Fed Beige Book: CRE Saw Modest to Moderate Growth

Overall Economic Activity
Economic activity expanded across the United States, with the majority of Federal Reserve Districts reporting modest to moderate growth. New York and St. Louis indicated slight growth, overall, while Dallas reported robust growth driven by strong manufacturing, retail, and nonfinancial services activity. On balance, manufacturers reported moderate output growth; however, several Districts indicated that firms faced rising materials and shipping costs, uncertainties over the trade environment, and/or difficulties finding qualified workers. Demand for transportation services remained strong. Labor shortages were broadly noted and were linked to wage increases and/or constrained growth. Reports on commercial and residential real estate were mixed, although several Districts saw rising home prices and low levels of inventory. Overall, consumer spending increased at a modest pace while consumer price growth ranged from modest to moderate. Travel and tourism generally picked up with a notable exception of North and South Carolina, where Hurricane Florence deterred tourism. Agricultural conditions were mixed as rainy weather helped some farmers but caused delays and crop damages for others, including the loss of crops and livestock due to Hurricane Florence.

Federal Reserve Bank of Kansas City

Summary of Economic Activity
Economic activity in the Tenth District increased at a moderate pace in September and early October. Consumer spending rose moderately, with contacts in the retail, auto, and tourism sectors noting higher sales than the previous survey period. Manufacturing activity continued to grow moderately, while contacts in the wholesale trade, transportation, and professional and high-tech sectors reported strong sales. Residential real estate sales continued to decline moderately, and expectations were for additional declines due in part to seasonal factors and higher interest rates. Commercial real estate activity expanded modestlyEnergy activity accelerated, especially for oil, and additional gains were anticipated. Despite higher livestock prices, the outlook for District farm income remained subdued due to low crop prices. District employment was mixed across industries, and the majority of respondents reported labor shortages for both entry-level and skilled positions. Wage growth accelerated, and strong wage growth was anticipated in the coming months. Price gains also picked up, although growth in input prices generally outpaced that of selling prices.

Real Estate and Construction
Overall District real estate activity remained mixed as residential real estate activity declined modestly while commercial real estate activity rose modestly. Residential home sales continued to fall moderately, and selling prices and inventories of unsold homes grew modestly. Respondents expected additional decreases in residential sales moving forward, citing seasonal factors and rising interest rates. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Residential construction activity strengthened slightly since the previous survey period, and construction supply contacts expected sales to expand further in the months ahead. Activity in the commercial real estate sector continued to increase at a modest pace as sales, absorption, completions, and prices rose. However, a majority of respondents reported higher commercial vacancy rates for the first time since the end of 2016.

Banking
Bankers reported a modest increase in overall loan demand in September and early October. Respondents reported a modest increase for commercial and industrial loans and a slight increase for commercial real estate and agricultural loans. Bankers indicated a slight decrease for consumer installment loans, while the volume of residential real estate loans remained steady. Loan quality improved modestly compared to a year ago, and respondents expected loan quality to improve slightly over the next six months. Credit standards remained largely unchanged in all major loan categories. Overall, bankers reported a slight increase in deposit levels.