No "Shift in the Overall Pace of Growth"

Economic Pulse
September 4, 2014
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The Beige Book report, the Federal Reserve’s description of current economic conditions in each of its 12 Districts, revealed that economic activity continued to expand across most regions and sectors, even as “none of the Districts pointed to a distinct shift in the overall pace of growth.”

Economic Growth Characterization by District

Economic Growth by District Table

Source: Federal Reserve

LABOR MARKET CONDITIONS were reported to be relatively unchanged from generally modest rates; however, contacts in nearly all Districts reported difficulties finding certain types of skilled labor. Contacts cited shortages of skilled information technology workers in the Boston District, of truck drivers in New York, and of construction workers in Atlanta. Employment agencies in New York described the job market as strengthening, and some Dallas contacts noted that the labor market remains very tight in the energy sector. Contacts in Cleveland, Richmond, and San Francisco also mentioned challenges finding qualified workers. Staffing contacts in Philadelphia reported that some of their clients are hiring to grow their businesses.

WAGE GAINS were little changed, with wage pressures that were described as “slight or modest.” Richmond was an exception, reporting that wage growth slowed in the manufacturing and service sectors. Stronger wage pressure was reported for specific categories of skilled workers. In particular, Atlanta, Chicago, Dallas, and San Francisco noted greater wage pressure for jobs in energy, construction, trucking, manufacturing, engineering, information technology, finance, and health care, among others. Some general contractors in the Cleveland District reported that they have increased wages and upgraded benefit plans as a means of attracting and retaining skilled workers.

In COMMERCIAL REAL ESTATE, a little over half of the Districts reported some degree of growth in nonresidential real estate activity, with increased construction, leasing, or both tied to steady or falling vacancy rates and to rent increases. None of the Districts reported a decline in overall activity, although New York and St. Louis described activity as mixed. In addition to traditional office space, certain Districts reported increased demand for specific projects: Boston noted demand for construction in the hospitality sector, Philadelphia cited industrial and warehouse projects, Richmond noted distribution centers, and St. Louis reported new retail and mixed-use projects as well as new industrial facility construction. Commercial real estate lending exhibited slight to moderate growth in the New York, Cleveland, Richmond, Chicago, and San Francisco Districts; Philadelphia and Dallas reported no change; and volumes in the Kansas City District decreased slightly.

Comments on Real Estate by District


“Demand for commercial real estate continued to improve since the last reporting period. Contacts indicated that absorption and rent growth across property types remained positive. Contractors noted that apartment construction remained fairly strong and that the level of construction activity across other property types had picked up modestly. Half of contacts reported no change in backlogs from their year-earlier level, while the remaining half indicated their backlog had increased relative to a year ago. The outlook among District commercial real estate firms also remains positive.”


“Commercial real estate activity appears mostly steady across the First District. Contacts in Hartford, Portland, and Providence all describe office leasing activity as slow, but the slowness is attributed to typical seasonal patterns…In Boston, market conditions are largely unchanged since the previous report. Downtown leasing activity held steady, and office leasing demand appears to be strengthening along the Route 128 corridor. However, despite rising profits, most existing firms are not expanding their space needs and some recent lease renewals resulted in reduced footprints. Contacts continue to be impressed by the amount of capital pouring into commercial real estate (as well as into multifamily structures) in the greater Boston area, with prices that reflect highly optimistic expectations. Also in Boston, construction activity remains strong in the hospitality and multifamily sectors, and speculative office construction remains limited.”


“Nonresidential construction also expanded at a moderate pace, led by demand for industrial and office buildings. Contacts again reported that automotive supply manufacturing plants were a particular source of strength. Commercial real estate activity increased broadly, as vacancies ticked down and rents rose. Leasing of industrial buildings, office space, and retail space all increased.”


“Demand for commercial real estate remained solid. Office leasing activity was steady, and according to one contact construction activity slowed in Houston but increased slightly in Dallas. Demand for industrial space was strong, particularly in Dallas where leasing activity among mid-size tenants picked up. Outlooks remained generally positive.”

New York

“Commercial real estate markets have been mixed since mid-year. Manhattan's office market has continued to tighten, with availability rates slipping to a 5-1/2 year low and rents up 5 percent to 10 percent from a year ago. Across the rest of the region, however, office markets have been stable to slightly softer: in Long Island availability rates have held steady near a 7-year low, whereas in northern New Jersey, Westchester and Fairfield counties, and across upstate New York they have been steady at high levels. Office rents have been steady to up slightly. Industrial markets have been steady across most of the District, though availability rates have edged down in northern New Jersey, and asking rents have risen rapidly in Long Island and particularly in Brooklyn and Queens. Finally, Manhattan's retail vacancy rate has edged up while rents remain flat; in Long Island and northern New Jersey, however, the market for retail space has shown signs of firming slightly.”


Nonresidential real estate contacts reported that growth in construction activity and in leasing activity have changed little from the slight pace seen in the previous Beige Book period. Construction activity continues to be greatest for industrial/warehouse building projects, which get snapped up quickly when built on spec. An architecture and engineering firm reported that this has been a good summer. Contacts also reported improved leasing activity in southern New Jersey for small offices as well as industrial buildings. However, firms reported few signs of rents strengthening in most office markets and cited continued weak growth in service-sector employment.”


“Commercial real estate activity strengthened moderately over the past several weeks. Commercial brokers in many areas of Virginia and South Carolina reported steady leasing activity, while Realtors in Charlotte and Charleston, West Virginia said leasing slowed; a contact in Roanoke indicated no change. Vacancy rates decreased according to Realtors in Richmond and Charleston, South Carolina, while contacts in Virginia Beach, Raleigh, Charlotte, and Roanoke stated that vacancy rates were unchanged. Realtors in parts of Virginia, West Virginia, and North Carolina reported that rents stabilized, and landlords were staying close to list prices on rentals, with fewer concessions and incentives. A slight uptick in rents was reported in Charleston, South Carolina. Comments on the supply of Class A office space were mixed.”

San Francisco

“New and expanding medical practices boosted absorption rates for office space. In contrast, retail vacancy rates increased in some areas.”