devices after input costs increased somewhat. Contacts in Oregon and the Mountain West observed rising retail gasoline prices. A contact in Southern California reported that increases in
commercial rents for restaurants drove some inflation for
customer prices. Semiconductor prices increased modestly. A contact in the California agriculture industry
noted a slight pickup in inflation due to a weak outlook
for yields after subpar rainfall levels. In Eastern Washington, the price of imported wholesale natural gas declined moderately, lowering heating costs in the area.

Employment and Wages
Contacts continued to report tight labor market conditions across all sectors, leading to an uptick in wage
pressures and to labor-retention challenges. Demand for
workers in the restaurant industry increased markedly.
Demand for construction labor continued to exceed
supply, causing wages to rise moderately and wait times
for project starts to increase. Across the District, contacts
in banking and financial services noted persistent shortages of IT professionals, especially at companies or
branches in rural areas. In response to shortages of
skilled labor in banking services and manufacturing,
contacts noted the growth of strategic training partnerships between these employers and colleges and trade
schools to build a talent pipeline. A contact in the Pacific
Northwest reported intensified labor shortages in the
health-care sector, preventing service providers from
meeting market demand. Employers in the business
services and real estate development sectors increased
compensation packages to compete with companies
trying to poach well-trained employees. Employment in
the utilities sector was broadly flat.

Retail Trade and Services


Sales of retail goods edged up over the reporting period.
Contacts reported solid sales at food and beverage
companies. Sales activity in the pharmaceutical industry
picked up due to intensifying competition that drove
down market prices. Apparel sales increased marginally
following recent declines, though consumer demand
continued to shift to entertainment goods and services.
The restaurant industry saw sales tick down further, as
foot traffic remained at low levels.

Price inflation increased moderately over the reporting
period. Recent oil price increases spurred price inflation
in a variety of sectors. Food and beverage businesses
passed along a jump in transportation costs to consumers. Persistently brisk activity in the construction sector

Activity in the consumer and business services sectors
expanded slightly. Across the District, consolidation in
health provider and payment services continued at a
solid pace. Health insurance enrollment in the Mountain
West grew modestly, causing revenues and earnings to


Federal Reserve Bank of San Francisco
edge up. Demand for legal services in Hawaii picked up

mained solid, though the shortage of labor and intense
price pressures for building materials continued to act as
headwinds. Contacts in Eastern Washington reported
that permitting for residential units was flat on a yearover-year basis, though at an elevated level. Listing
durations for single family houses fell over the reporting
period, indicating a pickup in selling activity across the
District. A contact in Oregon noted that the inventory of
new homes remained at a low level. Commercial real
estate activity picked up notably. Contacts in Eastern
Washington reported that plans for the construction of a
major e-commerce distribution center were announced,
resulting in an anticipatory uptick in demand for commercial space in the area. Contacts in the San Francisco
Bay Area noted that office rents and occupancy rates
rose moderately because of increased demand by technology companies.

Activity in the manufacturing sector expanded solidly.
Demand for steel and other manufactured inputs used in
the production of heavy capital goods picked up noticeably, reflecting stronger industrial and consumer activity.
Contacts in Northern California noted brisk semiconductor sales and the scope for demand to increase further.
Deliveries of commercial aircraft over the first four
months of the year increased modestly from the same
period last year, while new orders grew significantly over
the same period.

Agriculture and Resource-Related Industries
Conditions in the agriculture sector deteriorated somewhat. Current inventories and yield expectations for a
variety of crops fell because of lower-than-expected
precipitation levels in much of the District over the past
few months. Unusually warm weather in the Pacific
Northwest generated softer demand for heating, putting
downward pressure on natural gas prices in the region.
The supply of electricity continued to outpace demand in
California, leading excess capacity to rise in the state.

Financial Institutions
Lending activity ticked up modestly over the reporting
period. Loan demand increased overall, with contacts in
the Mountain West and Central California reporting
strong loan growth. In Oregon, demand for financing for
various construction projects continued to increase.
Deposit rates continued to edge up, resulting in a slight
narrowing of net interest margins. Contacts noted a
modest increase in the rate of mergers and acquisitions
among small and medium-sized banks. ■

Real Estate and Construction
Activity in real estate markets continued to expand at a
robust pace. Construction in the residential market re-