Economic activity continued to expand moderately from November through December, according to the Federal Reserve's
Beige Book. Conditions were generally better in Districts' manufacturing, retail, and nonfinancial services sectors than in financial services or real estate.
Manufacturing sector in all Districts reported that activity continued to recover. Demand was generally characterized as stable and steady, and no District made mention of lingering fears of a double-dip recession, in contrast to the summer reporting periods. Capacity utilization continued to trend higher and is approaching normal rates for some contacts in the Cleveland and San Francisco Districts, while production in high-tech manufacturing was reportedly at high capacity in Dallas; some manufacturers in the St. Louis and Minneapolis Districts said they have or will soon expand capacity. However, the Boston, Atlanta, and Dallas Districts noted that business remained weak for manufacturers selling into the construction sector.
Retailers in all Districts indicated that sales appeared to be higher this holiday season than in 2009 and, in some cases, were better than expected. Philadelphia and San Francisco reported that retailers relied less heavily on discounting.
Residential real estate markets remained weak across all Districts. A majority of the Districts characterized local housing markets as weak and sluggish with little change from the previous reporting period. All Districts attributed slumping activity to concerns about the pace of economic recovery, especially in employment, while three Districts mentioned difficulty obtaining credit as another constraint on demand. High levels of existing home inventories continued to dampen the pace of new home construction in most Districts. Outlooks for residential real estate in the coming year were mixed, with contacts in most Districts expecting continued weak conditions.
Commercial construction was described as subdued or slow, while commercial leasing activity reportedly increased in four Districts.
Reports on credit activity were mixed across Federal Reserve Districts. Overall, loan demand was reported as stable in San Francisco, mixed in New York, steady to slightly softer in Kansas City, weaker in St. Louis and Dallas, and slowly improving in Philadelphia and Richmond. Most Districts reporting on credit quality described it as improving.
Unfavorable weather conditions damped agricultural production in some areas. Drought negatively affected range conditions in the Dallas District by adding to costs of feeding livestock, while Atlanta cited the challenges prolonged drought to fruit growers. The Kansas City District indicated that dry weather could affect winter wheat development, while large snow falls hampered some ranchers in the Minneapolis District. However, agricultural demand generally improved among reporting Districts, and output prices rose, especially for corn, soybeans, wheat, cattle, and cotton.
Most District reports mentioned increasing prevalence of cost pressures but only modest pass-through into final prices because of competitive pressures. For both retailers and manufacturers, increases in selling prices, if occurring, were said to be selective. Specific markets or products identified as experiencing high or rising prices included various food products, steel and other metals, building materials, textiles, chemicals, and petroleum-related products. Many Districts mentioned concerns among business contacts that petroleum-related prices, already above year-earlier levels, will continue rising in 2011.
Labor markets in most Districts appear to be firming somewhat, but with virtually no upward pressure on wages. All Districts reported that employment levels are rising in at least some sectors, by modest amounts. Some employers in several Fed Districts expressed concerns about added costs for healthcare and noted selected skill shortages in some sectors.