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October 24, 2018

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

October 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 Richmond
based on information collected on or before October 15, 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 ■ October 2018

Overall Economic Activity
Economic activity expanded across the United States, with the majority of Federal Reserve Districts reporting modest
to moderate growth. New York and St. Louis indicated slight growth, overall, while Dallas reported robust growth driven
by strong manufacturing, retail, and nonfinancial services activity. On balance, manufacturers reported moderate output
growth; however, several Districts indicated that firms faced rising materials and shipping costs, uncertainties over the
trade environment, and/or difficulties finding qualified workers. Demand for transportation services remained strong.
Labor shortages were broadly noted and were linked to wage increases and/or constrained growth. Reports on commercial and residential real estate were mixed, although several Districts saw rising home prices and low levels of
inventory. Overall, consumer spending increased at a modest pace while consumer price growth ranged from modest
to moderate. Travel and tourism generally picked up with a notable exception of North and South Carolina, where
Hurricane Florence deterred tourism. Agricultural conditions were mixed as rainy weather helped some farmers but
caused delays and crop damages for others, including the loss of crops and livestock due to Hurricane Florence.

Employment and Wages
Employment expanded modestly or moderately across most of the nation; San Francisco reported robust growth while
three Districts reported little to no change. Employers throughout the country continued to report tight labor markets
and difficulties finding qualified workers, including highly skilled engineers, finance and sales professionals, construction and manufacturing workers, IT professionals, and truck drivers. A couple of Districts reported that worker shortages were restraining growth in some sectors. Many firms reported high turnover rates and difficulties retaining employees. Some businesses implemented non-wage strategies to recruit and retain workers, such as giving signing bonuses,
offering flexible work schedules, and increasing vacation allowances. Wage growth was mostly characterized as modest or moderate, though Dallas reported robust growth. Most businesses expected labor demand to increase modestly
in the next six months, and looked for modest to moderate wage growth.

Prices continued to rise, growing at a modest to moderate pace in all Districts. Manufacturers reported raising prices of
finished goods out of necessity as costs of raw materials such as metals rose, which they attributed to tariffs. Construction contract prices increased to cover rising costs of labor and materials. Retailers and wholesalers in some Districts
raised selling prices as they continued to see increased costs in transportation and also worried about impending cost
increases resulting from tariffs. Districts reported rising oil and fuel prices but gave mixed reports on movement of
agricultural commodity prices.

Highlights by Federal Reserve District

New York

Most firms reported continued expansion. Most retailers,
hoteliers, manufacturers, and IT firms saw year-overyear sales increases. Labor markets remained tight and
wages increased at a moderate pace. Contacts reported
moderately higher prices on average. Outlooks were
cautiously optimistic.

Activity in the regional economy has grown slightly in the
latest reporting period, while labor markets have remained very tight. Both input prices and selling prices
have accelerated slightly. Residential and commercial
real estate markets have been mixed.


National Summary

St. Louis

Economic activity continued to expand at a modest pace.
Tight labor markets constrained hiring to a modest pace
but maintained moderate wage pressures. Price increases remained modest. Notably, manufacturing resumed a
moderate pace of growth. The growth outlook is generally
positive despite some concerns that excessive inventories will reduce future demand.

Economic conditions in the District have improved slightly since our previous report. Reports from the manufacturing and services sectors were generally positive. The
exception was the real estate sector, where reports were
notably weaker that other sectors.

Economic activity grew moderately in the Ninth District.
Hiring demand was strong, but was held back by tight
labor markets. Wages and prices both experienced
moderate pressure. Residential construction rose in
September. Manufacturing activity grew, but the outlook
was uncertain due to trade policy and rising input costs.
Farm harvests were expected to be strong, but falling
international demand was exacerbating low prices.

The District economy grew modestly. Firms widely reported worker shortages and wage increases that were a little
higher than the rate of inflation. Strong, upward pressures
on fuel, building materials, and metals costs were noted.
Nonfinancial services noted a pickup in activity, although
retail and transportation lost momentum. Nonresidential
construction activity improved slightly.

Kansas City


Economic activity expanded moderately in September
and early October, led by strong sales in the retail, wholesale trade, transportation, and professional and high-tech
sectors. Input prices and wage growth accelerated since
the previous survey, and strong wage gains were
anticipated in the months ahead. Energy activity also
picked up, due to stronger activity in the oil sector.

The regional economy grew moderately since our previous report. Overall, labor demand strengthened, wages
rose modestly, and price growth remained moderate.
However, firms across several sectors suffered from
Hurricane Florence. The hurricane caused production
disruptions for manufactures, port closures, reduced
travel and tourism, and damages to crops and livestock.



Economic activity expanded at a solid pace. Healthy
growth continued in manufacturing, retail and nonfinancial services. Loan demand increased further while home
sales were flat. Capacity constraints restrained growth in
the energy sector. Widespread labor shortages pushed
up wages while tariffs drove up input costs. Hiring continued, and outlooks remained quite optimistic.

The economy expanded at a moderate pace. Labor markets remained tight, and reports of increasing merit percentages were more widespread. Nonlabor input costs
continued to rise, on balance. Retail sales increased. The
pace of residential construction grew modestly compared
with year earlier levels, while nonresidential construction
activity was up. Manufacturing activity remained strong.

San Francisco


Economic activity continued to expand at a moderate
pace. Conditions in the labor market tightened noticeably, and price inflation increased moderately. Sales of
retail goods picked up slightly, and activity in the consumer and business services sectors was solid. Activity
in the manufacturing sector expanded moderately. Activity in residential and commercial real estate markets was
robust. Lending activity picked up moderately.

Growth was modest. Manufacturing production and employment grew moderately, consumer and business
spending increased modestly, and construction and real
estate activity was flat. Wages and prices rose modestly
and financial conditions were little changed. Greater-thanusual precipitation slowed the agricultural harvest and
reduced the quantity and quality of the crops.


Federal Reserve Bank of


The Beige Book ■ October 2018

Summary of Economic Activity
Economic activity in most sectors expanded at a moderate to strong pace since August, although real estate markets
showed mixed activity. Retailers reported robust sales increases, and travel and tourism enjoyed a strong summer
season. Manufacturing firms posted moderate growth on balance, and IT firms showed results ranging from flat sales to
double-digit growth. Residential real estate prices continued to rise in most First District states despite slower sales in
some places. Commercial real estate activity was mixed across metro areas. Labor markets remained tight, and wage
increases continued at a moderate pace. Price increases appeared more widespread and, in a few cases, reflected the
impact of tariffs. Most contacts retained a positive outlook, although some perceived an increase in downside risks.

Most contacts said that labor markets remained tight. On
balance, headcounts increased only slightly, and wage
increases accelerated somewhat but remained moderate. Retail hiring held steady, although some positions
were hard to fill, and the restaurant industry on Cape
Cod continued to experience binding labor shortages. All
manufacturing contacts reported that they were hiring,
but increases in employment were small, as contacts
said that hiring and retaining qualified workers remained
difficult. As a result, they were paying higher wages and
salaries. At IT firms, employee headcounts and the labor
turnover rate were stable, but the tight labor market
spurred fresh wage increases at one firm. Several other
IT firms said that wages had increased 3-4 percent since
last year, mainly in order to cover cost-of-living increases. Commercial real estate contacts noted that construction wages continued to rise at a moderate-to-robust
pace to attract scarce labor in that market.

turing contact reported charging higher prices, but a
semiconductor firm indicated that increased competition
was driving down the prices it could charge. Trucking
costs—which increased 5 to 10 percent—continued to
present a major problem, contributing to recent price
increases by manufacturers. Also, three manufacturing
firms faced higher input prices due to tariffs on Chinese
goods and services that were not readily substitutable,
and the firms expected to pass on (or had already
passed on) to consumers at least some of the tariff burdens. Two IT firms imposed moderate price increases
recently, while others held prices steady on balance.
Hotel room rates on Cape Cod were up almost 5 percent
from last summer, but some lowered prices as needed in
response to price competition from online home rentals.
Construction costs continued to climb at a brisk pace in
response to increases in the costs of construction labor,
land, and raw materials, and one contact expects the
higher costs to get passed on to tenants and buyers.


Retail and Tourism

Employment and Wages

Retailers reported moderate to very strong year-overyear sales increases to September and expect sales to
stay strong through year’s end. A state automotive trade
association reported that auto sales fell sharply in September compared with the summer months, but whether
that decline marks the beginning of a trend remains to be
seen. Still, dealers believe that sales might be crimped
moving forward in response to rising price tags for new
cars and higher consumer financing costs.

Pricing pressures intensified in response to a variety of
factors, resulting in moderate price increases on average. At least one retailer expects tariffs on Chinesesourced goods to add upward pressure on the prices
charged by their suppliers, although the extent of any
price increases remains uncertain, and another retailer
reported being unaffected by tariffs. New car prices are
also expected to increase significantly to cover the burden of recently implemented tariffs. All but one manufac-


Federal Reserve Bank of Boston
Travel industry contacts reported that business remains
strong. As of August, airline passenger traffic through
Boston had increased 8 percent year-over-year. Port
traffic in Boston increased this past summer as retailers
accelerated imports to avoid tariffs that were slated for
the fall. Hotel occupancy rates on Cape Cod were up
about 5 percent from last year. The Cape’s restaurant
industry suffered ongoing, acute labor shortages, and
these are seen as placing a restraint on industry growth
moving forward.

area have reportedly had to request higher loan amounts
in order to cover higher-than-expected construction
costs. The outlook dimmed in greater Hartford, but remained cautiously optimistic elsewhere. Contacts continued to see downside risks, however, in the form of rising
construction costs and rising long-term interest rates.

Residential Real Estate
Residential real estate markets were somewhat mixed.
This report covers year-over-year performance through
August 2018 for all areas except Connecticut, which
failed to provide data due to an ongoing technical issue.
Vermont statistics represent combined performance for
single-family homes and condos. For single-family
homes, closed sales increased in Boston, Maine and
New Hampshire, decreased moderately in Rhode Island,
and were down slightly in Massachusetts. Pending single
-family sales were up by robust margins in New Hampshire and Massachusetts, down sharply in Rhode Island,
and posted either small (Boston) or moderate (Maine)
decreases elsewhere. For condos, closed sales increased or stayed roughly flat in all reporting areas,
while pending sales were mixed. Vermont saw a moderate decrease in closed sales for the combination of
condos and single-family homes, but its pending sales
were up sharply. Single-family home prices increased in
all areas by slim to robust margins, while condo prices
increased in all areas except Rhode Island, which saw a
moderate decline on that score. A Rhode Island contact
noted that home inventories increased (from a year
earlier) for the second straight month, following an extended period of inventory declines. Elsewhere, however, inventories continued to decline. Despite recent fluctuations in sales activity, contacts expressed optimism
for the coming months. They cited the holiday season
and tax cuts as possible reasons to expect an increase
in sales before the end of the year. ■

Manufacturing and Related Services
Of the five manufacturing firms contacted, four reported
sales that were either moderately or strongly higher year
-on-year, and one reported slightly lower year-on-year
sales despite improved performance more recently. One
manufacturer’s growth was held back by difficulties in
finding qualified workers and by delays obtaining capital
equipment. As noted above, three firms faced cost increases associated with tariffs, but so far experienced no
major impacts on sales. One firm also was subject to
retaliatory tariffs on its exports to China, but thus far has
suffered no decline in sales to that country. Capital expenditure plans were unchanged from August. Four
contacts retained a positive outlook, while another expects a recession in the second half of 2019.

Information Technology Services
Software and IT firms in the First District experienced
further robust growth on balance in recent months, either
on par with or somewhat faster than what was reported
in August. Year-over-year revenue growth rates ranged
from the high single digits to the low double digits, with
one exception involving flat revenues. Recent performance was boosted by increasing demand for new,
cloud-based products. A contact that recently raised its
prices noted that no customer turnover had resulted from
that move so far. Overall, contacts were optimistic about
the state of the industry and the economy in the coming

Commercial Real Estate
Commercial real estate activity was mixed across the
First District. Leasing activity remained strong in the
Boston area, but reportedly slowed somewhat in both the
Hartford and Providence areas. A Hartford contact attributed the weaker activity to slow economic growth in
Connecticut. Office vacancy rates were described as
very low for both Boston and Providence, reflecting
positive net absorption that occurred in the past six
months in both metro areas. Sales activity was described
as stable. Construction activity held steady in the Boston
area and was described as very limited in Connecticut.
Borrowers for some construction projects in the Boston

For more information about District economic conditions visit:


Federal Reserve Bank of

New York
The Beige Book ■ October 2018

Summary of Economic Activity
Economic activity in the Second District has grown slightly since the last report. The labor market has remained very
tight, and wage growth has remained moderate. Businesses reported increasingly widespread escalation in both input
prices and selling prices, while prices of final goods and services have been steady or up modestly. Manufacturing and
distribution activity continued to grow robustly, while growth has slowed in a number of service industries. Consumer
spending was generally steady in recent weeks. Residential and commercial real estate markets have been mixed.
Finally, banks reported some weakening in household loan demand and a modest pickup in delinquencies on home

Employment and Wages


The labor market has remained very tight across the
District. Employers continued to note difficulties finding
qualified workers for various types of job openings.
However, there have been scattered signs of softening in
labor demand. One New York City based employment
agency noted a lull in new postings in early October, and
an upstate agency indicated some slowing in demand for
contract workers.

Businesses reported increasingly widespread hikes in
both input and selling prices. Input price pressures were
reported across all industry sectors; they picked up in the
wholesale trade, information, and real estate industries
but receded slightly among manufacturers and retailers.
Contacts in almost all sectors anticipated further increases in the months ahead—particularly those in wholesale
trade and information.

Businesses in most industries report steady to modestly
rising employment. In the finance, professional & business services, and manufacturing industries fewer contacts than last time indicated that they are adding workers. On the other hand, businesses in wholesale trade,
leisure & hospitality, and education & health services
noted some pickup in hiring activity. Retailers reported
little change in staffing levels, and one large chain said
they plan to hire roughly the same number of holidayseason workers as in 2017.

More businesses than in recent months said they had
raised selling prices—most notably in wholesale trade
and leisure & hospitality. Retailers generally indicated
that selling prices have been stable to up modestly. A
sizable and rising proportion of contacts in wholesale
trade and transportation said they planned to hike prices
in the months ahead, while fewer leisure & hospitality
firms said they would do so. A few contacts in manufacturing and distribution cited tariffs for driving up costs
and inducing them to raise their prices.

Wage pressures have remained fairly widespread. While
businesses in most industries noted that wage growth
has remained moderate thus far, a growing proportion
reported that they plan to raise wages in the months
ahead. A New York City employment agency noted a
widening gap between salary expectations of job applicants and what employers are offering.

Consumer Spending
Retail sales were mixed but, on balance, flat in September and early October. Non-auto retailers generally
indicated that sales were flat or up modestly. One large
retail chain noted that sales were running on plan and up
slightly from year-earlier levels. New York City lagged
the rest of the District slightly in the latest reporting peri-


Federal Reserve Bank of New York
York, including northern New Jersey. One contact ascribed some of this weakness to changes in federal tax
law that limit deductibility of homeowner costs.

od, partly reflecting weaker tourism. Retailers in upstate
New York reported that sales picked up somewhat since
the last report. Inventories were characterized as being
at or a bit below optimal levels.

The inventory of homes on the market has risen throughout most of the District—particularly for smaller units in
New York City. Still, current inventory levels remain quite
low, particularly in upstate New York. Home price trends
have been mixed, with values continuing to rise in upstate New York, Long Island, and northern New Jersey,
but holding steady across New York City and its northern
suburbs. Prices of new condos in New York City, as well
as prices at the high end of the condo market more
generally, have weakened noticeably.

New vehicle sales weakened in September, according to
dealers across upstate New York, and were down from a
year earlier—partly attributed to reduced incentives. New
vehicle inventories continued to run at or above desired
levels. Sales of used vehicles have remained fairly elevated, though there were signs of slowing. Business at
auto service departments has also slowed somewhat.
Dealers continued to characterize retail and wholesale
credit conditions as being in good shape.

The apartment rental market has been mixed. Manhattan’s vacancy rate declined to its lowest level in a decade, reflecting a noticeable expansion in landlord concessions. Effective rents have trended down across New
York City due to these increased concessions.

Consumer confidence in the Middle Atlantic states (NY,
NJ, PA) surged to a new cyclical high in September,
based on the Conference Board’s survey.

Manufacturing and Distribution
Manufacturers indicated that activity continued to expand
briskly in recent weeks. Wholesalers reported a renewed
pickup in growth in September, while transportation firms
noted a pause in growth. Regarding the near-term business outlook, both wholesale distributors and manufacturers continued to express fairly widespread optimism,
while transportation industry contacts have been more
measured in their expectations. A number of contacts in
these sectors expressed concern about tariffs.

Commercial real estate markets have been mixed but
mostly steady. Office availability rates edged up in New
York City, Long Island, and across much of upstate New
York, while rents were little changed. In northern New
Jersey, however, availability rates edged down, while
rents were flat. Retail markets weakened across most of
the District, with rents drifting down in New York City,
Fairfield County, and across much of upstate New York.
In contrast, industrial markets have continued to
strengthen, with rents up 5-8 percent from a year earlier
and availability rates mostly steady or declining.

Growth slowed noticeably in the latest reporting period.
Contacts in professional & business services reported
continued modest growth in activity, but businesses
engaged in education & health services noted a pause in
growth, while those in the leisure & hospitality and information industries noted a dip in activity. However, Broadway theaters reported continued growth in both attendance and revenues, both of which were running well
ahead of comparable 2017 levels. Looking ahead, businesses in education & health services, professional &
business services, and information industries continued
to express optimism about the near-term outlook. Leisure & hospitality businesses said they expect business
to be flat to up slightly.

New multi-family construction has tapered off somewhat
across the District but a substantial volume of residential
space is currently under construction—particularly in
New York City. New office construction remains subdued. New industrial construction has remained sluggish
across upstate New York, but it has strengthened in the
New York City area.

Banking and Finance
Small to medium-sized banks reported lower demand for
consumer loans and residential mortgages, but steady
demand for commercial mortgages and C&I loans.
Banks reported tighter credit standards for commercial
loans and mortgages but unchanged standards on
household-sector loans. Loan spreads widened for residential and commercial mortgages. Finally, bankers
reported a rise in delinquency rates for residential mortgages but unchanged rates for all other categories. ■

Real Estate and Construction
Housing markets across the District have been mixed
since the last report. In New York City, sales of existing
co-ops and condos were down modestly, while sales of
new units fell more sharply, albeit from elevated levels.
In contrast, condo sales were said to be up noticeably in
Westchester County. Single-family home sales were
steady to down modestly in the suburbs around New

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ October 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. The labor market remains tight, which continues to constrain hiring at a modest pace and to apply upward wage
pressures at a moderate rate. Price pressures remained modest, with a smaller percentage of firms reporting increases
in prices paid and received for their own goods than during the prior period. Nonfinancial services maintained a moderate pace of growth, and manufacturers resumed a moderate pace after slowing last period. Most consumer sectors
continued at a modest pace. Construction sectors noted slight growth, while residential real estate sales remained constrained by low inventories; commercial leasing maintained modest growth. The growth outlook over the next six months
remained positive, with over half of all firms anticipating increases in general activity; however, key industrial supply
firms noted concern that future demand may fall because of excessive inventory buildups by their customers.

Employment and Wages


Employment continued to grow at a modest pace during
the current Beige Book period. Over 40 percent of the
manufacturing firms reported an increase in net employment, and over 25 percent of the nonmanufacturing firms
reported net increases in full-time staff. Also, the percentage of firms that reported decreases in average
hours worked was lower than in the prior period.

Price increases remained modest for most firms, and the
percentage of firms that reported increases was lower
than in the prior period. Among nonmanufacturing firms,
about one-fourth reported increases for prices paid and
for prices received. Likewise, just one-fourth of the manufacturing firms reported increases in prices received for
their own goods. For prices paid, less than half of the
manufacturers noted increases – down from nearly twothirds last period.

Several firms noted that their job levels would be higher
if they could find and retain employees. One firm noted
difficulty launching a third shift because of a lack of
workers; another firm – already at full capacity – will add
cobots (or collaborative robots) to increase throughput.
Likewise, staffing firms continued to report demand for
new placements but limitations because of a lack of
qualified candidates and difficulty retaining employees.

One firm noted significant pushback to its announced
price hikes from a major retail customer. Other firms
reported difficulty meeting the prices of foreign competitors who are not exposed to tariffs on the primary input
commodities of their products.
Looking ahead six months, manufacturing firms continued to anticipate higher prices, with just over half expecting increases in prices paid and slightly under half expecting increases in prices received for their own goods.

On balance, wage growth continued at a moderate pace.
Nearly half of the nonmanufacturing contacts reported
increases in wage and benefit costs. Most large firms
reported modest, steady wage hikes, while some smaller
firms appear to be catching up with wage hikes in excess
of 3 percent. Staffing firms reported that resistance to
raising starting wages softened further among their
clients after years of holding wages steady.

Manufacturing activity resumed a more moderate pace
of growth – after dropping almost to its nonrecession
average during the prior period. On balance, the firms


Federal Reserve Bank of Philadelphia
reported improvements primarily as an increase in new
orders, while shipments remained about the same.

firm noted continued improvement in customer retention
and on-time payments. Expectations of future growth
broadened slightly, with two-thirds of the firms anticipating increased activity.

The makers of lumber products, paper products, chemicals, fabricated metal products, electronic machinery,
and industrial machinery tended to note gains in new
orders and shipments; the makers of primary metal
products reported mixed results. Several key industrial
suppliers believe their clients placed excessive orders to
boost inventories in advance of tariffs and now expect
that demand will be lower over the next six months to a
year. The firms continued to note greater uncertainty
owing to tariffs and the threat of tariffs.

Financial Services
Financial firms continued to report modest growth in
overall loan volumes on a year-over-year basis
(excluding credit cards). During the current period, loan
volumes grew at a slightly slower pace than during the
same period last year. Volumes (reported without seasonal adjustments) grew moderately in mortgages, in
autos, and in other consumer loans (not elsewhere classified). However, these gains were offset by slight declines in home equity lines and by modest declines in
commercial real estate lending and in commercial and
industrial lending.

On balance, manufacturing contacts continued to expect
general activity to increase over the next six months,
with half of the firms expecting future increases in new
orders and shipments. The firms’ outlook for future employment remained nearly the same, with just under 40
percent expecting increases. However, expectations of
future capital expenditures fell further but remain above
nonrecession averages.

Credit card lending also grew at a modest pace on a
year-over-year basis. During the current period, credit
card lending was flat because of seasonal factors.
Banking contacts continued to note rising competition for
loans and bank deposits and noted concerns that credit
standards were slipping. However, they cited no signs of
credit quality deterioration.

Consumer Spending
Nonauto retailers reported strong back-to-school sales
during August and modest growth for convenience
goods in September and early October. While retailers
generally credited the growing economy and strong
consumer confidence, the strong August sales also
benefited by comparison to weak sales in August 2017.

Real Estate and Construction
On balance, homebuilders reported a slight improvement
in September following weak activity at the end of August. Contacts reported less optimism for growth in
2019. Inventories of existing for-sale homes continued to
fall and to constrain sales. Although a few local markets
saw year-over-year increases, sales appear to have
declined modestly overall.

According to dealers, September year-over-year auto
sales were up slightly in Pennsylvania and down modestly in New Jersey. Year-to-date sales remained very
close to the high 2017 sales level. Dealers expressed
ongoing concerns about rising interest rates and potential tariff impacts on new car prices.

Overall, rents remained strong in the slowly growing
nonresidential real estate market, especially for offices
and industrial warehouses. One firm reports that demand
for industrial space continues to outstrip supply in southern New Jersey and the Lehigh Valley. Meanwhile, in
Trenton, NJ, and Carlisle, PA, the local labor markets
are struggling to supply sufficient labor to meet demand.
Commercial contractors noted an uptick in labor hours
for August and September, but large projects are winding down, and nonresidential construction activity is
expected to wane over the next year. ■

On balance, tourism contacts continued to report modest
growth. One contact reported very strong demand in the
Poconos region despite bad weather and slightly higher
gas prices – 2017 was a record year, and 2018 has been
even better thus far. Shore activity has been mixed, with
Delaware contacts noting strong traffic but weaker
spending patterns. Meanwhile, Atlantic City casinos
posted strong gains again during the month of August.

Nonfinancial Services
On balance, service-sector firms continued to report
moderate growth in general activity. However, the percentage of firms reporting increased sales edged back to
50 percent, and the percentage reporting increased new
orders dropped to 33 percent. One large service-sector

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ October 2018

Summary of Economic Activity
Business activity in the Fourth District grew modestly during the survey period and firms reported customer demand was
stable. Reports suggest that hiring continued at about the same moderate pace as in recent months. Contacts reported
ongoing shortages of both the quantity and quality of available labor and firms increased wages modestly to reduce
worker turnover. Upward pressure on input costs was strong, notably for metals, construction materials, and fuel. Final
selling prices increased as manufacturers, builders, and transportation firms raised their prices to cover their increased
input costs. Manufacturing capacity utilization rose to keep up with strong demand. Freight demand plateaued at a high
level and firms are increasingly feeling the pinch from limited trucking capacity. Retail demand, excluding autos, was
flat. Nonresidential construction activity picked back up after a lull during the prior period.

Employment and Wages

a few cases in which wage increases were much stronger than average. One retailer gave a 9 percent raise to
new and current staff in the hope that the higher wage
will reduce turnover. One construction contact reported
taking a more targeted approach by giving 10 percent to
15 percent raises on a case-by-case basis; firm-wide,
wages were raised by only about 2 percent. In professional services, contacts reported using bonuses and
non-wage components to increase compensation.

District employers reported hiring activity that was broadbased across sectors and momentum that was similar to
that in recent survey periods. Contacts generally reported business conditions that were favorable and stable as
supporting their overall demand for workers. However,
worker shortages, in terms of both quantity and quality,
were noted across many sectors. One retailer remarked
that the firm’s headcount was unintentionally lower because it was losing warehouse workers faster than it can
replace them. One trucking contact reported that it had
10 empty trucks because of its inability to find enough
drivers with Class A commercial driver’s licenses. Some
manufacturers reported increases in overtime hours
worked. In addition to limited labor supply, contacts
noted that overall gains in staff levels were limited by
high worker turnover.

Upward pressure on nonlabor input prices was strong,
although prices rose for slightly fewer contacts than in
the last report. Construction contacts reported increases
in prices for LED lighting, concrete, steel, lumber, and
copper. The majority of contacts attributed at least some
of these increases to import tariffs. One trucking contact
noted that prices for pallet jacks, tires, and packaging
material were higher because of the tariffs. Only one
construction contact noted that the diversion of materials
for hurricane relief may have had an additional impact on
prices. A few contacts remarked that the amount of time
suppliers held their prices constant had diminished noticeably. In other sectors, higher fuel costs were reported.

Overall wage trends were comparable to those of recent
survey periods, with many contacts reporting wage
increases that were slightly above the rate of inflation. In
every industry, contacts noted that increased competition
was requiring their firms to boost wages to retain workers. Yet a number of contacts speculated the raises were
not likely sufficient to stem worker turnover. There were


Federal Reserve Bank of Cleveland
Final selling prices rose with about the same momentum
as in the prior period. Freight and construction firms
were less aggressive in raising their prices than in the
previous survey period. Construction contacts commented that they were raising their prices enough to maintain
their margins. By contrast, one builder remarked his firm
was holding prices and offering more incentives and
giveaways. Nearly two-thirds of manufacturing contacts
raised their prices this period. This was the fifth consecutive reporting period wherein more than half of manufacturing contacts reported raising their prices. Servicesector industries reported relatively more modest price
increases as firms attempted to cover rising worker
compensation costs.

Lower-priced homes are selling better than more expensive homes. Builders are reducing the number of spec
homes they are building. Real estate contacts reported
an increase in homeowners relative to renters. These
contacts also reported stable housing inventory and
consistent demand from first-time homebuyers.
Nonresidential builders reported a pickup in demand
after a lull during the prior period. Demand growth was
driven by private spending; demand from the public side
was still low. Builders note that backlogs are still high
and pointing to strength in the broader economy, and
they expect growth to continue in the near term. Nonresidential construction prices are rising as builders pass
through increasing materials costs, especially for metals,
but builders are not increasing their margins.

Consumer Spending
Retail demand was flat during this period, breaking a
nearly year-long trend of improving demand. Expectations for the near-term were mixed: retailers of nondurable goods expect demand to pick back up in advance of
the holiday season, but auto retailers expect demand to
remain flat. Auto retailers noted that new vehicle sales
have declined slightly because of rising interest rates
and increased unit prices. As a result, buyers have shifted somewhat toward used vehicles. Retailers with broad
footprints noted that sales within the Fourth District were
roughly in line with national retail sales. Retail profit
margins were generally unchanged and inventory levels
were reported to be good.

Financial Services
Bankers reported that overall conditions held steady
during the last two months. Some contacts reported that
demand for commercial and industrial loans softened as
businesses shifted to cash earned in the strong economy
while another noted increased activity in commercial real
estate and in mergers and acquisitions. Mortgage demand and core deposits were a bit stronger than the
previous survey period, but contacts noted that this
strengthening may be a seasonal trend. Delinquency
rates remained low; one contact reported that the delinquency rate was at a record low, suggesting that financial conditions are strong.


Nonfinancial Services

Manufacturing demand remained strong, and contacts
cited strong economic fundamentals as the cause. Industrial equipment manufacturers reported strong demand from the automotive, agriculture, and construction
equipment industries. Some steel and heavy equipment
manufacturers noted that demand was down slightly
compared with demand two months earlier, but it was
particularly strong in the early summer months as customers sped up purchases ahead of anticipated price
increases. Several contacts reported increased capacity
utilization to keep up with strong demand, while long
lead times and tariff-related gaps in supply chains have
caused mismatches in inventories. Contacts reported
that they have increased their capital expenditures to
keep up with customer demand and to fill supply chain
gaps left by suppliers’ capacity constraints.

Nonfinancial services firms reported stronger demand as
the macro economy continued its ascent. Business
advisory and IT firms attributed the favorable business
conditions to their clients enjoying tax savings, higher
revenues, strong business confidence, and increased
budgets for digital transformation. Contacts reported that
plans for capital investments held steady. In the transportation sector, demand plateaued at a high level. Contacts reported that limited freight capacity continues to
hamstring growth in the industry. One trucking contact
noticed growing discontent among members along the
food supply chain, from grain producers all the way to
restaurants, about the limited availability of trucks to
transport their goods. This contact also noted that these
firms were all planning to pass rising transportation costs
through to their customers in a variety of ways. ■

Real Estate and Construction
Homebuilders reported that demand fell modestly, but
they do not expect demand to fall further in the near
future. Homebuilders point to a decrease in home affordability as the primary driver of this demand decrease.

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ October 2018

Summary of Economic Activity
Since our previous report, the Fifth District economy expanded at a moderate rate. On balance, manufacturing activity
expanded moderately; however, rising materials costs and some hurricane-related disruptions were reported. Imports
increased and exports declined but some Fifth District ports sustained property damage due to Hurricane Florence.
Trucking activity remained robust despite highway and service center closures in hurricane-affected areas. Tourism and
business travel also fell due to Hurricane Florence, as many travelers canceled bookings and coastal areas were evacuated. Farm animals were killed and crops were damaged by Hurricane Florence and by rainy weather, in general. Residential and commercial real estate activity picked up modestly. At the same time, loan demand picked up. Meanwhile,
demand for nonfinancial services rose at a moderate pace. Labor demand strengthened and job openings increased
while wage increases remained temperate. In general, prices continued to grow at a moderate rate.

Employment and Wages

weeks while natural gas prices increased at a moderate

The demand for labor strengthened moderately in recent
weeks, and employment agencies reported a pick-up in
new job openings. Meanwhile, employers continued to
report very tight labor markets and difficulties finding
qualified workers. Staffing firms saw stronger demand,
particularly for customer service representatives and
human resource professionals. Additionally, firms reported a need for more construction workers, engineers, IT
professionals, accounting and finance professionals,
plant workers, mechanics, and truckers. Wage increases
remained modest.

Fifth District manufacturing activity increased moderately
in recent weeks. A North Carolina fabric producer reported robust demand, and a Virginia window manufacturer
attributed strong sales to high consumer confidence.
However, many manufacturers struggled with rising
costs of raw materials, some of which was attributed to
the recent tariffs. A Virginia display case manufacturer
looked to import materials from countries other than
China. Several firms reported negative impacts from
Hurricane Florence, which included lost production time,
reduced demand, and/or larger backlogs. One firm said
they could make up the production deficit with overtime,
but it was going to be more expensive.

Overall, prices continued to grow moderately in recent
weeks. According to our latest surveys, manufacturer’s
selling prices grew at a moderate rate while their input
prices rose at a slightly faster rate. Specifically, contacts
reported price increases for packaging materials, paper,
steel, aluminum, resin, and concrete. Additionally, a food
manufacturer saw higher prices for poultry and eggs.
Service sector firms reported moderate price growth in
prices paid and prices received. Shipping costs continued to increase, according to firms in both manufacturing
and services sectors. Coal prices rose slightly in recent

Ports and Transportation
Fifth District ports saw mixed conditions in recent weeks.
Some ports suffered losses from Hurricane Florence in
the form of closures, property damage, and storm preparation costs. Overall, imports remained strong while
exports decreased modestly. Port contacts attributed
some of the export decline to the recent tariffs on American goods and believed that imports remained strong


Federal Reserve Bank of Richmond
because orders were placed early, in anticipation of tariff
increases. Meanwhile, a South Carolina airport reported
booming business, unaffected by storms or tariffs, as
both passenger and cargo flights continued to grow.

restaurant, grocery, and industrial space, while retail
activity was stable to increasing. Office leasing varied
across the District. A North Carolina broker stated that
urban office space is in high demand, leading to new
construction and conversions. Meanwhile, vacancy rates
decreased slightly across all sub-markets, and contacts
reported that limited inventory pushed rental rates up
slightly. On the commercial sales side, brokers reported
modest increases in prices and sales. Multifamily leasing
remained healthy, although reports on construction
activity varied across the District.

Trucking activity remained robust since our last report.
Demand stayed strong and companies continued to turn
down business because of a lack of drivers. One North
Carolina trucking company invested in new service
centers to help with business growth, but another worried about rising costs of equipment. District truckers did
see some effects from Hurricane Florence, largely coming from highway and service center closures as well as
additional costs associated with protecting equipment.

Banking and Finance
Overall, loan demand rose moderately in recent weeks.
Residential mortgage demand was generally described
as stable to increasing modestly. On the commercial
side, real estate loan demand strengthened moderately.
Business loan demand increased slightly, on balance,
while automotive lending was reportedly flat. Bankers in
Virginia and the District of Columbia reported increased
C&I lending in recent weeks. A West Virginia banker saw
higher than normal deposit growth and an uptick in loan
demand in oil and gas areas of the state and a leveling
off in demand elsewhere. Deposits grew moderately
since our last report and contacts continued to report
increased rate competition among banks. Credit quality
remained stable at high levels.

Retail, Travel, and Tourism
Reports on tourism were mixed since our last report, as
Hurricane Florence discouraged people from visiting
parts of the Fifth District. In Charleston, South Carolina,
hotel occupancy fell significantly, and many hotels and
restaurants closed as employees evacuated the area. In
Asheville, North Carolina, hotels faced high levels of
cancellations and local attractions lost business because of the hurricane. However, tourism in areas not
affected by Florence was healthy. For example, a West
Virginia resort reported strong business growth and high
bookings for the coming months.
Fifth District retailers reported modest activity in recent
weeks. A South Carolina auto dealer reported a slight
uptick in business despite a downturn in sales at other
local dealerships. Many stores saw sales growth and
expected it to continue through the end of the year.
However, retailers also expressed concerns about rising
costs, some of which were attributed to the recent tariffs,
and their inability to pass the cost increase through to

Nonfinancial Services
The demand for nonfinancial services grew moderately
in recent weeks. An accounting firm reported stronger
demand, particularly from clients in the professional
services, information, and manufacturing sectors. One
firm attributed their increased business to a newly
awarded federal contract while another firm saw more
bid opportunities. Meanwhile, healthcare service providers continued to report strong business conditions.

Real Estate and Construction

Agriculture and Natural Resources

Residential real estate firms indicated modest growth,
overall. Home sales rose modestly in recent weeks and
buyer traffic was steady, although low levels of inventory
persisted. District home prices increased slightly, while
days on the market were generally unchanged at low
levels. Meanwhile, residential construction reportedly
picked up in the District of Columbia, Virginia, South
Carolina, and Maryland. Builders reported strong backlogs, although speculative construction remained limited.

Natural gas production increased slightly in recent weeks
while coal production was little changed. Farmers in
North Carolina lost crops and livestock to flooding from
Hurricane Florence. A farmer in South Carolina who was
not directly affected by the hurricane, but had a lot of rain
since, was at risk of losing some crops. ■

Commercial real estate leasing rose modestly in recent
weeks. District brokers reported increased demand for

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ October 2018

Summary of Economic Activity
Reports from Sixth District business contacts indicated that economic activity expanded at a moderate pace from midAugust through September, and most expect the pace to continue through the last quarter of the year. The labor market
remained tight, and reports of wage pressures increased. Firms continued to note increasing nonlabor costs and a
growing number of contacts reported the ability to pass along those increases. Retailers, including automobile dealers,
cited slightly higher sales since the previous report. Tourism activity exceeded expectations. Contacts reported that
residential real estate market activity expanded at a modest pace, and commercial real estate activity was robust. Manufacturing activity was solid with purchasing managers noting increased new orders and production since the previous
report. Bankers cited that activity was healthy, on balance.

Employment and Wages

increases for commodities. The Atlanta Fed’s Business
Inflation Expectations survey showed year-over-year unit
costs were up 2.0 percent in September. Survey respondents indicated they expect unit costs to rise 2.2
percent over the next twelve months.

While business contacts across the District reported
increasing staffing levels, firms continued to cite that
tightening labor markets, particularly among low-skill/
hourly jobs, were restraining business activity. Constraints to growth were especially acute in construction,
transportation, and manufacturing; while some contacts
in food services also indicated turning down new business, reducing shifts, or occasional fast food store closures. Contrastingly, contacts continued to note that
technological advances in agricultural, financial, and
manufacturing processes had reduced the number of
workers needed.

Consumer Spending and Tourism
District retailers reported a slight increase in sales levels
since the last report. Some contacts noted that tourist
related retail sales were stronger than expected over the
last two months. Automotive dealers reported an uptick
in the level of sales of small SUVs and light trucks in
September compared to a year ago.
Tourism and hospitality contacts in the District reported
higher than expected tourism activity since the previous
report. Hotel occupancy and average daily rates were
higher than expected in tourist destination cities in Florida, Georgia, and Louisiana. Year-to-date Mississippi
casino gaming revenue increased compared to the same
time period last year. District contacts remain optimistic
about activity in the fourth quarter.

A growing number of firms over the reporting period
experienced an uptick in merit increases for workers;
several contacts reported average merit raises in the 3 to
3.5 percent range. Many continued to mention that rising
labor costs were a challenge, leading some firms to
expand their geographical search for workers, relocate
operations to lower cost labor markets, outsource work
domestically and/or abroad, or “wait it out” by not filling
certain positions.

Construction and Real Estate
On balance, reports from District residential real estate
contacts indicated decelerating, but still positive, growth.
Many builders reported that construction activity was up
from the year-ago level. Lot and land availability remain
constraints on building activity, but contacts noted that
land costs have plateaued. Contacts characterized buyer

Firms across the District continued to report rising nonlabor input costs, with some ability to pass along price
increases. As noted in the previous report, anticipation of
rising costs related to tariffs contributed to vendor price


Federal Reserve Bank of Atlanta
traffic as steady, but with a low rate of conversion to
sales. District builders expect home sales activity to
remain at current levels for the next few months.

due to slowing demand for credit and increased competition. Contacts indicated that financial institutions were
relying more on borrowings and noncore deposits to fund
asset growth. In addition, competition for core deposits
was fueling an increase in mergers and acquisitions.

Many District commercial real estate contacts noted
continued strong demand. The majority of commercial
contractors indicated that, on balance, the pace of nonresidential construction at least matched the year-ago
level. Most contacts reported a healthy pipeline of activity. Industrial contacts noted that backlogs were steady
rather than growing and retail contacts described activity
as stable. Contacts expressed concern that material
price uncertainty presents an ongoing challenge to bidding and fulfilling projects. The outlook for nonresidential
and multifamily construction across the District remained
positive though uncertain, with the majority of contacts
anticipating activity to match or exceed the current level.

Onshore crude oil and natural gas production continued
to accelerate, spurring exports of both products from
Gulf Coast terminals. Refinery utilization rates remained
high and stable from the previous reporting period. Utilities contacts reported that while residential and commercial demand for power was flat to slightly down, industrial
demand was strong. Regarding recently imposed tariffs,
many energy contacts shared that their businesses had
responded by reorganizing supply chains. Technological
advancement in areas such as robotics and global monitoring of control centers and pipelines continued to enhance efficiencies for the District’s energy sector. Contacts continued to point out that business growth was
constrained by inadequate supply of truck drivers and
highly specialized tradespeople.


Manufacturing firms reported that overall business activity was solid since the previous report. Most contacts
indicated that new orders and production levels were
increasing at a healthy pace. Purchasing managers cited
extended delivery times for supply orders and continued
upward pressure on input prices. Expectations for future
production levels increased slightly from the previous
period, with a little more than one-third of contacts expecting higher production over the next six months.

Agriculture conditions across the District remained
mixed. By late September, most of the District was
drought-free. District corn, soybean, cotton, and peanut
harvests were close to their five-year averages although
by late September, significant rain in Tennessee resulted
in some crop damage and delays in harvesting. Yearover-year prices paid to farmers in August were up for
corn, cotton, rice, and eggs, while soybean, beef, and
broiler prices were down. Contacts remained concerned
about tariffs and trade conflicts although there was some
optimism concerning the newly agreed upon United
States-Mexico-Canada Agreement. Recent reports indicated cropland values in the District rose from 2017 to
2018 with the exception of Florida where cropland values
were flat. ■


On balance, transportation activity across the District
was little changed since the previous report. District
ports continued to report considerable growth in freight.
District railroads noted year-over-year increases in total
traffic, led by substantial increases in the volumes of
petroleum and petroleum products, pulp and paper products, aggregates and metallic ores; these increases were
partially offset by declines in non-metallic minerals
(including phosphates) and coke. Year to date, total
railroad activity was up slightly over last year. Freight
forwarders reported significant capital investments in
facilities, aircrafts, and fleets as capacity constraints
mounted due to steady increases in domestic and international volume. While noting some challenges, transportation contacts indicated no significant disruptions in
the movement of freight as a result of changes in trade

Banking and Finance
Conditions at financial institutions remained healthy.
Earnings continued to grow as higher interest rates
drove improvement in net interest margins. Credit quality
metrics remained positive with charge-offs and nonaccruals still at historic lows. However, financial institutions
were reportedly starting to loosen underwriting standards

For more information about District economic conditions visit:


Federal Reserve Bank of

The Beige Book ■ October 2018

Summary of Economic Activity
Growth in economic activity in the Seventh District slowed to a modest pace in late August and September, and contacts expected it to continue at that pace over the next 6 to 12 months. Manufacturing production and employment grew
moderately, consumer and business spending increased modestly, and construction and real estate activity was flat.
Wages and prices rose modestly and financial conditions were little changed. Greater-than-usual precipitation slowed
the agricultural harvest and reduced the quantity and quality of crops.

Employment and Wages

flat. Retail contacts across numerous sectors indicated
that they expected consumers to see the impact of US
tariffs on imports by early 2019. Producer prices again
rose moderately, reflecting in part the pass-through of
higher labor, materials, energy, and freight costs.

Employment growth continued at a moderate pace over
the reporting period, though contacts expected gains to
slow to a modest rate over the next 6 to 12 months.
Hiring was focused on production, sales, and professional and technical workers. As they have for some time,
contacts indicated that the labor market was tight and
that they had difficulty filling positions at all skill levels.
Residential and commercial construction contacts said
that a lack of workers was slowing the completion of
projects: One contact reported a delay of 6 weeks because they couldn’t find an elevator installer. Most contacts indicated that increased US and foreign tariffs had
not affected their employment levels. Wage growth
remained modest overall, with wage increases most
likely for managerial, professional and technical, and
administrative workers. In addition, numerous manufacturing contacts reported raising wages for entry-level
production workers. Many firms reported rising benefits
costs, though the number of firms reporting such increases declined from the previous reporting period.

Consumer Spending
Consumer spending increased modestly over the reporting period. Nonauto retail sales rose moderately, with
gains in the furniture, appliances, hardware, electronics,
apparel, hardware, lawn and garden, and hobby sectors,
and slight declines in the grocery and jewelry sectors.
Contacts in western Michigan reported rising hotel occupancy rates and airport traffic. Overall, respondents were
pleased with back-to-school sales and expected good
holiday season results as well. The rates of both new
and used vehicles sales were unchanged on balance.
Leasing activity slowed some.

Business Spending
Business spending increased modestly in late August
and September. Retail contacts indicated that inventories were generally at comfortable levels. One contact
noted that retailers were expecting good holiday sales
and were building up inventories accordingly. Most manufacturing contacts also said stocks were at comfortable
levels, though some indicated that inventories were too
low as a result of longer lead times for materials. In

Prices rose modestly in late August and September, and
contacts expected prices to continue to increase at that
rate over the next 6 to 12 months. Retail prices increased slightly overall, though prices of groceries were


Federal Reserve Bank of Chicago
addition, stocks at steel service centers remained well
below historical norms. Capital spending increased
modestly, and contacts expected growth to continue at
that pace over the next 6 to 12 months. Outlays were
primarily for replacing industrial and IT equipment and
for renovating structures. Most contacts indicated that
higher US and foreign tariffs had not affected their capital spending schedules; among those who had reacted
to tariffs, more said that they were slowing spending than
increasing it. In addition, some contacts indicated that
they were delaying capital spending decisions until the
outcomes of trade negotiations were more clear. Demand for energy from commercial and industrial users
increased modestly, with growth led by the manufacturing sector. Demand for transportation services remained
at a strong level.

construction materials continued to report slow but
steady increases in shipments. Auto production was flat,
but remained at a solid level.

Banking and Finance
Financial conditions were little changed over the reporting period, which was prior to the recent increase in
volatility in the stock market. Financial market participants reported steady securities prices and volatility.
Business loan demand was flat overall, though contacts
reported higher demand from the manufacturing,
healthcare, and warehousing sectors. Competition was
particularly strong for small business loans. Loan quality
and lending standards were little changed. Consumer
loan demand was flat overall, though contacts reported a
slight increase in demand for mortgage loans. Loan
quality and lending standards edged up.

Construction and Real Estate


Construction and real estate activity was little changed
on balance over the reporting period. Residential construction was flat, with growth in suburban single-family
homebuilding offset by declines in other markets. Homebuilders reported that rising labor and materials costs
continued to slow activity. Home sales declined slightly
on balance. Contacts indicated that low inventories of
starter homes continued to hold back sales, and there
were some concerns that rising interest rates were also
putting a damper on demand. Home prices and residential rents increased slightly. Nonresidential construction
ticked higher, with contacts highlighting growth in the
office-building sector. Nonresidential construction contacts also reported that rising labor and materials costs
were slowing growth. Commercial real estate activity
increased slightly on top of an already strong level, with
reports of increased demand for for-sale industrial properties. Commercial rents ticked higher, and vacancy
rates and the availability of sublease space edged lower.

Greater-than-usual precipitation slowed the harvest and
reduced the quantity and quality of crops, and expectations for net crop income fell accordingly. While expectations for yields were lower than in the prior reporting
period, it was still likely that they would reach record
levels. Contacts reported a notable drop in Chinese
purchases of US soybeans following an increase in
Chinese tariffs. Farmers also faced higher transportation
costs due to rail issues, a shortage of truck drivers, and
complications in shifting export destinations away from
China. Contacts expected the record yields and weak
export demand to push crop storage to abnormally high
levels. Hog and dairy prices recovered some, boosted in
part by US government purchases that were part of a
program to compensate farmers for losses from higher
foreign tariffs. Even so, dairy farmers continued to struggle. In addition, contacts viewed gains from the new USMexico-Canada Agreement as too small and too far in
the future to help dairy farmers. Moreover, Canada and
Mexico maintained their tariffs on agricultural goods
(including pork and dairy) that they imposed in response
to US steel and aluminum tariffs. ■

Manufacturing production increased at a moderate rate
in late August and September. Steel output increased
moderately, led by strong growth in demand from the
energy sector. Steel imports continued to decline. Demand for heavy machinery rose moderately, with growth
coming from the construction and energy sectors. Demand for heavy trucks increased slightly from an already
strong level. Overall, order books for specialty metals
manufacturers increased modestly; growth was spread
across a wide variety of sectors, but was particularly
strong from the oil and gas sector. Manufacturers of

For more information about District economic conditions visit:


Federal Reserve Bank of

St. Louis
The Beige Book ■ October 2018

Summary of Economic Activity
Economic conditions in the District have improved slightly since our previous report. Firms reported slight increases in
employment and modest growth in wages. Price pressures have increased modestly primarily due to higher transportation costs. Reports from consumer spending contacts remained mixed. Manufacturers reported modest growth with
increases in production and new orders. Residential real estate activity improved slightly while construction activity
declined slightly. Commercial real estate markets were somewhat weaker than in previous reports. District bankers
reported that loan volumes remain healthy but the rate of growth continues to slow. Agriculture and natural resources
conditions have improved slightly since the previous report.

rising trucking and transportation costs. A Louisville
contact noted seeing an increase in rail prices. Coal
prices in the region have increased moderately. Meanwhile, steel prices decreased slightly but remain elevated
compared with a year ago.

Employment and Wages
Employment has increased slightly since the previous
report. Manufacturing employment grew modestly. Contacts in Arkansas reported slight growth while contacts in
Missouri reported modest growth. Transportation employment also increased, as multiple distribution centers
announced expansions. However, firms continued to
report challenges attracting workers. Contacts in Memphis and Arkansas in particular noted difficulties filling
high-wage, technical positions. Firms continued to use a
variety of strategies, such as business partnerships and
non-wage benefits, to recruit employees. One contact
reported the launch of programs that teach foreign-born
workers English to prepare them for jobs in the medical
field and in manufacturing.

Agricultural commodity prices were mixed. Prices for
cotton and rice have decreased slightly since the previous report while still remaining slightly above their price
last year. Corn and soybean prices have increased
slightly since the end of August. Wheat prices showed
next to no change over the same time frame, but are up
25 percent from last year.

Consumer Spending
Reports from general retailers, auto dealers, and hoteliers indicate mixed consumer spending activity. Real
sales tax collections increased in Arkansas, Tennessee,
and Kentucky relative to a year ago and decreased in
Missouri. Louisville auto dealers reported that sales
decreased year over year, and they indicate that higher
interest rates may be affecting their business. Hospitality
contacts in Missouri reported that sales were lower compared with the same time last year. They also expressed
a pessimistic outlook for the remainder of 2018. Arkansas tourism sales tax revenue slightly increased year
over year.

Wages have increased modestly since the previous
report. Multiple contacts reported wage increases for
entry-level workers. Furthermore, wages grew in manufacturing and trucking sectors and were generally flat in
the hospitality sector. Wages for small business in St.
Louis rose slightly.

Price pressures have increased modestly since the
previous report. Business contacts across the District
reported moderate growth in fuel costs, contributing to


Federal Reserve Bank of St. Louis

Banking and Finance

Manufacturing activity has increased modestly since our
previous report. Survey-based indexes indicate that
Arkansas and Missouri manufacturing activity continued
to expand from August to September but at a slower
pace than in the prior month. New orders and production
also increased in both states. Several firms across a
variety of industries reported facility expansion and hiring
plans, including manufacturers of paper products, automotive parts, and primary metals.

Banking conditions in the District have improved moderately since the previous report. According to a survey of
small and mid-sized banks, outstanding loan volumes
grew by 6 percent in the third quarter relative to a year
ago, which is a slight decrease from the growth rate
reported in the prior quarter. District loan growth has now
slowed in seven straight quarters but remains above the
national rate. Commercial and industrial lending continued to be robust, growing by 11 percent from one year
ago. In contrast, residential real estate lending remained
slow and lagged behind that of the nation for the third
consecutive quarter. Bankers continued to report slow
growth in deposits growth.

Nonfinancial Services
Activity in the service sector has improved modestly
since the previous report. The number of posted vacancies for nonfinancial services occupations increased in
September in Louisville, Memphis, and St. Louis. The
transportation sector continues to exhibit strong growth
with higher demand for rail traffic and increased investment in delivery and fulfillment centers. However, growth
is somewhat constrained by increased freight and fuel
costs. The trucking industry’s shortage in drivers is further compounded by limitations on driving hours for
current drivers. Firms in the healthcare industry are
reporting higher demand for services and increased
investment in hospitals.

Agriculture and Natural Resources
District agriculture conditions improved slightly compared
with previous reports. Production and yield forecasts
increased from August to September for corn and soybeans. Expected production levels also improved for
cotton and rice during the same period, but yield forecasts decreased. Relative to 2017, District corn, cotton,
and soybean yields are expected to increase, but rice
yields are projected to decline. Production levels of all
four crops are expected to be greater than those from
last year.

Real Estate and Construction

Natural resource extraction conditions declined slightly
from July to August, with seasonally adjusted coal production decreasing 0.6 percent. August coal production
was 1.4 percent higher than a year ago. ■

Residential real estate activity has improved slightly
since the previous report. Seasonally adjusted home
sales for August were mixed across the District’s four
largest MSAs but were relatively flat overall. Inventory
levels remained low.
Residential construction activity has declined slightly
since the previous report. August permit activity decreased modestly across the District’s MSAs. However,
St. Louis builders reported an optimistic outlook for the
rest of the year because of robust demand for singlefamily homes.
Commercial real estate activity has declined slightly
since the previous report. Louisville contacts reported
decreased activity in office and retail property markets,
and they noted that demand for office space has been
relatively stagnant.
Commercial construction activity has decreased slightly
since the previous report. August multifamily permits
were unchanged relative to the previous month in most
of the District’s MSAs. However, Louisville contacts
reported a robust level of new construction underway for
multifamily property types. They also indicated that there
is a lack of new construction projects for warehouses.

For more information about District economic conditions, visit:


Federal Reserve Bank of

The Beige Book ■ October 2018

Summary of Economic Activity
The Ninth District economy grew moderately overall since the last report. Employment grew moderately, with strong
hiring demand but tight labor supply. Wage and price pressures were both moderate. The District economy showed
growth in manufacturing, real estate, residential construction, professional services, consumer spending, and tourism.
But commercial construction and energy slowed, and agriculture remained weak.

Employment and Wages

Wage pressures were moderate since the last report.
The aforementioned survey of human resources
professionals found that 40 percent of Minnesota
respondents reported wage growth of 3 percent or more
at their firms over the past 12 months, while 25 percent
of Montana firms responded similarly. Wage
expectations in both states for the coming 12 months
were slightly higher. A general business survey,
conducted by the Minneapolis Fed in October, found that
a strong majority of firms raised wages relative to a year
earlier, and future increases were also expected. South
Dakota retailers reported only modest wage increases
despite reports of very tight labor. Two Minnesota
sources also reported that higher wages have allowed
some workers to cut back on hours worked .

Employment grew moderately since the last report
despite continued labor constraints. Hiring demand was
robust. Ad hoc surveys of human resources
professionals in Minnesota and Montana, conducted by
the Minneapolis Fed in mid-September, found that a
large majority of respondents’ firms were currently hiring;
roughly 40 percent said their firms were hiring both to
add headcount and to replace worker turnover. Data
from state workforce centers showed that job postings
were up 9 percent across Ninth District states. Job
tracking by a Minnesota trade group also showed strong
growth in STEM jobs in September compared with a
year earlier. Seasonal hiring was also beginning, with
several announcements of major hiring, including 1,700
workers across the Minneapolis-St. Paul metro for a
transportation firm. However, tight labor supply
restrained overall hiring. In Montana and Minnesota, the
number of job openings at workforce centers in August
outnumbered those seeking work by a roughly two-toone margin. Over the most recent six-week period
(through late September), initial unemployment claims in
the District dropped by 10 percent over the comparable
2017 period, and continuing claims were 12 percent
lower. However, an external survey of fourth quarter
hiring expectations was notably softer, but still positive,
for District states, and the percentage of employers
expecting to increase staff levels fell virtually across the
board compared with last quarter and last year.

Price pressures increased moderately relative to the
previous report. A Minneapolis Fed business survey
indicated that firms had increased prices in the third
quarter relative to a year ago; two-thirds planned price
increases in the last quarter of 2018. In a separate
survey, 60 percent of South Dakota retailers indicated
that customer prices rose by less than 2 percent but that
wholesale price increases were larger. Retail fuel prices
in District states as of early October were moderately
higher than a month earlier. Numerous manufacturers
reported that rising prices for certain raw material inputs
due to trade conflicts were partially passing through to


Federal Reserve Bank of Minneapolis
final output prices. Prices received by farmers for corn,
wheat, hay, and eggs increased in August compared
with a year earlier; prices for soybeans, hogs, cattle,
milk, and turkeys decreased.

Commercial real estate saw modest growth since the
last report. In Minneapolis-St. Paul, demand for industrial
space continued to show strength, with vacancy rates
falling slightly from already low levels and despite
significant new construction. Office vacancy rates and
asking rents were generally stable there as well, while
sales of office space have been trending upward and
were expected to continue to rise in the fourth quarter.
Despite a strong increase in new units, multifamily
vacancy rates in Minneapolis-St. Paul remained low.
Apartment occupancy rates were also strong in western
North Dakota, thanks to increased activity in the Bakken
oil region. Residential real estate activity fell. Closed
sales in September were lower compared with a year
earlier in many of the District’s larger markets.

Consumer Spending and Tourism
Consumer spending grew moderately since the last
report. Growing activity in the Bakken oil region was
again spilling into higher retail sales in the region and
state; North Dakota sales tax collections were 26 percent
higher than anticipated in August. However, retailers in
South Dakota reported sluggish late summer sales into
September. Tourism activity also grew. A survey of
Minnesota lodging properties described a “strong”
summer, with about 50 percent of respondents seeing
higher revenue compared with about 25 percent that saw
lower revenue. Expectations for fourth quarter tourism
were positive, but more modest. Minnesota hotel
demand in August increased by 3 percent over a year
earlier; occupancy rates were unchanged, but increases
were seen in average daily rates and revenue per
available room. However, a late-summer drop in national
park visitors suggested some slowness in Montana and
South Dakota, which hold a majority of the District’s
larger national parks. Visits to the District’s northeastern
region saw healthy increases.

District manufacturing activity increased slightly. An
index of manufacturing conditions indicated increased
activity in September compared with a month earlier in
Minnesota and North Dakota; the index for South Dakota
indicated flat activity. Numerous manufacturers across
the District reported strong output demand and
production so far this year, but their outlook for the
remainder of this year and for next was flat due to rising
input costs and uncertainty over trade policy. A producer
of industrial and mechanical equipment said recent
demand and production were up moderately. A solar
panel plant opened in Minnesota, and a producer of
composite structural members was expanding a plant.

Professional Services
Activity in the professional services industry increased
moderately since the last report. Several contacts in
insurance and financial services indicated that demand
was up moderately. A construction engineering firm was
expanding in Minnesota and the Dakotas. Contacts in
agricultural transportation reported that the year through
September had been strong, but there was much more
uncertainty heading into a new marketing year.

Agriculture, Energy, and Natural Resources
District agricultural conditions remained weak overall.
Persistent rain in early fall delayed or slowed harvests in
some areas. Very strong harvests were expected around
the District, including potential record yields in some
cases. However, commodity prices remained weak, and
greater production was not expected to completely offset
the negative impact of low prices on farm incomes.
International demand for crops, particularly soybeans,
has fallen dramatically, according to contacts. A
producer of dry beans reported that a large regular
annual order from European Union countries was
cancelled due to tariffs. A substantial number of dairy
operations have exited the business since the beginning
of the year. District oil and gas exploration activity as of
early October decreased slightly from the previous
report. District iron ore mines were operating at capacity.
Contacts in nonferrous mining described activity as up
slightly. ■

Construction and Real Estate
Commercial construction activity contracted slightly since
the last report. Industry data suggested that commercial
construction was down in August across much of the
District compared with a year earlier. Other industry data
showed that both new projects and total active
construction projects near the end of September were
modestly lower than at this time last year. Commercial
permitting in September was mixed among the District’s
larger markets. Residential construction activity was
moderately higher. September single-family permitting
was higher in a majority of District metros compared with
a year earlier, and some locations continued to see
strong multifamily permitting, including Rochester, Minn.


Federal Reserve Bank of

Kansas City
The Beige Book ■ October 2018

Summary of Economic Activity
Economic activity in the Tenth District increased at a moderate pace in September and early October. Consumer spending rose moderately, with contacts in the retail, auto, and tourism sectors noting higher sales than the previous survey
period. Manufacturing activity continued to grow moderately, while contacts in the wholesale trade, transportation, and
professional and high-tech sectors reported strong sales. Residential real estate sales continued to decline moderately,
and expectations were for additional declines due in part to seasonal factors and higher interest rates. Commercial real
estate activity expanded modestly. Energy activity accelerated, especially for oil, and additional gains were anticipated.
Despite higher livestock prices, the outlook for District farm income remained subdued due to low crop prices. District
employment was mixed across industries, and the majority of respondents reported labor shortages for both entry-level
and skilled positions. Wage growth accelerated, and strong wage growth was anticipated in the coming months. Price
gains also picked up, although growth in input prices generally outpaced that of selling prices.

Employment and Wages

selling and input prices since the previous survey period,
but both were strongly above year-ago levels. Input
prices rose strongly in the transportation sector, while
selling prices increased modestly. Manufacturers reported modest price growth for finished products and moderately higher prices for raw materials. Most manufacturing
contacts continued to note that recent trade developments had led to higher input prices. Respondents in the
restaurant, transportation, and manufacturing sectors
expected moderate growth in selling and input prices in
the months ahead.

District employment was mixed across industries since
the previous survey, but contacts from most sectors
reported rising employee hours. Contacts in the retail
trade, wholesale trade, real estate, and energy sectors
noted increasing employment levels, while those in the
auto sales, restaurant, and tourism sectors reported a
decline. Employee hours declined modestly in the health
services and restaurant sectors, but were steady-toincreasing for all other reporting industries. Employment
levels and employee hours were expected to rise modestly in the months ahead.

Consumer Spending

The majority of respondents noted labor shortages for
both entry-level and skilled positions, including shortages
for retail sales, kitchen staff, specialized IT, commercial
drivers and skilled mechanics. Wage growth accelerated
since the previous survey, with wages rising moderately
in most sectors and strong growth anticipated in the
coming months.

Consumer spending rose moderately, led by gains in
retail sales, and contacts expected slight increases in the
coming months. Retail sales expanded robustly compared to the previous survey period, and contacts anticipated sales to grow at a modest pace in the months
ahead. Respondents noted household furniture sold well,
while higher-priced items sold poorly. Auto sales continued to grow modestly, and contacts expected both sales
and inventories to rise moderately in the coming months.
Restaurant sales fell modestly compared to the previous
survey period, but remained well above year-ago levels.
Restaurant contacts anticipated sales to decline slightly
in the next few months. Tourism sales increased slightly,
however contacts projected a slight decline in the
months ahead.

Input prices were moderately higher in September and
early October, and selling prices rose modestly. In the
retail sector, input and selling prices increased robustly
compared to both the previous survey period and yearago levels, and expectations were for similar gains in the
months ahead. Restaurant contacts noted slight gains in


Federal Reserve Bank of Kansas City
Manufacturing and Other Business Activity


Manufacturing activity continued to expand at a moderate pace, and other business contacts experienced
strong sales growth. Factory activity grew at durable
goods plants due to increases in nonmetallic minerals,
metals, and electronics, while nondurable plant activity
slowed slightly. The level of production, shipments, and
new orders increased slightly over the survey period,
and each remained higher than year-ago levels. Manufacturers expected moderate increases in capital expenditures in the coming months. Many manufacturing
respondents noted savings due to federal tax cuts, but a
majority of respondents also noted negative impacts
from tariffs, primarily due to higher input prices.

Bankers reported a modest increase in overall loan
demand in September and early October. Respondents
reported a modest increase for commercial and industrial
loans and a slight increase for commercial real estate
and agricultural loans. Bankers indicated a slight decrease for consumer installment loans, while the volume
of residential real estate loans remained steady. Loan
quality improved modestly compared to a year ago, and
respondents expected loan quality to improve slightly
over the next six months. Credit standards remained
largely unchanged in all major loan categories. Overall,
bankers reported a slight increase in deposit levels.

Outside of manufacturing, firms in the wholesale trade,
transportation, and professional and high-tech sectors
reported strong sales with expectations for continued
growth in the months ahead. Professional and high-tech
firms anticipated capital expenditures to increase slightly
moving forward, while wholesale trade firms expected
capital spending to decrease slightly. Transportation
contacts expected a modest increase in capital spending
in the coming months, with some contacts attributing this
increase to recent federal tax cuts.

District energy activity accelerated since the last survey
period, and contacts expected additional growth moving
forward. The number of active oil rigs increased slightly,
while the number of active gas rigs inched down. Oil
prices rose, recovering somewhat after a slight dip last
month. The majority of contacts have not been affected
by price differentials between WTI Midland and Cushing,
although some contacts noted a slight negative impact
on oil production. Despite a glut of natural gas, contacts
did not expect production to slow given the construction
of additional pipelines which should increase future
supply capacity. Increased U.S. exports of liquefied
natural gas was viewed positively by a majority of respondents.


Real Estate and Construction
Overall District real estate activity remained mixed as
residential real estate activity declined modestly while
commercial real estate activity rose modestly. Residential home sales continued to fall moderately, and selling
prices and inventories of unsold homes grew modestly.
Respondents expected additional decreases in residential sales moving forward, citing seasonal factors and
rising interest rates. Sales of low- and medium-priced
homes continued to outpace sales of higher-priced
homes. Residential construction activity strengthened
slightly since the previous survey period, and construction supply contacts expected sales to expand further in
the months ahead. Activity in the commercial real estate
sector continued to increase at a modest pace as sales,
absorption, completions, and prices rose. However, a
majority of respondents reported higher commercial
vacancy rates for the first time since the end of 2016.

The farm economy in the Tenth District remained weak
as expectations of increased production contributed to a
slight decline in corn and soybean prices since the previous reporting period. Corn and soybean production was
expected to be strong in Nebraska, which could offset
some adverse effects of low prices. Crop yields in Missouri, however, weakened considerably from a year ago
and could further strain farm income. The price of wheat
was down slightly from the previous reporting period, but
remained higher than a year ago. In the livestock sector,
the price of cattle increased slightly from the previous
period, but remained lower than a year ago as inventories generally remained high. In contrast to the prices of
other agricultural commodities in the District, hog prices
increased sharply in September due to expectations of
lower production and higher exports. ■

For more information about District economic conditions visit:


Federal Reserve Bank of


The Beige Book ■ October 2018

Summary of Economic Activity
Solid expansion continued in the Eleventh District economy. Manufacturing output increased robustly, although demand
growth slowed from last period. Healthy growth continued in retail and nonfinancial services. Loan demand and volumes
increased further, as did loan pricing. Home sales were flat to up over the past six weeks. Drilling activity was flat as
limited pipeline and transportation capacity inhibited growth. Employment increased, and widespread labor shortages
continued to pressure wages and even restrain business growth in some sectors. Price pressures stayed elevated,
partly due to tariffs driving up input costs. Outlooks remained optimistic despite increased uncertainty stemming from
trade disputes, rising interest rates, and labor constraints.

Employment and Wages

the qualifications rather than the usual 80 percent.

Widespread job growth continued across sectors. However, labor markets remained very tight, with most contacts reporting difficulty hiring and several saying the
lack of qualified candidates was impeding growth. While
labor shortages spanned most sectors and all skill levels,
contacts reported the greatest prevalence in mid-skilled
positions such as blue collar workers in manufacturing,
construction, and energy, as well as truck drivers. Shortages were also cited for low-skill workers in the food
service industry and high-skill workers in utilities, telecommunications, and business and financial services. A
few contacts noted labor poaching was a real issue,
especially energy sector firms reaching out to workers in
manufacturing and retail. A staffing services contact
voiced concern over an extreme shortage of qualified
bilingual candidates, particularly for areas like customer
service, call centers, accounting, and business development.

Price pressures remained elevated in part due to tariffs,
particularly in manufacturing and retail. Among manufacturers, roughly 60 percent of contacts said the tariffs
announced and/or implemented this year have resulted
in increased input costs. The share was even higher
among retailers, at 70 percent. Several contacts noted
lower profit margins resulting from not being able to raise
selling prices enough to offset the full cost hikes. Aside
from tariffs, some services firms said they have raised
their prices to offset wage increases. Construction contacts continued to report high and/or rising material
costs. Oil and gas support services firms said input costs
rose at a faster pace in the third quarter than in the second and at a faster pace than they were able to raise the
prices they charge.


Upward wage pressure was generally pervasive and
strong, according to contacts. Some businesses were
implementing non-wage strategies to recruit and retain
workers, such as giving sizeable signing bonuses, offering part-time and/or flexible work schedules, and keeping
employees on the payroll during periods of slower business. Also, a staffing firm reported that employers were
willing to accept candidates that met only 60 percent of

Robust output growth continued in the manufacturing
sector, although there were some signs that the expansion was moderating somewhat. Demand growth slowed
in September, particularly for nondurables manufacturing
such as chemicals. Labor constraints were reported as a
damping factor, as were tariffs. In a September survey
conducted by the Dallas Fed, nearly half of the 110
Texas manufacturing executives responding said the net


Federal Reserve Bank of Dallas
impact on their firm of the tariffs announced and/or implemented by the U.S. and other countries is negative,
while 9 percent said the impact is positive. The most
common tariff effects were increased uncertainty, rising
costs, longer supplier delivery times, and reduced production. Even still, manufacturers reported positive business conditions overall, and outlooks remained optimistic.

real estate and commercial/industrial loan volumes,
while consumer loan volumes actually grew at a faster
pace over the past six weeks. Loan pricing continued to
rise as did banks’ cost of funds. Deposit volumes expanded, albeit at a slower pace, with many contacts
reporting an increase in competition for deposits. Contacts continued to be optimistic about future economic
activity and loan demand, however uncertainty in tariff
and trade negotiations and a flattening yield curve were
cited as top concerns.

Retail Sales
Retail sales at Texas stores continued to expand solidly
during the reporting period, while companywide and
online sales growth abated somewhat. Some contacts,
particularly auto dealers, noted that tariffs are prompting
uncertainty. A contact noted that an online retail competitor has driven some retailers to shift their business model to remain competitive, such as offering in-store
pickups for online orders and price matching. Retail
contacts were notably more optimistic in their outlooks
than they have been all year.

Drilling activity in the Eleventh District was flat over the
past six weeks as pipeline capacity constraints continued
to put downward pressure on prices received by oil and
gas operators in the Permian Basin. The lower prices
and transportation constraints have restrained growth in
rig counts and pushed down demand for some production-related oilfield services. Overall, outlooks remained
positive as additional pipeline capacity is expected to be
operational by late 2019 or 2020.

Nonfinancial Services


The nonfinancial services sector continued to expand
robustly, with revenue growth led by transportation services and administrative and support services. Revenue
growth accelerated in professional, scientific, and technical services but remained lackluster in leisure and
hospitality. Most staffing firms reported surging demand
for their services over the reporting period, noting
strength in all markets, both geographically and by industry. There was some concern about potential effects
of rising interest rates, and roughly half of the 212 Texas
general services firms responding to a recent Dallas Fed
survey said tariffs were driving up uncertainty. However,
outlooks were largely optimistic—even more so than
during the last reporting cycle—and several contacts
said they expect strong demand to keep up through
yearend and into 2019.

Drought conditions improved remarkably over the reporting period thanks to ample precipitation across much of
the district. While increased soil moisture will be a boon
to the winter wheat crop, the rain came too late to help
the 2018 row crops for which yields are expected to be
down notably from last year. In fact, wet fields have to
some extent hampered the harvesting efforts underway
and could potentially cause quality issues for cotton. On
the livestock side, conditions remained favorable with
rising cattle prices, lower feed costs, and strong demand
for beef. ■

Construction and Real Estate
Home sales were flat to up over the past six weeks, with
continued strength noted at lower price points. Home
prices were flat, and builders said it remained difficult to
pass through notably higher construction costs. Rising
interest rates and building costs were among top concerns in the single-family housing market. Apartment
demand exceeded expectations in most major metros in
Texas during the third quarter, pushing up occupancy
and rents slightly.

Financial Services
Loan demand growth remained strong over the reporting
period, while growth in actual loan volumes eased slightly. The deceleration was most pronounced for residential

For more information about District economic conditions visit:


Federal Reserve Bank of

San Francisco
The Beige Book ■ October 2018

Summary of Economic Activity
Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of September through early October. Conditions in the labor market tightened noticeably, and wage pressures picked up. Price
inflation increased moderately. Sales of retail goods picked up slightly, while activity in consumer and business services
was solid. Activity in the manufacturing sector expanded moderately, and conditions in agriculture improved somewhat.
Contacts reported that residential and commercial real estate market activity expanded at a strong pace. Lending activity picked up moderately.

Employment and Wages

impact of tariffs. Rising energy costs resulted in pricing
pressures for transportation services and petroleumbased inputs to construction and manufacturing. Final
prices at quick service restaurants increased somewhat.
A contact in the hospitality industry in Southern California reported that many hotels were passing along higher
labor and input costs to guests in the form of one-off
surcharges. Pricing pressures in the agriculture markets
across the District were mixed, but flat on balance. Lumber prices continued to decline due to a softening in
construction starts in some regions.

Conditions in the labor market tightened noticeably, with
contacts across the District experiencing continued hiring
challenges due to labor shortages. Manufacturers in
Oregon noted difficulty hiring entry-level production
workers, and employment growth fell short of firms’
expectations. Shortages of skilled loan officers limited
hiring at several rural community banks. A contact in the
California banking industry observed that an uptick in
mergers resulted in a modest decline in employment as
the banks involved resolved job redundancies. A major
shipping and logistics business in Northern California
reported strong employment growth due to recent and
anticipated increases in demand for its services.

Retail Trade and Services
Sales of retail goods picked up slightly over the reporting
period. Demand at home improvement stores increased
moderately, although the building materials segment
exhibited modest weakness. E-commerce retail sales
grew somewhat, reflecting gains in consumer confidence. A major quick service restaurant chain based in
Washington reported that in-store traffic was down slightly.

Wage growth picked up broadly. Contacts across the
District noted continued upward compensation pressures
for a variety of skilled occupations, including finance
professionals, health-care providers, and business consultants. A contact in the retail industry raised starting
wages in anticipation of intensifying labor shortages
during the holiday season. A few contacts noted that
some businesses increased benefits like vacation allowances and onetime bonuses rather than wages.

Activity in the consumer and business services sectors
was solid. In Washington, demand for health-care services grew noticeably in urban areas, due in part to an
increase in hiring at businesses with health benefits. A
contact in the shipping and logistics industry noted an
increase in demand for freight services, especially from
small businesses. A contact in Southern California re-

Price inflation increased moderately over the reporting
period. Several contacts noted a moderate pickup in
price growth for metal inputs due mostly to the continued


Federal Reserve Bank of San Francisco
ported an uptick in demand for technology consulting
services. Contacts in the hospitality industry noted that
hotel bookings for leisure guests were solid, and discretionary on-site spending grew. However, business reservations declined somewhat on a year-over-year basis.

building companies continued to decline at a gradual
pace, while demand for processed wood products was

Real Estate and Construction
Activity in real estate markets expanded at a strong
pace. Overall, contacts reported that robust demand for
housing outpaced the supply of homes, which continued
to be constrained by shortages of labor and high material
costs. In particular, inventory levels of more affordable
homes remained low, while demand in this market segment picked up further, putting upward pressure on
prices. Contacts noted that a further increase in mortgage rates had only a slight moderating impact on demand.

Activity in the manufacturing sector expanded moderately. Industry contacts reported that demand for construction equipment was solid, though producers were attentive to indications of a moderation in some real estate
markets. Contacts in Northern California reported that
sales of semiconductors were brisk, driven in part by
strong global demand. Deliveries of commercial aircraft
were essentially flat from the same period last year,
while new orders grew noticeably.

Commercial real estate activity was robust. Construction
activity was solid, especially for industrial and warehouse
spaces. A contact in Southern California noted that rents
and occupancy rates increased. In Oregon, commercial
activity expanded in rural areas with lower land costs
and rents. Demand for retail spaces at malls declined
somewhat, resulting in lower occupancy rates.

Agriculture and Resource-Related Industries
Conditions in the agriculture sector improved somewhat,
with crop yields generally beating expectations. However, most contacts reported that trade policy changes
started to have a tangible impact on activity. Yields and
profits for growers in Central California continued to be
satisfactory, but inventories of certain exported crops
increased after delivery schedules were delayed due to
trade policy uncertainty. Forward contracts for heavily
exported crops declined. Wheat and fruit growers in
Washington observed a slight tick down in demand,
which some attributed to growing trade tensions. A contact in Oregon noted that sales of raw lumber to large

Financial Institutions
Lending activity picked up moderately over the reporting
period. Loan demand increased overall. Profitability and
net interest margins improved noticeably as increases to
lending rates outpaced those for deposit rates. Credit
quality continued to be strong. Contacts at credit unions
reported an increase in membership. ■