FED: We're not seeing a whole lot of inflation right now USD, SPY, SPX, QQQ, TLT, TLO

Get the Full StoryREUTERS Neil HallThe Federal Reserve says that it is not seeing a lot of inflation right now.

Based on anecdotes from businesses and the Fed's contacts, the Beige Book, released on Wednesday, summarized how the economies in the Fed's 12 districts are performing.

Here's the key paragraph on inflation: "Labor markets continued to improve, with employment increases evident in reports from seven Districts. Four Districts mentioned signs of labor market tightening. However, Districts reported little overall change in wage and price pressures, with wage increases running from flat to moderate, while price increases tended to be minimal."

Inflation has long run shy of the Fed’s 2 target. When the FOMC raised interest rates in December, it reiterated its confidence that inflationary pressures would accumulate, to drive actual inflation closer to its goal.

According to the release, economic activity in most districts expanded since the previous Beige Book release. Activity in New York and Kansas City was "essentially flat".

This Beige Book was compiled by January 4, will be used at the Fed's meeting on January 26 and 27.

This post is being updated.

Here's the full text of the Beige Book:

Reports from the twelve Federal Reserve Districts indicated that economic activity has expanded in nine of the Districts since the previous Beige Book report and contacts in Boston were described as upbeat. Meanwhile, New York and Kansas City described economic activity in their Districts as essentially flat. Atlanta and San Francisco characterized the growth in their Districts as moderate; Philadelphia, Cleveland, Richmond, Chicago, St. Louis, Minneapolis, and Dallas described their Districts' growth as modest. Contacts' outlooks for future growth remained mostly positive in Boston, Philadelphia, Atlanta, Chicago, Kansas City, and Dallas.

Growth of consumer spending ranged from slight to moderate in most Districts, while auto sales were somewhat mixed, as activity has begun to drop off from previously high levels in some Districts. Reports of tourism activity were also mixed.

Among the Districts that reported, nonfinancial services generally grew at a modest or moderate pace, although reports from staffing services and transportation services were somewhat mixed.

With the exception of motor vehicles and aerospace, most manufacturing sectors displayed a weakening in activity. Also, fewer Districts reported increases in manufacturing activity than decreases during the latest reporting period. Several Districts reported the strong dollar's negative impact on demand, while some noted that low energy prices have had a smaller, mixed effect.

Residential and commercial real estate activity generally improved, according to District reports. Stronger activity tended to be cited for multifamily construction and commercial real estate. House prices and commercial rental rates also rose somewhat in most Districts.

Overall, most Districts reported that loan demand grew, credit quality improved, or loan delinquencies fell, with credit standards changing little.

Districts reported that agricultural sectors weakened overall, and farm incomes were stressed. Flooding and drought in various regions aggravated the effects of already low and falling prices for farm commodities, caused in part by weak global demand and the strong dollar. Unseasonably warm winter weather in much of the nation further depressed energy prices and slowed significant segments of that sector.

Labor markets continued to improve, with employment increases evident in reports from seven Districts. Four Districts mentioned signs of labor market tightening. However, Districts reported little overall change in wage and price pressures, with wage increases running from flat to moderate, while price increases tended to be minimal.

Consumer Spending and TourismMost Districts reported some growth in consumer spending through the holiday season, with the pace of growth typically characterized as ranging from slight to moderate, and as strong in Minneapolis. New York, Richmond, and Dallas noted that sales were sluggish or had softened. Unseasonably warm weather was blamed for damping overall sales in Cleveland, Richmond, and Dallas, and for weaker apparel sales in New York. Richmond and Chicago also noted disappointing clothing sales. Similarly, San Francisco reported that apparel sales at brick-and-mortar stores failed to meet expectations. Minneapolis noted record-breaking online sales, while Cleveland described greater optimism among retailers anticipating enhanced opportunities from e-commerce.

Auto sales have continued to be positive in most reporting Districts since the previous Beige Book, with strength reported in Richmond, Atlanta, and Chicago. However, Kansas City reported that sales dropped markedly compared with last year, and New York and St. Louis reported recent slowing in activity. Contacts in roughly half of the Districts cited continued lower gas prices as a contributing factor for auto sales, particularly for increases in SUV and light truck sales.

Tourism activity varied across reporting Districts. Philadelphia, Dallas, and San Francisco reported overall increases in activity, while Minneapolis and Kansas City reported mixed conditions. New York indicated further weakening. Mild weather negatively impacted ski activity in New York, Philadelphia, Richmond, and Minneapolis but had a positive impact on shore and national parks visits in the Philadelphia and Minneapolis Districts. Richmond, Atlanta, and St. Louis reported positive hotel bookings and occupancy, while New York reported that hotel revenues were down.

Nonfinancial ServicesOverall, nonfinancial services have grown modestly to moderately since the previous Beige Book. Professional and technical services firms saw moderate growth in the Minneapolis, Kansas City, and Dallas Districts. Consulting firms in the Boston District reported strong demand, and the demand for server and cloud computing services continued to rise in the San Francisco District. Contacts in the New York District reported sluggish business activity. Staffing services were somewhat mixed across reporting Districts. Staffing firms in Philadelphia reported strong growth for temporary and permanent placements across a range of sectors, while staffing demand in the Dallas District varied by location. Contacts in New York were somewhat less optimistic about the near-term outlook, while contacts in Boston, Philadelphia, St. Louis, and Kansas City continued to expect positive growth.

Reports on transportation services varied. Atlanta, Minneapolis, and Dallas contacts noted a surge in e-commerce shipments, and parcel companies in St. Louis reported record holiday-related demand. Richmond District ports reported strong vehicle imports, and Atlanta District ports cited strong retail goods imports year over year; however, both Districts noted softening in exports. Cleveland and Kansas City noted general declines that Cleveland attributed to weakness in the energy and steel sectors, and to the export environment.

ManufacturingManufacturing activity has been varied across Districts since the last Beige Book period, with nearly half of the Districts reporting overall declines. New York, Philadelphia, Atlanta, Minneapolis, and Kansas City indicated that manufacturing activity declined; however, Cleveland, Richmond, and Chicago reported that manufacturing activity grew modestly to moderately. Dallas characterized its demand as flat or increased, while San Francisco reported that activity was flat to down, on balance.

Boston, Philadelphia, Cleveland, Dallas, and San Francisco noted the strong dollar's negative impact on manufacturers' exports. Contacts in Philadelphia and San Francisco also cited weak global demand as contributing to declines. Boston, Cleveland, and Dallas manufacturers reported the benefit of low energy prices on their margins, but Cleveland contacts indicated that the low energy prices did not offset the impact of the strong dollar. Furthermore, suppliers to the oil and gas exploration sector reported weak, and sometimes deteriorating, demand in Philadelphia, Cleveland, Richmond, Chicago, St. Louis, and Kansas City. The motor vehicle and motor vehicles parts industry generally experienced strong demand in Cleveland, Richmond, and Chicago, and announced significant expansions in St. Louis. The aerospace industry was a bright spot for metals manufacturers in Cleveland and Chicago; in Minneapolis, an aircraft producer was expanding for the launch of a new product.

Contacts in Boston, Atlanta, Minneapolis, St. Louis, and Kansas City remained optimistic about the near-term outlook for manufacturing growth. Expectations in Philadelphia have weakened significantly since the last Beige Book but have remained positive, while the expectations of manufacturers in Cleveland have been mixed. New York contacts were less optimistic about the near-term outlook.

Real Estate and ConstructionResidential real estate activity as measured in sales was generally positive in New York, Cleveland, Chicago, and St. Louis. Richmond experienced steady sales with pockets of strength, and Kansas City reported declines. Prices rose slightly to modestly overall in all reporting Districts, and inventories remained low in Boston, Richmond, and Minneapolis, and some parts of the New York District; however, New York City's rental vacancy rate increased. Though Boston contacts expected the market to perform well in 2016, contacts in Cleveland and Kansas City expressed concerns that higher interest rates may slow activity. Residential construction activity was described as modest or moderate in most Districts but was more subdued in New York, Atlanta, and Dallas overall. Multifamily construction continued to be strong in New York, Richmond, Minneapolis, and San Francisco and showed improvement in Chicago.

Most reporting Districts characterized nonresidential real estate activity as modest to moderate; Boston and New York indicated little change. Rental rates rose in more than half of the reporting Districts, and vacancy rates were mixed. Most Districts reported modest or moderate growth in commercial construction, and the Dallas District noted high levels of industrial construction in Dallas-Fort Worth. Contacts in the Atlanta District expect construction activity to increase slightly, while contacts in the Philadelphia, St. Louis, Minneapolis, and Richmond Districts expect overall commercial real estate activity to continue to strengthen at least modestly.

Banking and FinanceLending activity appears to have improved on net. Loan demand grew on balance in the Philadelphia, St. Louis, and San Francisco Districts. Cleveland, Richmond, and Kansas City reported stable credit demand, on balance, while Dallas noted some recent softening. Philadelphia reported the strongest loan growth for autos, commercial real estate, and commercial and industrial deals, while residential lending was flat to down. San Francisco noted robust growth of automobile loans and mortgage originations. Atlanta reported an increase in residential mortgage lending and refinancing, while New York reported weaker demand from the household sector, but steady commercial demand. Chicago noted continued strength in auto lending and some slowing of loan demand from small and middle-market businesses, while most other household lending was little changed. The slumping energy sector was cited as a factor for lower loan demand by some contacts in the Cleveland, Richmond, and Atlanta Districts.

Credit conditions generally improved. New York, Philadelphia, Richmond, and San Francisco cited improved credit quality, declining delinquencies, or both, in all or part of their Districts. Cleveland reported no change in delinquencies. Dallas contacts noted increasing delinquencies of loans to oil and gas companies. New York, Cleveland, Richmond, and Kansas City reported little or no change in credit standards. Seven Districts described some competitive conditions, including competition from nonbank, online entities, whereas New York cited some narrowing of spreads in all loan categories. However, Chicago noted signs of slight tightening of credit supply.

Agriculture and Natural ResourcesAgricultural reports were generally flat to down. With few exceptions, commodity prices for crops and livestock have remained low or have fallen since the previous reporting period, stressing farm incomes. Chicago, Kansas City, and Dallas reported that conditions were not profitable for some producers, as farm input prices have not fallen as fast. These three Districts also cited large harvests as a factor in keeping commodity prices low, while Kansas City and San Francisco reported that weak global demand and the strong dollar held down livestock exports. Drought remained a problem in parts of the San Francisco District for some producers, while heavy rain and flooding continued to impact harvests in the Richmond, Atlanta, St. Louis, and Dallas Districts.

Most segments of the energy sector struggled further, as oil and gas prices continued to decline. Cleveland and Kansas City reported that warmer-than-normal temperatures throughout much of the nation has further increased already abundant inventories of oil and gas and kept downward pressure on already low energy prices. Cleveland, Atlanta, Minneapolis, Kansas City, and Dallas reported continued declines in oil and gas drilling; several of these Districts noted that affected firms continued to experience serious financial stress and to reduce employment. In contrast, Cleveland, Minneapolis, and Dallas cited positive impacts for oil refineries, and Cleveland reported that investment in pipeline construction continues unabated. Coal production fell in the Richmond and St. Louis Districts, and iron ore mining fell in the Minneapolis District.

Employment, Wages, and PricesDistrict labor markets continued to improve. Richmond reported moderate employment increases, while Philadelphia, Chicago, and Dallas reported slight to modest job growth, and Cleveland indicated little change. On balance, New York and Atlanta contacts reported more hiring, than layoffs. Boston and Minneapolis offered mixed examples but both reported that firms had plans to add employees. St. Louis also reported positive hiring expectations. Labor markets were described as tight or tightening in the New York, Cleveland, Atlanta, and Minneapolis Districts. Staffing firms in New York, Philadelphia, Richmond, and Minneapolis cited various positive signs of strong labor demand, including demand from specific technical sectors in the Boston District to a broad range of sectors in the Philadelphia District. Hiring metrics were reported as flat or mixed from staffing agencies in Cleveland, Chicago, and Dallas.

Overall, wage pressures remained relatively subdued, as evidenced by reports from Philadelphia, Atlanta, Chicago, and Kansas City. Just two Districts--New York and San Francisco--indicated some acceleration in upward wage pressures. Cleveland, Richmond, and Dallas cited mixed reports, ranging from flat to moderate wage pressures. Seven Districts mentioned greater wage pressures for skilled workers in a variety of industries, including construction, manufacturing, financial, professional, technology, and health-care sectors. However, wage pressures among low-skilled positions were almost as pervasive, with six Districts citing pressure stemming from state minimum wage increases and from labor shortages or turnover among entry-level positions in banking, retail, and hospitality.

Nearly all Districts reported that overall price pressures were minimal. Price increases were noted by service-sector firms in New York, Philadelphia, and San Francisco, and by retail outlets and restaurants in Richmond and Kansas City. Prices of inputs and finished goods for manufacturers tended to be stable or declining, although Richmond's manufacturing contacts reported rising prices for both. Falling energy prices, as cited by Richmond, Kansas City, and Dallas, and lower prices for copper, steel, and other commodities, as cited by Boston, Cleveland, Atlanta, and Chicago, were generally described as contributing to lower input costs for manufacturers. Low oil prices were also credited for reducing home heating costs in Minneapolis and airfares in Dallas. Six Districts reported low or falling prices for most crops and livestock. Chicago and Kansas City contacts indicated that large harvests had contributed to the price declines.

First District--BostonReports from business contacts in the First District are generally upbeat. Holiday schedules reduced the number of responding firms below average this round. Most reporting retailers, manufacturers, and consulting and advertising firms cite year-over-year sales increases compared with the same period in 2014. Residential real estate markets continue to be strong and commercial real estate markets are said to be similar to the mostly positive situation six weeks ago. Contacts say pricing remains steady. Some firms mention increases in the minimum wage as a cost increase; four of the six New England states saw a January 1 rise. Outlooks are positive.Retail Retail respondents in this round report 2015:Q4 sales gains from a year earlier in the low to mid single-digit percentages and favorable results for the holiday season. Preliminary 2015 net gains ranged from low single digits to 22 percent, with comparable-store sales increases for the two contacts reporting this figure in the 7-percent range. Apparel, electronics, furniture, other home furnishings, and items related to home improvement account for much of these sales. A hardware contact reports sluggish sales for cold-weather items until recently, given the mild weather in most of New England, followed by brisk sales prior to the first significant snowstorm in late December. Some retailers anticipate that the steadily improving sales trend experienced each quarter in 2015 will continue into 2016, although others express more caution about the winter quarter.

Contacts are increasing inventories in anticipation of continuing improvement in sales. Some contacts are experiencing higher wage costs due to increases in the minimum wage in some states or the need to offer higher wages in order to attract retail workers. Merchandise prices largely remain steady. Some larger firms are planning on significant capital expenditures for 2016 related to expanding their business, including online marketing channels, while at least one smaller firm plans to spend only on IT upgrades and normal repair and maintenance. Generally, the outlook for 2016 is upbeat.

Manufacturing and Related Services Due to seasonal issues, only five manufacturing firms responded this cycle. Four of the five contacts are positive about demand for their products. Our contact at a frozen food manufacturer was the exception, reporting a very competitive environment in that industry with very large retailers demanding and getting price reductions. The good news is varied. A producer and retailer of furniture says sales were higher for the year but weaker than usual in December. An information services producer cites higher sales for the first time in many years, as growth in legal and tax businesses is finally offsetting weakness in financial services. A toy company reports much stronger sales, largely driven by the new Star Wars movie. A maker of laboratory instruments says new orders from India and China are stronger than expected.

There is little news on the pricing front. The strong dollar continues to be a problem for some firms, but lower energy prices are good news. No firms report inflationary pressure although several firms mention successful efforts to raise prices modestly. Inventories are stable.

No contacts mention significant revisions to their capital expenditure plans. The toy manufacturer indicates that capital expenditures in 2015 fell short of plans. Four respondents report that employment is holding steady or increasing modestly. No one cites significant problems hiring workers. The information services provider continues to reduce headcount through attrition.

All respondents report a generally positive outlook. The only major revision is from the information services provider, who anticipates growth for the first time in many years.

Selected Business ServicesAll consulting and advertising respondents are ending the year with revenue up over 2014, with slight growth at large analysis and advertising materials firms, and strong growth at healthcare and strategy consulting firms. Demand for consulting in the areas of corporate strategy, operations, and private equity is strong. Mortgage-backed securities related litigation continues to dry up, but demand for economic consulting for antitrust, mergers, and business practice litigation remains strong.

Costs are fairly stable for contacts, except a small research consultant, and margins are expanding. Multiple contacts cite increased upward pressure on healthcare costs for employees. Some contacts plan on keeping their prices flat; others will raise prices by as much as 6 percent.

Contacts were not hiring in the most recent quarter, partly because some typically hire in classes during the summer. All contacts plan on hiring in 2016, by amounts ranging from 10 percent to 15 percent. Those that hire in classes will increase class size, and one strategy consultant is adding an additional spring class in 2016. Large research and strategy consultants are seeing increased attrition and decreased yield from offers, due to continued competition from the tech sector. Base compensation is increasing in line with inflation for most of these firms, though incentive-based bonuses are up significantly for strategy and healthcare consulting contacts. Several contacts say they expect difficulty filling tech and high-skilled positions, and one cited restrictions to the H1-B visa lottery as a loss of potential sources of talent.

Predictions for revenue growth for 2016 are in the 5 percent to 15 percent range, except for a large strategy consultant who is skeptical that their run of strong growth will continue. Contacts are generally bullish on macroeconomic conditions, though some raise concerns over the elections.

Commercial Real EstateReports from First District commercial real estate contacts are for the most part little changed since last time. Office leasing demand remains robust in Boston and Portland and weak in Hartford. Leasing activity slowed modestly in the past month in Providence, where a contact perceives greater caution among business owners. The investment sales market for commercial real estate in Connecticut is described as somewhat less "frothy" than it was earlier in the fall, with "careful" bids, but demand still reportedly strong, by contrast with the leasing market. In Boston's investment sales market, contacts note that there are fewer bids per property on average than six months ago, but pricing remains robust. In both Boston and Portland, contacts note that the availability of large blocks of contiguous office space has become quite limited, a condition which--coupled with recent rent growth in both markets--is expected to lead to more office construction moving forward. Extending recent trends, new office projects in greater Boston are typically at least partly pre-leased rather than purely speculative.

In Providence, the outlook became more guarded amid expectations that the national election cycle may delay decisions; at the same time, however, for the first time since prior to the recession, developers in Rhode Island are discussing the possibility of new industrial construction. More industrial construction appears likely in Portland as well in 2016, where supply is quite limited and industrial business activity is reportedly strong and growing. The overall outlook for Portland's commercial real estate market for 2016 is very strong, while in Hartford the outlook remains weak in light of risks that more businesses will leave Connecticut or leave Hartford for suburban locations. On the plus side, a Hartford contact sees business and consumer sentiment as being buoyed by low oil and gasoline prices. The outlook remains optimistic for Boston's commercial real estate market, including leasing and investment sales, but contacts also note risks stemming from political and economic uncertainty at both the national and global level.

Residential Real EstateResidential real estate markets continue to exhibit strong performance across the First District, consistent with the seller's market environment present throughout 2015. For single-family homes, closed sales increased in November on a year-over-year basis in every state. Massachusetts experienced its sixth straight month of year-over-year increases in closed sales. Median sales prices were generally stable, showing modest increases in most states. Pending sales were up in every state with the exception of Maine, indicating a strong outlook going into the end of the year. A contact in New Hampshire says that residential real estate is experiencing its best year since the recession. The market for condominiums showed similar positive sales trends; closed and pending sales increased across the board when compared to last year. Median sales prices for condominiums, however, were mixed. Prices increased in three states, but decreased in the other three. November saw Massachusetts' largest year-over-year increase in condo prices of 2015 to date.

Inventory continues to be an issue throughout the First District. Available homes for sale, available months' supply, and average days on market were consistently decreasing on a year-over-year basis for both single-family homes and condos. Both supply side constraints limited construction and healthy demand contribute to this. Contacts cite the improved employment situation as a driver of demand. Many also report that buyers were motivated to purchase in the months leading up to December due to the anticipation of increasing interest rates.

The consensus among industry contacts is that the market is strong and expected to continue to perform well in 2016. A contact in Connecticut cites the mild weather as a contributor to increased activity in the normally slow holiday season. A contact in Boston reports that "sales increases in both markets are encouraging at this time of year which is typically slow." A New Hampshire contact notes that "more of the same is anticipated in 2016, but inventory and affordability challenges coupled with mortgage rate increases will likely keep any sort of monster growth in check." In spite of any potential concerns about increased interest rates, a Massachusetts contact indicates that he feels buyer demand will remain strong in the New Year.

Second District--New YorkEconomic activity in the Second District has remained essentially flat since the last report, while labor markets have continued to be tight. Selling prices remain generally stable, while service-sector firms indicate continued upward pressure on input prices and wages. Consumer spending has been sluggish, with tourism activity particularly weak. Manufacturers report that activity has continued to weaken. Residential real estate conditions continued to improve, while commercial real estate markets were little changed. Multi-family residential construction has held steady at a high level, while commercial construction has picked up somewhat. Finally, banks report weaker loan demand from the household sector, but lower delinquency rates, especially on residential mortgages.Consumer SpendingRetailers report a sluggish holiday season, with spending flat to down moderately from 2014 levels. One major retail chain indicates that December sales in the region came in below plan and below 2014 levels, with particular weakness in New York City attributed to weak tourism spending. Retailers in upstate New York report that sales were roughly unchanged from a year earlier in both November and December. Some of the weakness was attributed to unseasonably mild weather, which held down sales of winter apparel. One contact notes that on-line business has been relatively strong despite the general weakness in sales. Retail inventories were characterized as on the high side, and pricing was more promotional than a year earlier.

New vehicle sales in upstate New York were reported to be strong in November but showed some signs of softening in December. Sales of used vehicles also softened but remain at fairly high levels. Wholesale and retail credit conditions were described as in good shape. Tourism activity, which was fairly sluggish in the prior report, has weakened further. In New York City, revenue at both hotels and Broadway theaters were down noticeably from a year earlier, particularly towards the end of December. Hotel business in the Buffalo and Albany areas appears to have held steady, though occupancy rates have tapered off somewhat due to an increase in the number of hotel rooms. Ski areas in upstate New York have struggled due to unseasonably warm weather. On a more positive note, the Conference Board's December survey shows consumer confidence rebounding sharply in the region.

Construction and Real EstateThe District's housing markets were mixed but, on balance, slightly improved in the final two months of 2015. The home resale market in western New York has shown continued strength, buoyed by strong demand and mild weather, with inventories still on the low side. Realtors across New York State more broadly also report brisk home sales, along with modestly rising prices. In northern New Jersey, prices for existing homes have been essentially flat; the inventory of distressed properties has come down but remains elevated, while the inventory of non-distressed homes remains low. Residential construction in the District has been mixed: single-family activity remains sluggish, with developers reluctant to build inventories, while multi-family construction mostly rentals continues to be brisk. New York City's co-op and condo market picked up somewhat toward the end of 2015, with sales activity described as fairly brisk--particularly for new high-end development. Selling prices for existing apartments rose moderately, while prices for newer luxury units have receded somewhat due to high inventories. Overall, nearly half of all transactions in New York City in the fourth quarter were at or above list price, which was less than in Q3 but still high by historical standards. New York City's rental market has shown signs of leveling off, as vacancy rates and concessions have increased; rents are still running 4 to 6 percent ahead of a year ago in Manhattan, but are up only marginally in Brooklyn and Queens.

Commercial real estate markets across the District were mostly steady. Office availability rates were little changed across most of the District, while asking rents rose modestly. Retail leasing remains slack, with vacancy rates steady at high levels in and around New York City, as well as in upstate New York. Commercial construction activity has picked up somewhat but remains at a subdued level.

Other Business ActivityThe labor market has remained mostly strong in the closing weeks of 2015. Two major New York City employment agencies and one upstate agency report that hiring activity was more brisk than usual in December, which is typically a slow month. One contact notes that qualified candidates for temp jobs have been almost impossible to find, leading to more hiring of permanent workers. Most business contacts report steady to increasing employment at their firms, with the exception of manufacturing, where more contacts say they are reducing than expanding their workforce. In general, service sector firms, as well as employment agencies, expect further strengthening in the labor market in 2016.

Manufacturers report that both selling and input prices are generally stable. Service firms report stable selling prices but rising input prices, as well as some acceleration in wages. In general, contacts report that business activity was sluggish in late 2015, particularly in the manufacturing sector. Contacts have also grown somewhat less optimistic about the near-term outlook.

Financial DevelopmentsSmall to medium-sized banks in the District report weaker demand for consumer loans and residential mortgages, but steady demand for commercial mortgages and C&I loans. Credit standards were unchanged across all loan categories. Banks report some narrowing in spreads of loan rates over cost of funds across all loan categories, with the decrease in spreads most prevalent for commercial mortgages. There was little change seen in the average deposit rate. Finally, bankers report lower delinquency rates across all loan categories, particularly on residential mortgages.

Third District--PhiladelphiaAggregate business activity in the Third District continued to grow at a modest pace during the current Beige Book period. Overall, firms hired additional employees at a similarly slow, cautious pace; however, service-sector contacts, especially from staffing firms, reported stronger hiring rates. On balance, only slight increases were reported in wages and prices, including home prices. Firms tended to report less ambitious growth expectations than in prior periods--generally stating that the current modest trends would continue.Among Third District business sectors, general nonauto retail sales appeared to accelerate a bit from the prior period to a moderate pace of growth through the holiday shopping season. Homebuilders also sustained a moderate growth rate with decent contract signings and atypically strong construction activity this late in the season, although the overall level of activity remains low. Contacts across the broad service sector and the region's lenders continued to report moderate growth of sales and loan volumes, respectively; staffing firms reported somewhat stronger growth. Tourism contacts continued to report modest growth, as did commercial contractors and commercial leasing agents. Auto dealers reported that sales slowed to a slight pace of growth, but volumes remained at very high levels. Brokers continued to report only slight growth of existing home sales. Meanwhile, manufacturing contacts continued to report slight declines overall.

ManufacturingOverall activity continued to decline slightly during the latest Beige Book period. New orders also declined further; however, shipments appeared to rebound a bit. Despite the general declines, firms reported slight overall increases in the number of employees and in the average employee workweek. Although the year end is typically slow for most industrial firms, activity appeared to be weak for most major industrial sectors even after adjusting for seasonal factors. Weak global demand coupled with the strong dollar are generally cited as major contributors to the current declines; some firms also continued to cite weak demand from customers that supply Pennsylvania's energy extraction sector.

Expectations of growth during the next six months have remained positive but have significantly weakened since the last Beige Book report, as have firms' plans for future capital expenditures and future employment. Substantial layoffs were recently announced for Delaware's pharmaceutical industry in advance of a proposed merger of two large firms and its subsequent spin-off into three smaller entities.

RetailNonauto retail sales improved to an average pace of growth in the current Beige Book period. Area malls reported moderate sales growth overall with the strongest activity on "Super Saturday" December 19 ; some malls noted that traffic over the Super Saturday weekend rivaled Black Friday and its weekend. An outlets operator reported even stronger preliminary sales growth over the period including Thanksgiving and Christmas and noted that traffic was greater still on the weekend after Christmas. Convenience stores operators reported a "great December" with the best year-over-year growth in traffic for any month since 2011. Contacts generally cited an improving economy but also acknowledged unseasonably warm weather for increasing traffic; convenience stores also noted that traffic from construction crews is "gangbusters." Overall, contacts expect steady growth to continue in 2016.

On average, auto dealers reported slight growth in auto sales, which continued at very high levels--the sales pace appeared to have picked up somewhat in Pennsylvania but may have edged back in New Jersey compared with the prior Beige Book period. Generally, auto dealers continued to express optimism that sales volumes would remain high in 2016, although continued growth may be modest at best.

FinanceThird District financial firms have continued to report moderate overall increases in total loan volumes since the previous Beige Book. Auto loans exhibited the greatest percentage gains during the period, while commercial and industrial C&I deals and commercial real estate activity continued to generate strong loan growth. Auto loans and C&I loans have been the strongest categories over the year as well. Abstracting from normal seasonal surges, credit card volumes rose modestly. Mortgages, home equity loans, and other consumer loans have been flat to down over the period as well as over the year. Banking contacts continued to note a competitive lending environment, a greater demand for new mortgages than for refinances, and improving credit quality. Most continued to report few signs of inflation. Contacts remained optimistic for continued slow, steady growth in 2016.

Real Estate and ConstructionHomebuilders have appeared to sustain a moderate growth rate since the last Beige Book. A nationwide firm reported strong increases in contract signings for its markets covering Third District states. Reports from smaller builders were mixed. Two Pennsylvania builders reported that contract signings were relatively busy over the period; a New Jersey builder noted that contract signings fizzled toward the end, as more than usual signings fell through after securing deposits. Moreover, most builders reported that large backlogs and unseasonably warm weather had kept construction crews more active than usual. Builders did note that the time required to deliver a new house has lengthened, as labor shortages continued to hamper their ability to secure subcontracting services on a timely basis.

Most brokers in the major Third District housing markets continued to report small year-over-year increases; however, the Lehigh Valley market showed a slight decline. Overall, house prices continued to rise slightly. A major Philadelphia-area broker has cited stagnant inventory levels since 2012 that many agents suggest have created a competitive seller's market. Agents also noted a significant shift in locational preferences from rural areas to Philadelphia's Center City.

Nonresidential real estate contacts continued to report modest growth in construction and leasing activity. Contacts representing architects, engineers, and developers continued to report the strongest activity in Center City Philadelphia and other smaller urban cores. Contacts attributed some of the increasing demand to employers choosing to relocate jobs to the urban cores to attract younger workers. One contact noted that pent-up demand for prime Center City office space has pushed rents up to levels not seen since 2007. One contact noted that multifamily residential construction is heating up in some suburban areas, as well as in downtowns--often as part of mixed-use properties. Contacts remained optimistic for continued growth of both new construction and leasing activity through 2016.

ServicesThird District service-sector firms continued to report a moderate pace of growth during the current period. On balance, firms reported modest additions of full-time payroll employees plus increases in hours worked. Staffing firms throughout the Third District reported steady, strong growth for temporary positions and permanent placements across a broad range of manufacturing and service sectors. In contrast to a more typical seasonal lull, one firm noted receiving new orders right through the holidays for a second consecutive year. Tourism activity continued to grow at a modest pace, although the unseasonably warm weather encouraged tourists to favor the shore over the mountains. Ski resorts struggled through the Christmas week with little or no snow--relying on other activities to keep visitors busy. Demand for last-minute reservations was soft. Atlantic City casino revenues were essentially flat in November compared with the prior year, despite being aided by better weather this year and an extra weekend day. Overall, expectations for continuing future growth in services remained widespread, with nearly two-thirds of all service-sector contacts expecting some growth.

Prices and WagesOn balance, general price levels have continued to rise slightly since the previous Beige Book period. Over half of all contacts reported no significant change in the prices they pay for inputs and the prices received for their goods and services. Of firms that indicated a change, most nonmanufacturing contacts reported increases in prices paid and prices received. Firms from the smaller manufacturing sector tended to report decreases in prices paid and in prices received. Overall, contacts continued to report only slight upward wage pressures, although many contacts continued to report difficulties filling various technical positions. Manufacturing firms expected essentially no change in the cost of their nonlabor production inputs for 2016; however, they expected their direct wage costs to increase in excess of 2 percent, with benefit increases higher still.

Fourth District--ClevelandAggregate business activity in the Fourth District grew at a modest pace since our last report. Manufacturing output increased on balance, albeit at a slow rate. The housing market improved, with higher unit sales and higher prices. Nonresidential building contractors reported continued strong activity. Retailers and auto dealerships saw higher revenues on a year-over-year basis. The demand for credit was stable. Oil and gas exploration remains depressed, while investment in pipeline and midstream projects moved forward. Freight volume trended lower.Payrolls were little changed during the past six weeks; seasonal factors weighed down hiring activity. Nonetheless, reports indicated an ongoing tightening in labor markets. Wage pressures were reported in the construction, retail, and banking sectors. Staffing firms reported little change in the number of job openings, though there was a bias toward temporary openings. Job placements declined. Overall, input and finished-goods prices were steady other than for commodities, where prices declined further.

ManufacturingDemand for manufactured products showed a modest rise on balance over the period. Activity for suppliers to the motor vehicle, construction, and aerospace industries remains elevated, but the pace of growth has slowed. Several reports indicated a pickup in production of domestically sold non-durable consumer products. Key factors tempering output include a strong dollar and softness in the energy sector and in some emerging market economies. Exporters told us that low energy prices help in maintaining margins, but they do not completely offset the impact of the strong dollar. Year-to-date auto production at District assembly plants through November increased 1 percent compared to the prior year's level. The steel and primary materials supplier industries remain depressed. Producers continue to struggle against an array of headwinds, including a strong dollar, overcapacity, low demand from the domestic energy sector, and a high level of imports, particularly from China. The aerospace industry may be the only bright spot for primary-materials suppliers. Capacity utilization rates continue to contract, particularly in the steel industry. The outlook by our contacts was mixed. Manufacturers who sell to industrial customers expect flat or sluggish growth, though some anticipate slightly higher revenues from European customers. Otherwise, our contacts expect that business activity will expand during 2016.

Capital spending was allocated primarily for new equipment, with lesser amounts for maintenance projects. Raw material prices were stable, except for primary metals such as copper and steel, for which prices declined. Steel prices have reportedly fallen 40 percent year-over-year. We heard two reports about steel mills that have recently announced price increases in an effort to counteract low price levels that they believe are unsustainable. Finished-goods prices were steady. Selected downward adjustments were made to reflect lower steel prices and to compete with foreign imports spawned by the strong dollar. Manufacturing payrolls contracted over the period, mainly in production jobs. Reports indicated that some laid-off workers were classified as temporary or were part of a normal seasonal downsizing. Wage pressures were contained.

Real Estate and ConstructionYear-to-date sales through November of new and existing single-family homes rose 8.5 percent compared to those of the same time period in 2014. The average sales price increased by more than 4 percent. New-home contracts remain concentrated in the move-up price point categories. Condo sales are reportedly increasing. The market for spec homes exists, but is limited by supply-side factors, including difficulty obtaining construction financing and labor constraints. The 2016 outlook of homebuilders was less optimistic than during the past few months. Unit sales are expected to be on par or slightly lower when compared to those during 2015. Our contacts believe that rising interest rates will provide a short-term boost for new-home sales but will impair affordability in the medium- to long-run, especially for buyers in the lower price point categories.

Nonresidential contractors reported continued strong activity, primarily in the commercial segment. The unusually mild winter weather is contributing to stronger than normal revenue flow. Inquiries increased sharply over the period, while backlogs showed a mild expansion. General contractors are optimistic about prospects going into 2016, and they expect stronger revenues on a year-over-year basis, with an improving industrial segment. However, several contractors cited downside risks that they believe the industry will confront in the new year such as the impact of the presidential election, economic problems outside the US, and capacity issues within the construction sector.

Construction payrolls were stable on net over the period. New hires were mainly for project management and business development jobs. Subcontractors remain very busy. They are being challenged by a labor shortage and as a result are selective when bidding. Subcontractors are pushing through rate increases that they attribute to capacity constraints and a need to raise margins. The construction sector remains challenged by a labor shortage across job categories, resulting in upward pressure on wages. Little movement was seen in building materials prices.

Consumer SpendingMid-way through the holiday shopping season, consumer spending at retail outlets increased on balance when compared to that of the same time period a year ago. Black Friday and Cyber Monday sales were especially encouraging. Product segments selling particularly well included activewear, outdoor recreational equipment, and home furnishings. Contacts experiencing lower revenues attributed the decline to the unusually warm winter weather. Retailers are becoming more optimistic in their outlook, which is being driven in part by enhanced sales opportunities afforded them by e-commerce. First quarter revenues are expected to be slightly above those of a year ago. Vendor and shelf prices were fairly stable, though selected chains ran more promotions than normal. Some reductions in 2016 capital spending plans were announced. Current spending is primarily allocated for brick-and-mortar projects. Hiring is limited to new store openings. Retailers are facing stiff labor competition. Higher turnover combined with a smaller pool of qualified workers is driving up wages.

Year-to-date sales of new motor vehicles through November rose 2.5 percent compared to those of a year ago. Light truck and SUV sales continue to dominate the market, accounting for over 60 percent of new-vehicle transactions year to date . Dealers cited low fuel prices and strong lease programs as factors contributing to their popularity. New-vehicle sales in 2016 are expected to remain elevated, though some dealers expressed concern about the impact of rising interest rates. Year-to-date pre-owned-vehicle sales are moderately higher compared to those of last year. Dealer payrolls held steady over the period, but the market for sales and service personnel is tight, putting upward pressure on wages.

BankingDemand for business credit was stable since our last report, but several bankers reported softening conditions during the past few months. They cited as contributing factors less appetite for risk because of recent geopolitical events, a slowdown in the energy sector, and non-bank competitors becoming more aggressive. However, pipeline activity is showing signs of strengthening because of the threat of higher interest rates. CRE lending remains relatively strong. Consumer credit was steady across product lines, though the downward trend in auto lending continued as consumers increasingly turn to non-bank competitors for credit. A slight pickup in residential mortgage applications was noted, a circumstance that bankers attributed to the potential rise in interest rates. Little change was reported in interest rates, delinquencies, and loan-application standards. Core deposit balances remain very strong. Banking payrolls moved modestly higher. Bankers reported a tightening labor market within their industry, one which is contributing to wage pressure, particularly in entry-level jobs.

EnergyThe number of drilling rigs operating in the Marcellus and Utica Shales trended lower over the period and is currently almost 60 percent below its peak level recorded in the fourth quarter 2014. Nonetheless, regional natural gas output remains at historic highs. Upstream oil and gas companies are struggling to adapt to low energy prices and are increasingly facing mounting financial difficulties. In order to free up cash for debt service, oil and gas drillers are cutting payrolls and dividends. Reduced demand owing to unusually warm weather has boosted inventories and put further downward pressure on wellhead prices. Reports indicate that investment continues in pipeline and mid-stream projects and that the refining oil segment is doing well. Not much change is expected across the sector during 2016.

Freight TransportationReports indicated that on net freight volume contracted further over the period. This situation was attributed primarily to weakness in the energy sector, steel, and export environment. Some carriers saw a boost in volume related to seasonal products and building materials and hardware. Our contacts are fairly pessimistic and see little growth in volume along seasonal trends during 2016. One contact noted he is hopeful the current inventory glut will be reduced, a situation which would provide a needed lift to the freight industry. On balance, shipping rates increased modestly even though volume is lower. Rate adjustments are needed to cover rising costs for labor, new equipment, and regulatory compliance. Two of our contacts reported they have pulled back on capital spending, while others indicated that if current market conditions persist, they anticipate adjusting their capital budgets downward. Spending is mainly for replacing older equipment and, to a lesser extent, for maintenance projects. Hiring was flat on balance during the past few months because of the slowdown in demand.

Fifth District--RichmondEconomic conditions strengthened modestly since the previous Beige Book report. Manufacturing expanded, with a mild increase in shipments and new orders. Revenues grew modestly faster at services firms, while retail sales softened ahead of the holidays. Sales of light vehicles remained robust in recent weeks. Tourism slowed seasonally overall. Residential and commercial loan demand was stable on balance. Commercial real estate activity increased moderately while residential real estate activity slowed seasonally. Agribusiness remained soft since the previous report. In energy markets, natural gas production increased and coal extraction continued to decrease. Labor demand strengthened moderately. Wages increased moderately in manufacturing and rose at a modest pace in the service sector. Prices of inputs and finished manufactured goods rose at a slightly faster pace in recent weeks. Retail prices rose more rapidly, while price increases slowed at other services firms.ManufacturingManufacturing grew modestly since the previous report. Overall, producers reported a mild increase in shipments and the volume of new orders. Two North Carolina furniture manufacturers reported strong sales. Food producers and manufacturers of beverage and tobacco products also reported an increase in shipments compared to last year at this time. An automotive manufacturer in South Carolina reported strong demand for new orders in recent weeks and expected increased sales in the next six months. Additionally, an engine and transmission manufacturer in Charleston, West Virginia reported increased demand. A few Charleston, West Virginia plastics manufacturers reported steady business, and chemical production was unchanged. A couple of West Virginia metal manufacturers reported mixed conditions. In the Baltimore region, most large manufacturers reported stable new orders. In contrast, a manufacturer of industrial equipment located in South Carolina saw a slight decline in agricultural equipment orders. In addition, a paper manufacturer and a producer of heating and cooling parts reported a slowdown in business in recent weeks, and an electrical controls manufacturer reduced production because of the company's exposure to declining gas exploration. According to our most recent survey, prices of raw materials rose at a modest pace, and prices of finished goods rose at a slightly faster pace.

PortsDistrict port officials noted that vehicle imports remained strong since our last report. While containerized imports continued to grow, the peak season was short and muted, with volumes only slightly above a year ago. With the exception of a slight increase in containerized exports and auto exports at one port, overall District exports softened, which contacts attributed to a strong dollar. In addition, the extreme mid-autumn rain and flooding in South Carolina reduced the volume of some exported agricultural commodities such as logs and soybeans from that region. Officials noted that global freight rates continued to drop dramatically during recent weeks, but that upcoming consolidations among shipping lines are likely to adjust capacity.

RetailDistrict retailers reported that sales softened in recent weeks, particularly for apparel. Black Friday sales results were mixed, and small specialty shops continued to note lower sales due to competition from larger, online retailers. Even large department stores reported declines as a result of increased online shopping and unseasonably warm weather. Sales of light vehicles remained strong, according to most sources. A large dealership in the Carolinas reported that sales were very strong, and continued low fuel prices helped boost sales of SUV's and light trucks. Despite a few reports of early holiday discounting, retail price increases accelerated in recent weeks according to most retailers.

ServicesRevenues grew modestly faster at services firms since our previous report. Healthcare organizations reported flat to stronger demand for services relative to the previous report. A healthcare executive added that consumers often schedule elective procedures ahead of the holidays so that deductibles are taken in the current year. In contrast, at another healthcare organization, admissions have decreased, particularly with cases involving requirements around patients needing observation. An executive at a national trucking firm reported that demand remained steady at moderate levels across the industry. He noted that businesses seemed to be working down their inventories and that seasonal softening in demand was expected for the weeks ahead. Prices at services firms rose at a slower pace in recent weeks.

Tourism slowed to typical seasonal levels. High-end restaurant sales were reported to have increased, however. A Richmond restaurant reported a seasonal increase in booked parties and events, and also noted that food prices had risen, especially for produce. On the outer banks of North Carolina, holiday visitors took advantage of seasonally lower room prices. Inland hotels in North Carolina and South Carolina reported increased bookings and higher room rates. Unseasonably warm temperatures delayed snow skiing, with some related hotel cancellations. However, time-share bookings at ski resorts were strong, which an executive attributed in part to the availability of numerous other tourist activities.

FinanceLoan demand was stable on balance since our previous Beige Book report. Contacts mostly indicated that residential mortgage demand was steady; however, some softening was noted in central Virginia and parts of West Virginia. In contrast, residential refinance lending picked up slightly. A banker in Virginia attributed a recent increase in inquiries due to expectations of higher interest rates. Commercial lending demand was generally unchanged. A South Carolina banker reported steady loan demand due to strong commercial expansion and acquisition activity. Conversely, commercial and industrial loan demand declined in West Virginia, particularly in the southern coalfield region of the state. Underwriting standards were generally unchanged except in central Virginia, where standards were relaxed slightly. According to bankers in Maryland and South Carolina, credit quality improved while bankers in Virginia and West Virginia reported no change. Competition among banks remained high with one banker noting that a large portion of his commercial activity was taking existing borrowers away from other lenders.

Real EstateResidential real estate activity slowed seasonally in recent weeks, while average sale prices increased slightly. Average days on the market were unchanged and low levels of inventories persisted. Most contacts reported steady residential sales with some pockets of strength. For example, a Realtor in Charlotte noted little change in existing home sales, but an increase in new home sales since the previous report. Additionally, another Charlotte residential real estate contact said sales increased in the 300,000 to 400,000 range. A Chesapeake, Virginia contact stated that home sales remained steady and that prices rose to pre-recession levels. In contrast, a Charleston, West Virginia broker reported a sluggish residential real estate market and a Maryland source reported a slower high-end market. Single-family home construction was generally modest with limited speculative building, although a contact reported that larger builders were securing lots in the Chesapeake, Virginia market in competition with the smaller regional builders. A Charleston, South Carolina builder reported strong new home sales and increased home closings since the previous report. Multifamily leasing and construction generally remained strong across the District.

Commercial real estate activity increased moderately District-wide, and construction reportedly grew modestly in Charleston, South Carolina, Washington, D.C., Charlotte, and the Virginia Beach area. Rental rates rose slightly, while vacancy rates varied by submarket and region. A broker in Charleston, South Carolina reported a strong commercial real estate market, with speculative industrial building and higher rental rates in the office market due to limited supply. Brokers in Washington, D.C., Baltimore, and Richmond continued to report steady to strong leasing activity, with faster growth in sales since the previous report. A Washington, D.C. real estate contact stated that office vacancies were high in the suburbs, and the new office construction pipeline was slow. He also said that most leasing activity remained in the 10,000 square feet range, continuing the trend toward smaller office space.

Agriculture and Natural ResourcesAgribusiness remained soft since the previous report. Farmers in Virginia, North Carolina, and South Carolina continued to report delayed harvesting from the wet weather this fall, and more South Carolina contacts reported poor crop quality as a result of flooding. Some South Carolina farmers reported ruined cotton crops. Moreover, continued rain following the floods in South Carolina left other establishments unable to harvest lumber or soybeans for animal feed. A South Carolina sod farmer said he had only one week of good harvest days during the past month. In contrast, a Maryland contact reported that farming was stable across the state, with continued strength in the poultry sector. Prices received for cotton decreased and farm input prices were unchanged since the previous report.

Natural gas production increased in recent weeks, although contacts continued to report oversupply. Coal extraction continued to decrease; a contact said "The bottom has dropped out of the coal market." Natural gas prices declined, and coal prices were unchanged.

LaborThe demand for labor in the Fifth District continued to strengthen moderately since our previous report. Demand generally rose for customer service professionals, warehouse and distribution center workers and temporary employees. Sources reported difficulty finding nurses, mechanics, accountants, IT workers, administrative professionals, engineers, hospitality workers, truck drivers and skilled tradespeople. Temp-to-hire placements increased in South Carolina, according to one staffing firm, and the time to convert to full time shortened further. According to our most recent surveys, employment increased robustly for services firms, moderately for manufacturing firms, and rose slightly for retail establishments. Wages increased moderately in manufacturing and rose at a modest pace in the service sector overall, despite a slight slowdown in retail wage growth.

Sixth District--AtlantaReports from Sixth District business contacts remained largely positive with most noting that economic conditions were improving at a moderate pace over the reporting period. Contacts are optimistic about the near-term outlook with nearly all expecting growth to be either the same or higher, unchanged from the previous reporting period.Retail sales were in line with expectations and auto sales were strong. Reports from the hospitality sector remained positive with robust attendance and occupancy numbers across the District. Residential real estate brokers and builders noted mixed sales activity for both existing and new homes. Home prices rose modestly and inventory levels were relatively flat. Commercial real estate contacts reported increased activity in nonresidential construction, and apartment construction remained robust. Manufacturers indicated that new orders and production decreased since the previous report. Bankers reported an increase in residential lending and mortgage refinancing. The District continued to experience a tightening labor market. On balance, input cost and wage pressures remained subdued.

Consumer Spending and TourismDistrict retail contacts noted that sales activity since the last report met expectations. Retailers anticipated that the additional shopping day between Thanksgiving and Christmas would have a positive impact on overall holiday sales. Automobile dealers noted that incentives such as cash bonuses and low APRs boosted overall vehicle sales on Black Friday. SUV sales continued to be strong in late November through early December, which auto dealers attributed to sustained lower gas prices.

On balance, tourism contacts reported record attendance and occupancy numbers at conferences and hotels since the last report. Although solid advance bookings were reported in the conference segment for the first two quarters of 2016, concerns were cited about the strong dollar softening demand from international visitors.

Real Estate and ConstructionFeedback from District real estate contacts was slightly less optimistic since the last report, although several attributed the softening conditions to seasonal factors.

Many builders continued to indicate that construction activity was up from the year-ago level. In addition, most reported that home sales were flat to slightly up relative to one year earlier. Meanwh

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