The talk of the last couple of months in economic spheres revolved around growing concern that the United States will decline into a double-dip recession in the near future. However, the Federal Reserve's latest study indicates such a scenario has not reared its head in recent weeks and that growth continued, "albeit at a modest pace."

The Fed's Beige Book report, tracking economic conditions in each of the nation's 12 banking districts, found continued, though in some areas sluggish, growth in the economy from September through early/mid-October. Leading the way for the U.S. economy continues to be the manufacturing sector. Seven of the 12 districts reported aggregate gains in production and/or new orders "across a wide range of industries." Three others remained at or near August levels, while only two districts (Richmond and Philadelphia) found easing in the sector. Still, new job openings in the sector remained few and far between as companies try to do, as the cliché goes, more with less. Inventories also are considered "generally light" for most firms to keep costs down during what has been a slow rebound.

The agricultural sector also performed over the last six weeks or so. The seasonal harvest "was generally ahead of its normal pace, and above-average yields were expected in most reporting districts," according to Beige Book. One could expect even more optimism from the sector because of an increase need for U.S. exports in struggling ag nations such as Canada and Russia, the latter of which sustained massive damage from uncooperative weather and farmland wildfires in recent months.

Commercial real estate problems continue to be noted, especially escalating vacancies and subsequent reduced rental rates. Still, there have been pockets of optimism on the commercial real estate side with bumps in leasing around the Richmond, Chicago and Dallas districts. Fed contacts in the latter two also reported a rising trend of investor demand for distressed commercial properties, perhaps foreshadowing long-awaited stabilization.

Bank-to-business lending also remained somewhat stymied as demand for loans continues to be low. Postponements of capital spending continued at most businesses because economic and political uncertainties.

District 1 -- Boston

Building on success during the first two quarters, continued positive sales growth was a leading story throughout New England. The semi-conductor industry was rolling in part because of strong overseas demand and a bump in the U.S. automotive industry. Some in the industry did carry a slightly less optimistic view of potential in 2011. Commercial real estate was mixed in the district: Boston vacancy rates are trending up for office space and down for apartments; Portland leasing volumes were stable; and Providence appeared more upbeat than most on increased stability and prospects.

District 2 -- New York

Commercial real estate rental rates held “mostly steady” in most parts of the region, save fo r a small decline in Manhattan proper. This was somewhat surprising given the Fed’s report of widespread, though small, increases in vacancy rates. Meanwhile, credit standards tightened for business loans, which could be of little consequence at present since loan demand, especially from small and mid-sized businesses, remained rather low.

District 3 -- Philadelphia

Philadelphia was one of only two districts that reported a decrease in manufacturing shipments and/or new orders. The industry was optimistic that conditions will strengthen within the next six months. Only one in five businesses expected market deterioration through early 2011. Fed contacts noted business loan demand was “incredibly weak,” and those with credit lines are using them less than normal. In the meantime, credit quality continued to improve among borrowers based in Greater Philadelphia. Those in commercial real estate can’t say the same as the industry remained in a largely stagnant period.

District 4 -- Cleveland

Several contact in the region noted double-digit increases of production on higher order demand. It appeared much of the bump in demand comes from abroad rather than in the U.S., including in the areas of auto and heavy equipment. Commercial real estate was little changed from the last period or even September 2009. New hiring in most industries remained flat or dropped, though a seasonal uptick in holiday season workers naturally was expected.

District 5 -- Richmond

Richmond is the other district to report a notable decrease in manufacturing activity. With industries dependent on consumer spending and optimism, such as the textile and residential real estate product industries (windows, doors, etc.), there clearly was less need to produce. Lending activity, even to some smaller businesses, appeared to be shifting from community banks to larger-sized, better capitalized counterparts. Commercial real estate activity stayed “weak,” in part because contractors are having problems garnering credit from local lenders.

District 6 -- Atlanta

The pace of new commercial construction and renovation, size of backlogs, demand for rental properties, price points and outlook for real estate all dropped again in the region. Both loan demand and district banking conditions were weak, as well. Modest manufacturing increases are planned in the short-term, in part because of international shipments.

District 7 -- Chicago

After a slump during the summer, manufacturing activity rebound by September. It actually was the best month of the year for several metals manufacturers. Mining and medical equipment businesses flourished, as well. Vacancy rates started to stabilize in most of the district on slight improvement in demand for some industrial and retail spaces. Business loan demand remained steady and credit conditions gradually improve. Still, credit availability for small business has become a source of concern. Agriculture did well during the early part of the period with strong harvest-time yields. However, activity slowed more recently, especially in part of Iowa and Wisconsin, because of heavy rains.

District 8 -- St. Louis

Few portions of the region reported any improvement in commercial property sales, vacancy rates or potential for new construction. Bank loans to businesses decreased again in September/early October, though at a miniscule rate. Planned plant openings and expansions far outweighed the scattering of manufacturing business struggles. Expanding industries in the area include those producing motor vehicle products, plastics, transformers, frozen food and detergent. Largely because of the ongoing housing downturn, production was down in the appliance and furniture manufacturing areas. Agriculture advanced well ahead of the usual pace on near perfect harvesting weather. However, subsequent drought conditions loom.

District 9 -- Minneapolis

Already slow commercial real estate demand receded further in September. Fed research indicated about 20% off all office space and 8% of all retail space was vacant at summer’s end. Manufacturing was up on gains at producers of jet engines and parts, fishing tackle, dental products, metals and beds. Wet weather put the brakes on the agricultural sector somewhat though district crops “were relatively large and in good condition.”

District 10 -- Kansas City

Manufacturing experienced a mild rebound on higher demand for factory-made products. Commercial real estate remained on the downturn, and expectations for the near future aren’t optimistic. Just about every category of commercial real estate struggled. Loan demand remained somewhat steady, with a bump in applications from businesses. Agriculture, especially corn and soybean crops, performed well through the most recent six-week Fed tracking period.

District 11 -- Dallas

High-tech and petrochemical product manufacturers reported strong growth domestically and increased interest abroad, especially in China. Production of cement, lumber and fabricated metals remained somewhat flat on economic and geopolitical concerns. Little to no speculative construction occurred, though contractors remained busy with hospital and education-related work, Fed contacts said. Loan demand and activity grew, thought the most significant acceleration was for the purpose of auto purchases by consumers. Tropical Storm Hermine was actually seen as a positive, looking forward, because it improved soil moisture for much of Texas.

District 12 -- San Francisco

Technology and semiconductor manufacturers saw another period of growth, though the pace appeared to slow slightly. While overall manufacturing remained up, there are notable problems for metal and wood production. Commercial real estate vacancies remained very high though there are signs in a decrease in total space availability. Business credit applications in the district summed up the conditions in that sector for most of the districts: “Demand continued to be restrained by businesses’ cautious approach to capital spending and desire to deleverage.”

Brian Shappell, NACM staff writer



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