Summary, Real Estate, Construction, and Related Excerpts from the Fed’s July 23 “Beige Book”

The Federal Reserve’s “Beige Book” is a summary of economic conditions reported by businesses in informal surveys conducted by the 12 regional Federal Reserve Banks (referred to by number and name of the headquarters city). Following are the opening paragraphs from the national and regional summaries, plus any construction- or real estate-related comments. Boldface denotes section titles (in the original) and construction-specific comments (bolding added to original).

National Summary

Prepared at the Federal Reserve Bank of Kansas City and based on information collected on or before July 14, 2008. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials. View the full report.

Reports from the twelve Federal Reserve Districts suggest that the pace of economic  activity slowed somewhat since the last report. Five eastern Districts noted a weakening or softening in their overall economies, while Chicago characterized its economy as sluggish and Kansas City noted a moderation in growth. St. Louis said activity was stable and San Francisco reported little or no growth. Cleveland and Minneapolis reported slight increases in economic activity, while Dallas described growth as steady and moderate.

Consumer spending was reported as sluggish or slowing in nearly all Districts, although tax rebate checks boosted sales for some items. Tourist activity was mixed, with residents in several Districts choosing to vacation closer to home due to high gasoline prices. The demand for services was also mixed across Districts, with strength in the IT and health care industries offsetting some weakness in other service sectors. Manufacturing activity declined in many Districts, although demand for exports remained generally high. Residential real estate markets declined or were still weak across most of the country. Commercial real estate activity also slowed or remained sluggish in a majority of Districts, although a few Districts noted slight improvement. In banking, loan growth was generally reported to be restrained, with residential real estate lending and consumer lending showing more weakness than commercial lending. Districts reporting on agricultural activity said conditions were mixed, based largely on how June precipitation affected them. Districts reporting on the energy sector said it continued to strengthen.

All reporting Districts characterized overall price pressures as elevated or increasing. Input prices continued to rise, particularly for fuel, other petroleum-based materials, metals, food, and chemicals. Retail price inflation varied across the country, with some Districts reporting increases but others noting some stability, at least for the present. Wage pressures were generally limited in most Districts, as labor market demand was soft except for highly skilled workers and in the energy sector.

Manufacturing

Many Districts reported a decline in production of housing-related goods, such as construction equipment, wood products, home furnishings, and HVAC units.

Real Estate and Construction

Residential real estate markets declined or were still weak across most of the country. .. All Districts reporting on single-family construction said activity continued to decline, and builders in the Philadelphia District noted a rising number of cancellations. Commercial real estate activity weakened or remained sluggish in a majority of Districts. Districts reporting on nonresidential construction generally noted sluggishness, which contacts in the Chicago and Kansas City Districts attributed in part to prohibitively high construction costs. Contractors in the Cleveland District were also worried about cuts but reported strong backlogs and a steady flow of inquiries. Contacts in many Districts also cited tightened financing as a constraint. San Francisco noted particularly steep drops in commercial construction in the San Diego area.

Banking and Finance

Most Districts reported a further tightening of credit standards, especially for residential real estate and construction loans.

Prices and Wages

All reporting Districts characterized overall price pressures as elevated or increasing. Input prices continued to rise, particularly for fuel, other petroleum-based materials, metals, food, and chemicals... Construction industry contacts in the Cleveland District noted rising prices for all types of products, including concrete, shingles, and steel. Boston reported that contacts were anticipating further price increases in oil derivatives, shipping, and travel.

Demand for labor remained high for skilled workers in most industries, while several Districts reported widespread weakness in the financial services, auto, and construction industries. Contacts in the Cleveland, Atlanta, Chicago, and Kansas City Districts reported very little upward wage pressures, with the exception of the energy and skilled labor markets. San Francisco noted some downward movement in wages for construction, finance, real estate, and retail jobs. But Boston and Dallas said more workers were requesting wage adjustments to supplement cost of living increases.