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Blog Archive–NACM Blog Credit Real Time: The Latest in Commercial Credit

UPDATED: Beige Book Continues Signs of Stagnation

On the heels of the Federal Reserve Chairman Ben Bernanke's confidence-shaking testimony before Congress, the Fed released its Beige Book report on conditions from the last six weeks within its 12 regions on Wednesday.

The report's economic roundup painted a less optimistic picture than previously in 2010, as Fed contacts noted the pace of economic growth slowing in regions that had been improving, albeit slightly; two districts experiencing stagnation (Cleveland, Kansas City) and a pair where activity was actually failing to remain stable, let alone make gains (Atlanta, Chicago).

Granted the negative news was nothing new to the commercial real estate sector, indentified as a drag on the recovery in all regions throughout much of this year. And though banks' lending criteria for businesses to garner loans remained restrictive, the bigger issue is that actual borrower demand has fallen to very low levels. Still, the Fed contends that "on balance," the economy still is still in a growth period, a very slow one. Some pieces of positive news came from at least half the nation's regions in manufacturing, especially in those tied to the automotive industry; tourism, save the oil-spill wrought Gulf Coast; and employment opportunities, though there's a lot more part-time (non-benefits) work available. However, such optimism on the jobs front was reported prior to Wednesday's Labor Department report that found unemployment rising in 75% of U.S. urban markets.

 

District 1 -- Boston

Business activity was seen increasing in recent weeks, with vendors generally reporting increased revenue and work. Commercial real estate reports were mixed, which actually is much more than several other regions could boast. Commercial property vacancies rose in markets like Hartford and Boston on fears of increased unemployment and lower demand for such properties. However, their colleagues in Providence can be described as “upbeat.”

District 2 -- New York

Though economic growth in the second district has shown signs of improvement, the demand for business loans continued to wane. Additionally, the cost of loans again grew. Vendors found sales and inventories at expected levels. And, like the Boston Fed bank, the commercial real estate market for the area appeared somewhat steady for the region, on balance. Most improvements, however, were found in Manhattan suburbs on the New York state side.

District 3 -- Philadelphia

The district reported slight economic growth, and product manufacturers noted an increase in shipments despite a small dip in future orders. Credit quality was seen as improving, though loan balances have remained largely unchanged. Commercial real estate contacts reported steady vacancy rates for the most part and little demand for new construction as companies continue to look for less space.

District 4 -- Cleveland

Overall economic growth and manufacturing remained stagnant during the last six weeks. Still business’ production remains well ahead of the pace through this point last year. Mild improvements in commercial real estate from the spring started to shrink more recently. Most interest in new construction presently is relegated to government-funded infrastructure and some industrial categories. Demand for business loans remained soft, though there have been signs of increased interest, said Fed contacts.

District 5 -- Richmond

The district’s economic performance was categorized by the Fed as “mixed or modestly improving since the last report.” Manufacturing continued to show strength here, especially for those supplying homebuilders that are building to replace depleted inventories or new product designs to fill a growing consumer demand for smaller (more efficient) houses. The commercial side of real estate continued to struggle mightily in Richmond, Baltimore and metropolitan areas of North Carolina.

District 6 -- Atlanta

Economic activity slowed in the district, with low optimism apparent in most industries, save tourism. There is fear of the impact of the ongoing Gulf Coast oil spill cleanup, though. Business loans and use of credit cards appeared to drop during the latest Fed tracking period. And commercial real estate continued to spin its wheels with little in the way of reasons for optimism emerging.

District 7 -- Chicago

The pace of the economic rebound here has dropped of late. Part of that comes from a slowing in business spending, though capital spending specifically on information technology has increased. Real estate activity, already low in the area, took another hit during the latest period with only public, infrastructure-related construction on the come. However, the district was one of the few to report an uptick in business loan demand and credit quality.

District 8 -- St. Louis

The eighth district continued its improvement, notably in manufacturing and automotive sales. Demand for and ratio of business loans, however, continued to dwindle. Also slow, unsurprisingly, is the long-struggling commercial real estate sector. Contacts don’t expect any demand for new commercial construction for at least another year.

District 9 -- Minneapolis

Economic growth was slight for the recent period in the district. The manufacturing sector, notably construction equipment producers, saw a solid increase in activity. However, commercial real estate was weak and declining. About the only good news was found in Sioux Falls, SD, where a bump in commercial permits was found, and with a Minnesota/Wisconsin-area contractor that deals mostly in heavy infrastructure.

District 10 -- Kansas City

Weak commercial and residential real estate performances acted as a drag preventing overall economic growth from advancing in the region – and another slide was predicted by industry contacts. Manufacturing-based businesses continued to find some gains, though the pace of growth slowed for the second straight month. Still, new orders have held stable for vendors. Demand from such businesses for bank credit remained low.

District 11 -- Dallas

Despite cautious optimism, the region’s economic expansion continued “at a moderate pace.” Non-construction based businesses have had reason for optimism. A few firms are in the commercial real estate market went out of business or are on their last legs, with few predictions of an uptick in the sector any time soon. Business loan demand, as well as all other categories, was soft, and loan performance was holding stable with levels noted in previous months.

District 12 -- San Francisco

After months of deterioration, the district finally reported a slight uptick in economic activity. Still, commercial real estate activity remained unchanged “at very low levels.” A Fed contact noted that those commercial property sales that did occur in the last six weeks fetched “surprisingly high” prices. Banks believe loan demand from uncertain businesses will not pick up until there are clearer signs where the economic rebound, or lack thereof, is going.

Brian Shappell, NACM staff writer

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