Finance: Most of America is seeing modest economic growth, Fed says

The Beige Book was prepared ahead of the Fed's June meeting at which markets expect a rate hike.

Most of America is experiencing moderate economic growth, according to the Federal Reserve's latest Beige Book of economic anecdotes from its 12 districts.

It was prepared ahead of the June 13-14 meeting at which markets are pricing in an 88% probability that the Fed will raise its benchmark interest rate for the second time this year, according to CME Group's FedWatch tool.

A rate hike would be a sign of the economy's strength.

For the Beige Book, New York reported flat growth, while the sum of what the Fed's contacts in Chicago said amounted to a slowdown in the pace.

The slowdown in auto sales this year cropped up several times in the Beige Book. Contacts in San Francisco said car loans slowed, while auto dealers in Dallas reported rising inventories and declining margins.

Employers in several districts brought up challenges with finding qualified workers for open positions. Boston staffing firms said vacancies for system administrators, network engineers, and medical assistants were particularly hard to fill.

This worker shortage has improved wages for those already on staff; a manufacturing company in Chicago said it was able to improve retention for its unskilled workers by offering a 10% wage hike.

Economists forecast that the unemployment rate in May remained at a decade-low of 4.4%, below the level the Fed considers to be consistent with full employment, according to Bloomberg. It will be updated on Friday.

Here's the full Beige Book:

Overall Economic Activity
Most of the twelve Federal Reserve Districts reported that their economies continued to expand at a modest or moderate pace from early April through late May. Boston and Chicago signaled that growth in their Districts had slowed somewhat to a modest pace since the prior Beige Book period, while New York indicated that activity had flattened out. Consumer spending softened with many Districts noting little or no change in non-auto retail sales, while auto sales have edged down from last year's record highs in several Districts; tourism activity has continued to keep pace with the general economy. Meanwhile, the majority of Districts continued to report moderate growth in manufacturing activity and in most nonfinancial service sectors. Construction of new homes and nonresidential structures also continued to grow at modest to moderate rates, as did sales of existing homes; nonresidential leasing picked up a bit. Lending volume trends tended to mirror (and support) the general activity of the economy. Agricultural conditions remained mixed with some regions negatively affected by unusually wet weather. Most energy sectors tended to modestly improve. A majority of Districts reported that firms expressed positive near-term outlooks; however, optimism waned somewhat in a few Districts.

Employment and Wages
Labor markets continued to tighten, with most Districts citing shortages across a broadening range of occupations and regions. Despite supply constraints impeding the ability of firms to attract and retain qualified workers, most Districts reported that employment continued to grow at a modest to moderate pace. Similarly, most firms across the Districts noted little change to the recent trend of modest to moderate wage growth, although many firms reported offering higher wages to attract workers where shortages were most severe. A manufacturing firm in the Chicago District reported attracting better applicants and improving retention for its unskilled workforce by raising wages 10 percent.

Prices
On balance, pricing pressures were little changed from the prior report, with most Districts reporting modest increases. Rapidly rising costs for lumber, steel, and other commodities tended to push input costs higher for some manufacturers and the construction sector. In contrast, some Districts noted falling prices for certain final goods, including groceries, apparel, and autos. Energy prices and farm prices were mixed across products and among Districts. Low inventories of for-sale homes were pushing house prices higher in many markets.

Highlights by Federal Reserve District
Boston
Overall, economic growth was modest, with only one-half of retail and manufacturing contacts reporting year-over-year gains in revenue. Housing markets were strong despite low inventories. Labor markets remained tight, with employers facing limited supply. Price pressures continued to be modest. The outlook remained positive, with a bit of added caution.

New York
Economic activity has flattened out in recent weeks. Labor markets remained tight, and wages for skilled workers have continued to grow moderately. Input cost pressures have remained fairly widespread, while selling prices have increased at a modest pace. Housing markets have been steady, on balance, while commercial real estate markets have been mixed.

Philadelphia
Overall, economic activity continued to rise modestly. The pace of nonresidential construction and existing homes sales ticked up, while nonfinancial services slowed. On balance, employment, wages, and prices continued to grow modestly; however, wage pressures were noted in some regions and for some occupations -- relieved at times by substituting capital for labor.

Cleveland
Business activity generally expanded at a moderate pace. Labor markets tightened, with employers looking to enhance benefits packages as a means of employee retention. Single-family home sales picked up after slowing early in the first quarter. Motor vehicle production was down slightly, while orders for heavy equipment rose. Businesses reported increasing selling prices more frequently due to rising input costs.

Richmond
Economic activity expanded modestly across a wide array of industries, and firms continued to add workers to their payrolls. However, labor shortages persisted in most areas, keeping upward pressure on wages, while hindering growth in some industries. The hard-hit coal industry was recently buoyed by supply constraints in Australia, where adverse weather temporarily idled coal production facilities.

Atlanta
Economic activity modestly improved. The labor market remained tight. Firms noted use of training programs to attract and retain workers. An uptick in wage growth was reported for high-demand positions. Retail sales were soft, however, sales of trucks and large vehicles remained solid. Manufacturers noted increases in new orders and production.

Chicago
Growth slowed to a modest pace. Employment, business spending, and manufacturing production grew at a moderate rate, while construction and real estate grew modestly and consumer spending decreased slightly. Prices rose modestly. Conditions were little changed in the financial and agricultural sectors.

St. Louis
Economic activity has continued to increase at a modest pace, and contacts continue to hold a generally optimistic outlook for overall activity for the remainder of 2017. Reports from auto dealers, however, indicate slowing sales since our previous report; they expect this downward trend to continue into the third quarter.

Minneapolis
Economic activity grew modestly. The professional services, residential construction, manufacturing, energy, and mining sectors saw growth, while commercial and residential real estate activity declined slightly. Commercial construction increased in some regions but was flat in others and slower in segments outside of multifamily building. Employment and wages both saw moderate growth.

Kansas City
Economic activity increased moderately. Manufacturing and real estate activity expanded at a moderate pace, and energy activity continued to increase modestly. Consumer spending rose at a modest pace, with a strong outlook for future growth. Agricultural conditions remained generally weak due to subdued farm income and continued low commodity prices.

Dallas
Economic activity grew moderately, and outlooks remained positive. Retail sales accelerated slightly, despite some softness in auto sales. The energy sector saw further improvement, partly supporting output growth in manufacturing. Home sales continued to trend upward, but there was continued softness at the higher end. Nonfinancial services activity expanded and loan demand increased.

San Francisco
Economic activity continued to expand at a moderate pace. Overall, price inflation was steady. The labor market tightened further, and wage pressures grew moderately. Sales of retail goods grew modestly, and growth in the consumer and business services sectors remained strong. Manufacturing activity picked up to a modest pace. Activity in the real estate sector remained strong. Lending activity grew moderately.

Federal Reserve Bank of Boston
Summary of Economic Activity
Reports from business contacts in the First District were slightly less positive in mid-May than in early April or February. The overall pace of growth was modest. Retail contacts were evenly divided between small declines and small increases in sales from a year earlier. One-half of responding manufacturers reported year-over-year revenue gains, but most of the others cited decreased sales. With one exception, staffing-firm contacts reported revenue declines, mostly reflecting a dearth of applicants to fill their clients' positions. Commercial real estate markets were mostly unchanged, with stable leasing activity. Residential real estate markets were reportedly strong, despite low inventories. Labor markets remained tight, and employers said wage increases were modest to moderate. Firms continued to report that price pressures were modest. The outlook generally continued to be positive, although a bit less so than in the last round.

Employment and Wages
Respondents in several sectors mentioned tight labor markets. None of our manufacturing contacts reported any significant hiring moves either up or down. A maker of envelopes said that they expected to hire significantly in the near future but not right now. Several manufacturing contacts said it was hard to find qualified workers. A manufacturer of semiconductors and related goods said that they had to raise starting wages to fill vacant positions in New England. A manufacturer of furniture said that retaining new hires was a major challenge as some workers quit within days of being hired. Staffing firms continued to report strong labor demand and tight labor supply. They singled out the following positions as particularly hard to fill: systems administrator, network engineer, and medical assistant. All contacted staffing firms indicated that bill and pay rates had increased.

Prices
Price changes remained modest. Retail contacts continued to report that input and selling prices were steady or increased slightly. Manufacturing contacts reported modest pricing pressure. An industrial distributor said that they had seen vendors successfully increase prices for the first time in several years. Otherwise, manufacturing firms reported mixed changes of modest size in input and selling prices and no price surprises from vendors. Home prices increased, driven by strong buyer demand confronting low inventories: Median sales prices of single family homes and condominiums increased year-over-year across the board, with the exception of condos in Vermont. With supplies dwindled and demand robust, upward pressure on housing prices is expected to persist across the First District.

Retail and Tourism
Retail contacts consulted in mid-May reported that year-over-year comparable-store sales ranged from low-single-digit declines to low-single-digit gains. Furniture sales were said to have been unexpectedly soft. Other retailers attributed some of the weakness in sales to decreased customer traffic in brick-and-mortar stores. While some contacts said the outlook for the rest of 2017 is a bit uncertain, most continued to expect that sales will end up growing by low single-digit percentages over the year.

Manufacturing and Related Services
Of the eight firms contacted in mid-May, three reported lower sales, one reported flat sales, and the balance reported higher sales. Reasons for weakness were varied. A firm that makes envelopes attributed flat sales to uncertainty among its financial customers about future government policy. A chemical firm said greater exports from China were putting downward pressure on the price of one important chemical and cutting into its international business. A firm that provides veterinary services indicated that patient visits were down due to the weather. By contrast, an industrial distributor said that sales were up year-on-year in April for the first time in two years. A manufacturer of lab equipment reported higher sales but said that uncertainty about government policy was slowing demand.

No contacts reported revisions to capital spending plans. An aerospace and industrial distribution firm said that they had placed a convertible bond last week and there was strong demand.

The outlook was generally positive but cautious. One contact said they initially attributed down sales earlier in the year to the fact that the relevant comparison period, the first quarter of 2016, was exceptionally strong, but continued weakness has made them wonder. Several contacts expressed concern about policy uncertainty and said that was holding back spending.

Staffing Services
All of the contacted staffing firms in New England saw revenues decline year-over-year for their temporary placements, while one respondent saw an overall increase in revenue because of strong activity on the permanent placements side of the business. Although one firm recently lost a big client and seeks to broaden its listings, the revenue declines mostly reflect difficulty recruiting applicants. Firms are brainstorming and trying new ways to recruit people to fill their clients' jobs. Two firms are spending more money on recruitment. Two firms are working with non-profits to find and attract more qualified employees. One firm hired an additional internal staff member who will focus on social media as a recruitment tool. Two firms raised their referral and signing bonuses and one firm will pay college tuition for qualified employees to receive a degree related to their job. Looking forward, staffing firms are not as optimistic as they were last quarter.

Commercial Real Estate
Commercial real estate markets were mostly flat in the First District in recent weeks. In greater Hartford, office leasing remained subdued as foot traffic slowed further. In Boston, office leasing activity and vacancy rates were said to be stable, but contacts reported that few firms outside of the life sciences industry were expanding their footprints. Some life sciences firms seeking to add space in greater Boston have turned to converting vacant suburban office space into laboratory space. Also in the Boston area, office construction remained limited while apartment construction has shifted increasingly to the suburbs. Commercial real estate activity was also stable in Portland, with continued light leasing activity in the office market and strong demand from developers for vacant industrial space and for the construction of hotels and high-end urban condominiums. Contacts across the District reported that investment sales demand held steady while the supply of commercial properties for sale stayed flat or declined and was quite low in absolute terms. Most contacts forecasted that market conditions would stay the same or improve modestly going forward, but the outlook remained less optimistic in Connecticut, which has seen flat employment in the past year and faces a severe state budget deficit.

Residential Real Estate
Residential real estate markets in the First District saw a strong start to spring. For single family homes, closed sales were up year-over-year from March 2016 to March 2017 in three of the six First District states, while pending sales increased year-over-year in every state but Rhode Island. For condos, closed sales increased year-over-year in every state. A contact in Boston reported that "March is historically a telling month for how the spring market is going; with positive sales numbers we experienced last month and buyer demand we're seeing, it's clear that we're set for a very busy market." Low inventory continued to present challenges for buyers, however, especially those purchasing a home for the first time. Inventories fell on a year-over-year basis in every state. A Massachusetts contact noted that inventories have been at all-time lows for months and said "without more inventory, prices will continue to rise and price buyers out of the market."

Most contacts seemed optimistic about market activity and continued strong buyer demand, despite the strains on inventory. Many noted that low unemployment has helped spur consumer confidence, which contributes to the demand for residential real estate.

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

Federal Reserve Bank of New York
Summary of Economic Activity
Economic activity in the Second District has been essentially flat since the last report, while labor markets have remained tight. Input price pressures have persisted, while selling prices have been steady to up modestly. Manufacturers indicated that business activity has flattened out, while service-sector contacts have continued to report steady to modestly expanding activity. Consumer spending has been flat since the last report, while consumer confidence has retreated from a multi-year high. Housing markets were mixed but, on balance, steady since the last report. Commercial real estate markets were also mixed: office markets were mostly steady, industrial markets were steady to slightly stronger, while retail markets weakened further. New construction activity has been sluggish across most of the District, on both commercial and residential structures. Banks reported that loan demand was steady to stronger, while delinquency rates declined.

Employment and Wages
The labor market has remained tight. Contacts at employment agencies characterized the job market as steady and fairly tight--especially for engineers and other tech workers, but also for skilled workers more generally. Two major New York City agencies characterized hiring as steady at a moderate level, while an upstate agency notes some pickup in the second quarter.

Manufacturers have continued to add jobs in recent weeks, and employment is also reported to be on the rise among businesses in education & health services, transportation, and finance. Businesses in other service industries report steady employment levels. Looking ahead, firms in manufacturing and most service industries indicated that they expect employment to rise, on balance, in the months ahead.

Contacts across all service industries reported moderate wage growth and expect comparable increases to continue in the months ahead. Employment agency contacts in New York City noted a bit more upward pressure on wages and salaries--employers were said to be increasingly negotiable on pay, but mainly for highly sought-after, skilled, and specialized workers. An upstate New York agency indicated that wages have held steady.

Prices
Business contacts continued to note rising input costs but only modest increases in selling prices. Those in the retail, wholesale, transportation, and leisure & hospitality industries reported modest increases in selling prices, on balance, while businesses in other sectors indicated little changed in prices received.

General merchandise retailers reported that prices have been flat, and New York City hotels indicated that room rates have held steady. Broadway theaters, in contrast, reported that average ticket prices have picked up noticeably in recent weeks and have been running roughly 15 percent above comparable 2016 levels.

Consumer Spending
Retailers reported that sales were steady to down moderately. Retailers in upstate New York reported that sales have been essentially flat in April and early May. A major retail chain noted that same-store sales fell below plan and were down from a year earlier in April but have picked up somewhat in May. Sales in New York City slightly lagged the region overall. Inventories were generally said to be at desired levels. Retail contacts have become somewhat less optimistic about the near-term sales outlook.

Auto dealers in upstate New York reported that sales of new and used vehicles softened in April and were lower than a year earlier--a trend seen continuing into early May. One contact noted that inventories of some new, mainly domestic, vehicles makes have swelled somewhat, though inventories generally remain at or near desired levels. Retail and wholesale credit conditions were reported to be in good shape, though there has been further tightening for sub-prime auto loans.

Consumer confidence in the Middle Atlantic states (NY, NJ, PA) retreated in April after reaching a 16-year high in March.

Manufacturing and Distribution
Manufacturers reported that business activity has leveled off thus far in the second quarter, following brisk growth in the first three months of the year. Businesses in the wholesale trade and transportation industries also reported a pause in growth. Looking ahead, however, manufacturers remain widely optimistic about the near-term outlook, while those in transportation and wholesale trade remain somewhat upbeat.

Services
Businesses in most service industries noted little change in general business activity, while contacts in education & health services continued to indicate steady, moderate growth. Looking ahead, however, businesses in education & health were generally the least sanguine about the outlook, while contacts in the information, professional & business services, and leisure & hospitality industries were fairly optimistic.

Tourism has picked up somewhat in New York City. Broadway theaters reported that business improved noticeably in April and the first half of May, with attendance running roughly 10 percent ahead of 2016 levels and revenues up more than 25 percent.

Real Estate and Construction
Housing markets across the District have been mixed but, on balance, steady since the last report. New York City's rental market has remained mostly steady, though increased landlord concessions have further lowered effective rents and spurred some pickup in leasing, especially at the high end. In contrast, rents continued to rise across northern New Jersey, the Lower Hudson Valley, southwestern Connecticut and upstate New York.

The sales market for homes has strengthened in northern New Jersey and across upstate New York but has been essentially flat in New York City. Home resale activity across downstate New York, and especially in New York City, has slowed to more normal levels, following an unusually brisk first quarter. Prices of New York City co-ops and condos have remained mixed, rising at the low end, falling at the high end, and holding steady in the middle. Inventories have continued to edge up in Manhattan but have fallen to exceptionally low levels elsewhere--mostly notably in upstate New York and northern New Jersey.

Commercial real estate markets have been mixed in recent weeks. The market for office space has generally been steady, as both availability rates and asking rents have not changed significantly. The industrial market, which had been strengthening steadily over the past year, has lost some momentum in recent weeks but has continued to tighten. While availability rates have largely leveled off, rents have continued to climb, running 8-12 percent ahead of a year earlier. In contrast, the market for retail space has softened further: vacancy rates reached multi-year highs throughout the District, while asking rents were little changed.

Finally, both residential and commercial construction have remained sluggish overall. New starts of single-family homes have remained subdued, while new multi-family construction has slowed substantially. On the commercial side, although there is a good deal of office construction in progress--especially in New York City--there has been very little new office development, except in northern New Jersey.

Banking and Finance
Bankers reported stronger demand for consumer loans and residential mortgages but no change in demand for commercial loans or mortgages. Bankers also indicated that refinancing activity decreased for all types of loans. Credit standards were reported to be unchanged across all loan categories. Banks noted wider spreads of loan rates over cost of funds for consumer loans but no change in spreads for other loan categories. Contacts also reported an increase in the average deposit rate, on net. Delinquency rates were said to be lower across all loan categories--particularly residential mortgages.

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

Federal Reserve Bank of Philadelphia
Summary of Economic Activity
Aggregate business activity in the Third District continued at a modest pace during the current Beige Book reporting period. Manufacturing and homebuilding continued at a moderate pace of growth, but nonfinancial services appear to have slowed to a modest pace. Nonresidential construction and existing homes sales picked up a bit, which is echoed by changes in loan volumes to those sectors. On balance, employment, wages, and prices continued to grow at a modest pace; however, tight labor markets are reported in some regions and for some occupations. Contacts noted that some wage pressures have eased as firms substitute technology for labor. Overall, firms continued to expect moderate growth over the next six months.

Employment and Wages
Employment has continued at a modest pace of growth. Manufacturing firms reported increases in employment and in the average hours worked compared to the prior period. Employment indicators from nonmanufacturing firms were mixed, as contacts noted fewer net additions to full-time staff, more net additions to part-time staff, and little change in hours.

On balance, wage pressures continue to be muted; reports of tight labor markets are scattered by region and occupation. Contacts tend to note significant price increases only in association with commodity price hikes that are more readily passed through to customers. Several contacts from banking and finance noted that wage pressures are real and rising but that firms in many sectors are using technology whenever possible to substitute for labor.

Pennsylvania staffing firms have remained very busy since the start of the year. Contacts from staffing firms in labor markets with lower unemployment rates have noted greater wage pressure, while contacts operating in markets with higher unemployment rates report minimal wage pressure.

Prices
Price pressures appeared to ease a bit, although on balance, levels continued to rise modestly. Nearly two-thirds of firms' contacts reported no change at all in prices paid and prices received. Of the remaining firms, more reported increases than decreases, but the differential has diminished. Homebuilders noted rapidly rising lumber costs due to recent tariffs imposed on Canadian lumber. Overall, the sales prices of existing homes rose modestly, although this varied across markets and price categories.

Looking ahead one year, firms anticipate a 2.25 percent increase in prices received for their own goods and services -- slightly higher than one quarter prior. Firms also reported expectations of 2.50 percent annual inflation for consumers -- a bit lower than last winter.

Manufacturing
On balance, manufacturers continued to indicate moderate growth with higher percentages of firms reporting increases in current activity and shipments this period compared with the prior period. However, new orders began to soften late in the current period.

Overall, gains in activity were indicated by many major sectors, including the makers of paper products, chemicals, fabricated metal products, and industrial machinery; some reductions of new orders and/or shipments were noted by the makers of lumber products, primary metal products, and electronic products.

While manufacturing contacts continued to expect growth over the next six months, the breadth of optimism has narrowed. Less than half of the firms are now expecting growth -- down from two-thirds during the prior period. Similarly, the expectations for future employment and capital expenditures also softened.

Consumer Spending
Non-auto retail contacts noted little sales growth and expressed skepticism that rising consumer confidence has had a significant, positive impact. In fact, one large retailer reported that "if anything, we feel like there has been a little pullback from the lower-end consumer." Moreover, retailers noted that consumers are shifting their spending somewhat away from goods to dining and experiences. That trend, plus the ongoing shift toward online sales, continues to hemorrhage sales from brick-and-mortar stores. One large retailer stated that consumer confidence is a leading indicator that should result in increased sales but not until the second half of 2017.

On balance, auto dealers reported flat year-over-year sales during the current period: Pennsylvania dealers reported that sales were up slightly, while New Jersey dealers reported that sales were down slightly relative to last year's high levels. New Jersey contacts did note a little pickup in early May. Generally, dealers expect another strong year of sales even if a bit below last year's level. Manufacturing incentives are helping to sustain sales, but maintaining the same level of profitability is more of a struggle.

Tourism activity continued to grow at a modest pace, according to several contacts. After a slower first quarter, several events lifted Philadelphia area hotel and restaurant activity to stronger levels. A Delaware shore contact noted that bookings and rates are higher than last year at hotels representing several price points. Even in Atlantic City, casino revenues are beginning to eke out slight increases on an ongoing year-over-year basis.

Nonfinancial Services
Third District service-sector firms reported modest growth in general activity -- slowing a bit from the moderate pace of the prior period. Most indicators, especially new orders, suggested slower growth; however, all were representative of a normal pace for the Third District. One large service-sector firm noted continued growth of its consumer base and improved credit behavior of its base; the firm also noted unexpected weakness from part of its business-oriented sales. Expectations about future growth have also abated since the prior Beige Book period but have remained quite positive with nearly 60 percent of the firms anticipating increased activity.

Financial Services
Financial firms reported modest growth of overall loan volumes (excluding credit cards) after relatively little change during the prior Beige Book period. Commercial real estate loans, residential mortgages, and auto loans contributed the strongest growth in loan volume. Commercial and industrial loan volumes were up slightly, while home equity loans were essentially flat. Credit card volumes are highly seasonal but have grown over the year at a modest rate and grew during this Beige Book period at a faster rate than the change observed over the same period last year. Banking contacts continued to express cautious optimism for slow, steady growth.

Real Estate and Construction
Homebuilders continued to report moderate increases in traffic and contract signings and expressed concerns that the labor supply will not support higher levels of construction activity. A South Jersey builder attributed the gains to greater confidence borne of increased jobs and income.

Brokers in most major Third District housing markets noted that existing home sales continued to strengthen from a slight pace of growth last period to a modest increase this period. The spring selling season failed again to trigger a significant influx of new inventory. In some areas, rental market activity is increasing. Still, brokers expect to end the year with somewhat higher sales totals than last year.

Nonresidential real estate contacts covering much of the Third District reported modest growth, as the existing high levels of construction activity broadened across sectors and geographically throughout the region. Overall, leasing activity changed little, although contacts noted that deals within the Philadelphia office market were a bit below expectations until late in the current period.

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

Federal Reserve Bank of Cleveland
Summary of Economic Activity
Aggregate business activity expanded at a moderate pace in the Fourth District during the reporting period. Labor markets continued to strengthen, with wage pressure coming from both low- and high-skilled workers. Upward pressure on input prices was prevalent in the construction and manufacturing sectors. Firms facing higher input prices frequently reported that they were able to raise selling prices and billing rates. Consumer spending at brick-and-mortar establishments rose slightly, while new motor vehicle sales strengthened. Manufacturing activity grew slightly, with a marked improvement for heavy equipment producers. Freight volume continued to expand. After slowing early in the first quarter, sales of new and existing single-family homes picked up. Activity in the commercial real estate market remains elevated. Credit portfolios grew slightly on balance.

Employment and Wages
Payrolls grew across a broad range of industries, with continuing wage pressures in some skilled occupations and at the lower end of the pay scale. Staffing firms noted an increase in the number of job openings and placements during the past two months, a situation which they attributed to an improving business climate. Because of difficulties in attracting and retaining employees, companies are placing a greater emphasis on expanding benefits and work-life-balance initiatives, while at the same time increasing wages and salaries. Banking contacts noted significant wage pressure for IT staff and compliance personnel. High turnover remains an issue in the freight transportation industry. In order to retain drivers, one firm increased driver pay by 3 cents per mile, equating to a 7.5 percent wage increase. Attracting qualified applicants for low-skilled manufacturing jobs is difficult, and many newly hired workers prove to be unreliable. That said, competition for low-skilled workers is strong and is driving up starting wages.

Prices
Similar to the previous reporting period, statements about rising input costs originated primarily among construction and manufacturing contacts. Building contractors noted higher material prices across the board, but especially for Canadian softwood. Contractors expect a dramatic increase in lumber prices unless a tariff agreement is reached. Several contacts reported that construction subcontractors are constrained by a lack of qualified workers and are operating at capacity, resulting in significantly higher price quotes. Manufacturers pointed to rising steel prices as a primary factor driving up their input costs. Manufacturers, homebuilders, and general building contractors experienced little pushback when attempting to raise their selling prices. Freight haulers generally reported that their markets were able to sustain higher freight rates in the low-single digits. Grocery store shelf prices declined slightly.

Consumer Spending
Consumer spending at brick-and-mortar retailers rose slightly during the period and was attributed to the rollout of spring merchandise and promotional activity. Sales of household furnishings picked up, while electronics and apparel transactions were fairly soft. One chain reported that liquidations and accelerated store closures by retailers, who are rationalizing their brick-and-mortar footprint, are having an impact on foot traffic at malls. The contact noted that with more dark stores, the appeal of a mall decreases, and this may create a downward spiral. Foot traffic in grocery stores was flat. However, one chain reported that dollars spent per customer rose, so total revenue was up slightly. Year-to-date sales through April of new motor vehicles increased 3.5 percent compared to those of the year-earlier period. Auto dealers are concerned about higher-than-normal inventories and credit tightening for subprime buyers. A dealer group noted the group's new vehicle inventory was at its highest level since 2004.

Industrial Production
Activity in the manufacturing sector picked up slightly during the period. Contacts noted rising output by producers of heavy equipment sold to other manufacturers. This market segment had reported flat to declining orders since the beginning of the past recession. Suppliers to the construction and food services industries said that demand remains elevated. Demand for consumer packaged products was weaker than expected during the first quarter, although demand was above year-ago levels. First-quarter motor vehicle production at District plants declined when compared to that of the same time period a year earlier. Increased light truck production was insufficient to offset larger declines in car production. Manufacturers cited the strong dollar as the primary factor tempering offshore sales. A growing number of producers are increasing capital budgets. There was a notable increase in the number of contacts who are allocating monies for plant expansion.

The number of drilling rigs operating in the District continued to trend higher, albeit at a slow pace. Natural gas output remains at historic highs. High levels of coal production were maintained because of rising demand and reduced customer inventory.

Real Estate and Construction
First-quarter unit sales of new and existing single-family homes increased almost 4 percent compared to those of a year earlier. The average sales price rose 6 percent. Homebuilders attributed stronger sales to an improving job market and rising prices for buyers' existing homes. Estimates of single-family construction starts during the first quarter were much higher in Ohio compared to those of a year earlier. Estimated starts in District regions outside Ohio were flat or declining. The strongest demand for new homes was found in the move-up and high-end price point categories. Purchases by first-time buyers declined markedly during the period.

Activity across the commercial real estate sector remains elevated. Increases were reported in transaction volume and the average price per square foot for industrial and office properties during the first quarter compared to prior-year results. Office vacancy rates declined, and asking rents increased, although both at a slow pace. Nonresidential contractors reported that inquiries and backlogs remain strong. The highest demand is for commercial property development, public infrastructure projects, and education buildings.

Financial Services
Bankers reported that their credit portfolios grew slightly on balance since the last report. Although customer confidence remains high, that confidence has not yet translated into additional commercial or retail lending. On the commercial side, strongest demand is for CRE loans and M&A financing. Contacts expect that the current level of activity in these segments will continue. Although banks were still experiencing relative strength in auto lending and home equity products, several contacts noted a small decline in consumer lending overall, especially for credit cards. Activity in mortgage lending expanded slightly, mainly for new purchases. Contacts noted little change in loan application standards and delinquency rates.

Nonfinancial Services
Professional and business services firms generally reported moderate levels of activity during the period. Strongest demand was seen by engineering services and software and IT services firms. Factors contributing to strong demand for software and IT include clients' concerns about cyber security and data protection and a transitioning by many companies from owning and managing software to cloud computing.

Freight volume expanded during the period, and this expansion was attributed to improving economic conditions. Increased demand was seen primarily from steel producers and service centers and the energy sector. A majority of our contacts reported that they were able to push through rate increases.

Federal Reserve Bank of Richmond
Summary of Economic Activity
The Fifth District economy expanded at a modest pace since the prior reporting period, with broad-based improvement across industry sectors. Manufacturers continued to see strong new orders and increased output. Shipments through District ports rose modestly, and reports on land and air freight were more positive. Retail sales growth picked up, on balance, as did tourism-related spending. Housing market activity continued to increase, although supply-side constraints limited growth. Lending picked up moderately, mostly due to more strength in business loan demand. Non-financial services firms reported moderately higher revenues. Coal production increased, in large part due to supply disruptions in Australia, while agricultural conditions improved slightly. The District's labor markets remained tight, and businesses continued to report modest wage increases. Prices were reportedly stable to rising moderately.

Employment and Wages
Labor demand strengthened moderately in recent weeks amidst continued reports of worker shortages. Employment agencies reported a modest increase in new job openings across all sectors, while executives in the services and retail industries noted increases in hiring. Generally, contacts reported labor shortages for computer scientists, computer engineers, data scientists, welders, and technicians. Also, more manufacturers had difficulty finding quality workers for technical roles. Wages increased modestly for firms in most industries, and employment agencies said that clients had started to increase wages for positions that remained unfilled.

Prices
Prices were generally stable to rising modestly. Manufacturers' final goods prices continued to grow at a modest rate, according to our most recent surveys; however, increases in input goods prices outpaced those in final goods. Specifically, prices recently rose for stainless steel and corrugated paper. Services firms indicated that price growth remained modest, overall, with the retail sector reporting a slightly faster pace of growth than the non-retail sector. Commercial real estate rents were stable to increasing slightly. Residential real estate prices generally continued to rise modestly, with most of the growth coming from low to mid-priced homes. Beef and chicken prices were up slightly while energy prices were largely unchanged.

Manufacturing
Manufacturing firms continued to report strong growth in new orders and shipments. Producers of machinery, plastics and rubber, metal, corrugated packaging, and food manufacturing noted stronger business conditions in recent weeks. Overall, global supplier delivery times were unchanged, while some firms reported shorter domestic lead times. Expectations for the next six months were generally optimistic, with firms anticipating moderate increases in new orders and shipments.

Ports and Transportation
The volume of shipments through District ports was generally robust and increased moderately, with contacts at some facilities indicating that shipments set new record highs again in March and April. Moreover, port executives indicated that both imports and exports continued to rise, although the pace of exports growth slowed somewhat, on balance. Imports of consumer goods were particularly robust, despite the struggles reported by national brick and mortar retailers; and light vehicle exports continued to increase at a healthy pace. Trucking firms reported seasonal increases in shipments, with modest gains compared to a year earlier. A rail operator said that volumes rose in recent weeks due in part to more coal shipments to the ports. And a regional airport executive said that air freight was up strongly due to healthy manufacturing activity in his region.

Retail, Travel, and Tourism
Retail activity increased more quickly in April based on respondents' assessment of sales and shopper traffic. The manager of a home goods store said that sales picked up in April as this Easter's results exceeded those of a year earlier. An auto dealer in North Carolina noted a dramatic upturn in business, while a dealer in West Virginia saw a significant fall off in April following unusually strong sales in March.

An adventure camp facility in western Virginia reported that bookings increased at a better-than-seasonal pace from March to April. Demand for hotel rooms remained strong in western North Carolina and the upstate region of South Carolina. In the outer banks of North Carolina, summer bookings were running ahead of previous years.

Real Estate and Construction
Residential real estate sales increased moderately since the previous report. Sources reported stable levels of buyer traffic for new and existing single family homes, and expected steady buyer demand extending into early summer. Inventories remained low with the quick absorption of new homes, and average days on the market decreased modestly. Brokers reported that demand for condos increased at a steady pace; however limited inventory left sales unchanged. Homebuilders reported a reduction in buyer incentives, while sales in highly desirable communities rose modestly. The lack of subcontractors continued to push back construction timelines and limit new home starts.

On balance, commercial real estate leasing rose moderately. Retail leasing and sales remained strong, while office and industrial activity slowed modestly as inventory remained limited. Land sales for new construction were steady, with continued robust pipelines. Contacts noted increased remodeling activity of grocery-anchored developments across the District. Rental rates increased moderately in most industrial, retail, and office markets. Retail development remained steady, while agents reported limited office and industrial construction. Multifamily building continued at moderate levels; however a few lenders noted that fewer new developments were being approved for financing.

Banking and Finance
Lending improved moderately since our previous report. Demand for residential mortgages was little changed on balance; however, demand picked up moderately in the District of Columbia. Residential refinance activity was stable to increasing modestly. Commercial real estate demand continued to expand at a moderate to robust pace although some contacts expressed concerns that multifamily was nearing a saturation point. A lender in Washington, D.C. also mentioned some worries of overbuilding in the hospitality segment. Business lending increased modestly. Deposits by both consumers and businesses rose moderately, according to a banker in North Carolina, as deposit rates moved slightly higher. Credit quality was stable and credit standards were generally unchanged; however, a West Virginia banker noted slight tightening in certain commercial real estate categories, such as hospitality and retail.

Non-Financial Services
On balance, services firms indicated moderate revenue growth in our most recent survey. Telecommunication, administrative, and hospital services were the most consistently positive sectors. A contact in South Carolina saw a surge in demand for customer service and general office administration services. Strong reports also came from arts, entertainment, and amusement firms. A civil engineering company had an increase in new projects; however, revenue was down slightly as competition drove down bid prices. Meanwhile, a marketing executive in Virginia noted a moderate decline in demand in recent weeks.

Agriculture and Natural Resources
Energy markets improved modestly in recent weeks. Coal production rose as supply constraints due to severe weather phenomena in Australia led to stronger global demand for domestically produced coal (both steam and metallurgical). Coal mining firms anticipate making capital investments in the near future if production and prices hold up. Agriculture conditions also improved slightly, particularly for beef and dairy farmers. In South Carolina, cotton and peanut planting was slightly behind schedule due to rain.

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

Federal Reserve Bank of Atlanta
Summary of Economic Activity
Sixth District business contacts reported economic activity continued at a modest pace from April through mid-May. The outlook among contacts remains optimistic with most firms expecting growth to accelerate over the next three to six months. District firms continued to report difficulties filling a range of positions, and wage growth remained steady. Non-labor input cost pressures were subdued. On balance, District merchants reported no change in sales since the previous report; however, auto dealers indicated sales of light trucks and SUVs continued to improve. The tourism sector noted some softening in activity. According to residential real estate contacts, new and existing home sales were up, and home prices modestly appreciated compared with a year ago. New home construction increased since the previous report. Commercial real estate contacts noted demand continued to improve. While overall nonresidential construction increased from a year ago, multifamily construction showed some signs of slowing. Manufacturing purchasing managers cited increases in new orders and production.

Employment and Wages
While some contacts noted that demand for mid- to high-skilled professional and business service positions had moderated, many continued to describe a tightening labor market among information technology, skilled craft and technical, and increasingly in entry-level positions, particularly in hospitality and food services. Many contractors and manufacturers from construction-related fields continued to report that their inability to find qualified workers was impeding growth. Contacts from the energy industry mentioned that the lack of available skilled craft labor was a roadblock to petrochemical-related construction. In response to labor shortages and rising turnover, a growing number of firms indicated that they were directing resources towards creating internal training and development programs for both new hires and existing staff, covering technical education as well as company culture and soft skills. Firms also continued to mention workforce development partnerships, apprenticeships, early education training, and dual enrollment programs at high schools. Wage growth remained stable with exceptions in high-growth areas and in high-demand trades.

Prices
Non-labor input costs remained muted in general; however, manufacturing purchasing managers continued to note greater increases in commodity prices. Contacts still indicated limited ability to raise prices. According to the Atlanta Fed's Business Inflation Expectations survey, year-over-year unit costs were up 1.8 percent in May. Survey respondents indicated they expect unit costs to rise 2.0 percent over the next twelve months.

Consumer Spending and Tourism
On balance, District retail contacts reported that sales levels remained flat since the last report. Retailers noted that consumers were cautious about their discretionary spending and expect modest increases in spending over the summer months. Sales of light trucks SUVs increased in April, according to auto dealers.

Sentiment among tourism and hospitality contacts across the District remains cautiously optimistic. Reports noted an increase in the number of visitors in the first four months of the year compared to the same time period last year. However, contacts noted that the pace of food, beverage, and merchandise spending from visitors slowed since the last report, a trend that is expected to persist for the remainder of the year.

Construction and Real Estate
Reports from District residential real estate contacts in April signaled continued growth. Most builders noted that construction activity was up from the year-ago level. Many brokers and builders reported an increase in home sales relative to one year earlier. The majority of builder and broker contacts said buyer traffic was up from the previous year's level. Residential contacts noted that inventory levels were unchanged or down compared to the year-ago level. Both builders and brokers indicated modest gains in home prices. Home sales expectations were positive, with most brokers and builders anticipating sales will increase slightly over the next three months relative to the year-earlier level. Most builders expect construction activity to hold steady at the current pace or increase slightly over the next three months.

Many District commercial real estate contacts reported improvements in demand that have resulted in rent growth and increased absorption, but the rate of improvement varied by metropolitan area, submarket, and property type. The majority of commercial contractors indicated that the pace of nonresidential construction activity had risen from one year ago, with many reporting increasing backlogs. While most reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, a growing share of contacts reported that multifamily construction is down. Looking forward, the majority of District commercial construction contacts expect nonresidential construction activity to increase in the second quarter, while expectations for the pace of multifamily construction was mixed.

Manufacturing
District manufacturers continued to indicate that overall business activity remained strong. New orders and production levels increased at a solid pace and purchasing agents reported that supply delivery times were persistently getting longer. The outlook for future production remained optimistic, with just over half of firms expecting higher production levels over the next six months.

Transportation
District transportation contacts indicated that demand was largely consistent with the previous report. Rail activity, including intermodal, remained relatively flat. District ports noted further strength in shipments of containers, automobiles, and breakbulk cargo. Trucking companies cited increased movements of construction-related materials, and logistics contacts reported continued growth in ecommerce shipments. Roughly half of contacts expect higher levels of activity in the second half of the year.

Banking and Finance
Credit remained readily available for most qualified borrowers, although some small businesses continued to experience difficulty obtaining loans. Contacts noted that regulatory capital requirements constrained commercial and construction lending at some banks, and most commercial lending activity revolved around refinancing. Lenders increased oversight of construction loans and were growing more cautious in multi-family lending.

Energy
Reports from energy contacts indicated that rising shale production created new pipeline projects to transport oil and gas to refining centers on the Gulf Coast. Contacts also indicated that oil and gas inventories remained elevated despite increased demand. Utility industry contacts across the District reported that demand in industrial and residential usage increased slightly while commercial demand declined.

Agriculture
Agriculture conditions across the District were mixed. By early-May, overall drought conditions had improved in Louisiana, Mississippi, and Tennessee while Alabama, Georgia, and Florida reported sizeable areas of drought conditions ranging from abnormally dry to extreme. The May forecast for Florida oranges was up slightly from April but remained considerably lower than last season's production. District cotton, soybean, rice, and peanut plantings in early May were ahead of the five-year average, with the exception of Tennessee's cotton and soybean crops and Florida's peanut crop, which were modestly below their five-year averages. On a year-over-year basis, prices paid to farmers in March were up for cotton, soybeans, and broilers but remained down for corn, rice, beef, and eggs.

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

Federal Reserve Bank of Chicago
Summary of Economic Activity
Growth in economic activity in the Seventh District slowed to a modest pace in April and early May. Respondents' outlooks for growth over the next 6 to 12 months also pulled back some, but remained positive on balance. Employment, business spending, and manufacturing production grew at a moderate rate, while construction and real estate grew modestly and consumer spending decreased slightly. Prices rose modestly. Conditions were little changed in the financial and agricultural sectors.

Employment and Wages
Employment growth remained at a moderate rate over the reporting period, and contacts expected it to continue at this pace over the next six to twelve months. Contacts continued to report that the labor market was tight and that it was difficult to fill positions at any skill level. Hiring was focused on professional and technical, sales, and production workers, and there was an increase in the number of contacts hiring sales and production workers. A staffing firm that primarily supplies manufacturers with production workers reported an increase in billable hours after more than a year of little change. Wage growth was modest overall, with increases more likely for high-skilled occupations. That said, a manufacturing firm that was expanding raised wages for unskilled workers 10% and noted a significant improvement in retention and the quality of applicants. A number of contacts reported a rise in benefits costs.

Prices
Prices again rose modestly overall in April and early May. That said, retail prices changed little in general, though prices fell some at grocery stores. Materials costs were generally little changed over the reporting period, though a number of contacts noted that prices of many commodities were higher than they were six months ago.

Consumer Spending
Consumer spending decreased slightly overall in April and early May. Non-auto retail sales levels were flat, with strong growth in e-commerce balancing out declines for brick and mortar stores. Nevertheless, contacts continued to expect stronger sales in the summer months. Sales of new light vehicles slowed some, and automaker and dealer contacts reported that they had revised down expected sales for the calendar year. In contrast, contacts reported an increase in sales of used vehicles.

Business Spending
Growth in business spending picked up to a moderate pace in April and early May. Many retailers indicated that their inventories were slightly elevated, while a number of auto dealers thought their stocks were much too high. Manufacturing inventories were generally at desired levels, with the exception of those at steel service centers, which continued to be low. Growth in capital expenditures picked up to a moderate pace, and contacts expected growth to continue at a moderate pace over the next six to twelve months. Outlays were primarily for replacing industrial and IT equipment. Shipping volumes increased slightly.

Construction and Real Estate
Construction and real estate activity increased modestly on balance over the reporting period. Residential building rose moderately, led by growth in the single-family segment. The pace of home sales was little changed, but prices increased moderately, as multiple contacts reported a limited supply of homes. Demand for nonresidential construction increased slightly, with improvements concentrated in the industrial sector. The pace of commercial real estate activity also increased slightly, with gains in both the for-lease and for-sale segments. Contacts in the Chicago area believed that the market was cooling some, while a contact in West Michigan indicated that the market was the strongest it has been for some time. Commercial rents edged up, as vacancy rates and the availability of sublease space decreased a bit.

Manufacturing
Manufacturing production again grew at a moderate rate in April and early May, and growth was widespread across sectors. Demand for steel continued to grow at a moderate pace, as contacts reported strong demand from auto manufacturers and improving demand from the energy and heavy machinery industries. Heavy machinery manufacturers themselves reported increased demand, led by the energy sector. Specialty metals manufactu Read Full Story