Just days after Federal Reserve Chairman Ben Bernanke nearly promised growth would be better in the next year (see story in Thursday's eNews), 10 of the 12 Fed banking districts experienced modest or moderate economic improvements during the final six weeks of 2010.
The Fed's Beige Book summary of economic conditions found improvements in just about every corner of the nation, save the greater Minneapolis and San Francisco areas. Manufacturing continued to be among the strongest performing sectors in all 12 districts, Fed contacts noted. Among the best performers again were in the Richmond, St. Louis and Chicago districts. In the latter, light and heavy motor vehicle activity dominated in the sector. However, those supplying construction-based businesses continue to find struggles as the real estate sector again appears to be recovering at a much slower pace, if at all, from the recession years. Contacts in nearly every district in the industry sector reported an optimistic outlook for 2011.
And though construction again demonstrated its struggles, as little demand for new retail and non-healthcare-based industrial spaces exists, there are some notable commercial real estate successes in the latest edition of Beige Book. Business leasing increased modestly in Richmond, Chicago, Minneapolis and Kansas City. Even previously struggling Dallas showed optimism over "tentative improvements." Mixed-use properties including condominium/multi-family housing activity appeared to be trending up, too.
In the area of credit, business lending/loan demand was stagnant in November and December. Meanwhile, credit standards remained mixed, leaning to the tight side, even as business credit quality appeared stable or improved. As such, loan demand was still muted to end 2010.
First District - Boston
Manufacturing sector contacts in the district reported positive conditions, aside from those dealing with commercial real estate businesses. Still, companies in the sector remained "lean" with inventories. While there's no report of a rebound for commercial construction and lending activity, conditions remained largely stable.
Second District - New York
Delinquency rates on commercial loans increased through late December. There has been tightening credit standards for businesses, Fed contacts noted. Loan demand has been mixed, pending on the specific market, but largely steady. Commercial real estate markets were also mixed with positive news for office properties and negative reports for the industrial market. Office leasing activity surprised experts by increasing to a four-year high. Still, much of the activity bump was comprised of businesses moving from one space to another, generally smaller one.
Third District - Philadelphia
Overall, manufacturing orders and shipments increased for the six-week period, though order patterns were "erratic." Gains were most notable in the furniture, testing/measurement, chemical and food products industries. Those in lumber and electrical, on the other hand, reported declined activity. Little change to the struggling commercial real estate from earlier in the fall was noted. Longer-term leases, however, appeared ready to trend again soon. Credit quality in the district was slowly improving, said contacts.
Fourth District - Cleveland
Production was either stable or improving, depending on the industry. Some expected seasonal manufacturing activity declines occurred. Service-based and steel industries showed more increases though, said contacts. Commercial real estate conditions were mixed, largely because of uncertainty. Some appear to be tip-toeing toward green-lighting some larger projects. Rates for business credit remained stable, as did credit quality.
Fifth District - Richmond
"Solid" gains were noted in the district in December, particularly among contacts in the chemical and auto-part productions areas. Port activity dipped from last period but was improved from the same period in 2009. A bulk of the increase was tied to imports from Asia. Loan demand improved slowly during the period, said contacts. Commercial real estate activity remained anemic except when prices were deeply slashed. Apartment construction activity increased again in the job-rich Washington, DC area.
Sixth District - Atlanta
Modest manufacturing activity increases were noted, as were plans for increased near-term production levels. Declines in freight, motor vehicle and equipment orders were troubling though. Commercial construction remained even more muted than the slow pace of December 2009 with few expectations for improvement before 2012. Credit standards started to ease though businesses, especially newer and small ones, remained frustrated at the poor terms offered. Agriculture struggled mightily amid drought and frigid temperature conditions that did still undetermined damage to this year's crop.
Seventh District - Chicago
"New orders were solid and order backlogs increased substantially," the Fed said. The rosy outlook is positive for next year as well. Strong news is spread over many industries: tubing, hydraulics, fluid power products, metals, automotive, heavy equipment and steel, among others. Commercial space subleasing has increased on lower pricing and though vacancy levels remain high, local contacts were optimistic in December. Business spending increased at a steady face as did hiring...of temporary employees, that is. Credit conditions were said to be improved.
Eighth District - St. Louis
The agriculture sector performed well, especially in the area of cotton production. Commercial real estate struggled in most markets including Louisville, though contacts there were optimistic for improvements in vacancy rates in 2011. Commercial loan activity decreased slightly. Manufacturing continued to increase as plant closure plans were few in December. Expansion plans are still slated for several businesses in automobile parts, plastics, glass, furniture, food manufacturing and sanitary paper production.
Ninth District - Minneapolis
Manufacturing was up, as were prices for Ag products, though snow totals hampered the efforts of farmers somewhat. The district was one of the few with good news in the area of commercial real estate. "In Minneapolis-St. Paul, several large leading deals were announced, and a large suburban office tower was recently sold," said the Fed. It's helping fueling newfound optimism in the district.
Tenth District - Kansas City
Manufacturing activity and optimism for 2011 continued to surge. Expect increased hiring and capital spending levels in the region. Commercial construction and vacancy rates took another step backward, though leading activity is expected to trend upward soon. Agriculture conditions, once hot in the Central United States, "deteriorated" to end 2010. Cold temperatures and a lack of precipitation could pose a serious threat to crop output in 2011, especially wheat development. Demand, terms and availability tied to commercial loans showed little change.
Eleventh District - Dallas
Manufacturing contacts expressed some optimism for the coming months, but appear less celebratory than most other regions. High-tech manufacturing appeared to be a more positive story than most industries, though. Office leading activity "is spotty but appears to be moving in a positive direction," said Fed contacts. Commercial real estate lending remained weak though pricing and terms showed signs of becoming more attractive.
Twelfth District - San Francisco
Demand was higher at manufacturers of semiconductors and other technological products, as has been the case in recent periods. Metal fabricators and aircraft parts producers reported good news as well. Demand for Ag products from the district increased again, too. Commercial real estate activity remained unchanged "at very low levels." Business continued to be slow to pull the trigger on capital expenditures and, thus, loan demand moved little from the fall.
Brian Shappell, NACM staff writer