FED: We're generally pleased with the economy (SPY, SPX, DJI, IXIC, TLT, TLO, USD, DXY)

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The Federal Reserve is generally positive about the US economy and says it continues to trudge along, according to its latest Beige Book released on Wednesday. 

This collection of economic anecdotes from the Fed's 12 districts was compiled on or before July 1. 

It highlighted further tightness in the labor market, with "the strongest pressures linked to skilled workers and difficult-to-fill positions."

The Fed's contacts reported "slight" price pressures, or inflation, with most districts reporting flat selling prices and higher input costs. 

The housing market continued to improve, and many districts were upbeat about future conditions, although most of them continued to report tight inventories. 

There were mixed opinions on the United Kingdom's vote to leave the European Union, although no one the Fed spoke to expected it to be entirely bullish for their businesses. One contact in Boston was comfortable with direct exposure to Brexit, while another thought it would harm the US economy.  

These are not hard data, but they usually provide some insights into what's happening on a micro level across the country that the big economic releases usually gloss over. Details like these are sometimes called 'anecdata.'

The Fed did not raise rates at its June meeting, to virtually nobody's surprise. But the number of Fed officials who expected only one rate hike this year rose from one to six. 

The weak jobs report in May made the Fed concerned about the labor market, although chair Janet Yellen said the committee did not want to attach too much importance to one month's data. 

Here's the Beige Book's full text:

Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand at a modest pace across most regions from mid-May through the end of June. Business contacts in Cleveland reported a steady level of activity, while Minneapolis reported that activity increased at a moderate pace. Labor market conditions remained stable as employment continued to grow modestly since the previous report and wage pressures remained modest to moderate. Price pressures remained slight. Consumer spending was generally positive but with some signs of softening. Manufacturing activity was mixed but generally improved across Districts. Real estate activity continued to strengthen, and banks reported overall increases in loan demand. Agricultural activity was mixed but generally improving. The natural resources and energy sector has remained weak. The outlook was generally positive across broad segments of the economy including retail sales, manufacturing, and real estate. Districts reporting on overall growth expect it to remain modest.
Employment, Wages, and Prices
Employment continued to grow modestly since the previous report. Reports of growth ranged from little change in Cleveland to moderate growth in New York. Firms in the Dallas District reported varying degrees of changes in employment across sectors while contacts in Boston and Atlanta reported cautious hiring activities. Contacts in several Districts reported strong demand for skilled labor, with challenges filling positions in fields such as IT, biotechnology, and healthcare services. Manufacturing employment was largely unchanged in Boston, New York, Cleveland, and Richmond and lower in Philadelphia and Dallas. Retail employment was weak relative to other sectors, with contacts in Boston, Cleveland, and Dallas reporting little to no change in retail employment and the San Francisco District reporting employment reductions in the retail grocery sector.

Wage pressures remained modest to moderate in most Districts, with the strongest pressures linked to skilled workers and difficult-to-fill positions. Contacts in Cleveland, Chicago, and San Francisco reported increased wages for entry-level employees. Wage pressures picked up in Richmond and San Francisco, with a staffing contact in Richmond noting that firms that have not increased their wages have been left with the least-skilled employees. Wage pressures in the construction industry were highlighted in the Philadelphia, Cleveland, and San Francisco Districts.

Price pressures remain slight, with contacts generally reporting no movement in selling prices and increases in input prices and housing prices. Contacts in New York, Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis reported little to no changes in selling prices. Upward pressure on input prices was reported in most Districts except San Francisco which reported a decrease. Livestock prices were mixed in most reporting Districts. Crop prices generally increased, although Cleveland, Richmond, and Chicago noted the more recent decline in crop prices.

Consumer Spending and Tourism
Overall consumer spending was positive but with signs of softening. However, the outlook for consumer spending activity in the months ahead was predominantly optimistic across most reporting Districts. General retail sales activity was mixed, with slight to modest declines reported in Philadelphia, Cleveland, and Richmond, mixed sales activity reported in Atlanta and Chicago, and modest to moderate growth reported in St. Louis, Minneapolis, Kansas City, and San Francisco. Among general retailers, the outlook was mainly optimistic in Boston, Philadelphia, and Kansas City, while contacts in Atlanta and St. Louis expect sales to be flat or slightly higher in the months ahead. Most Districts noted that automobile sales slowed during the reporting period, but remained at fairly high levels. Contacts in Cleveland, Kansas City, and Dallas expressed an optimistic outlook for future automobile sales. Travel and tourism activity exhibited modest to moderate growth across most Districts. New York, however, described its tourism activity as generally sluggish, and hospitality contacts in San Francisco reported lower occupancy rates. In contrast, strong growth in tourism activity was reported in Richmond, Chicago, and Kansas City.

Manufacturing and Other Business Activity
Manufacturing activity was mixed since the previous report. The reporting Districts noted that the outlook remained positive but deteriorated. Activity declined in Richmond and Dallas, remained unchanged in Cleveland and San Francisco, and increased in Boston and Atlanta, but at a slower pace than previously reported. Activity continued to increase at a modest pace in Chicago and Minneapolis. Several Districts reported a rebound following a decline in the previous reporting period, including New York, Philadelphia, St. Louis, and Kansas City. Several Districts reported strength in aircraft and automobile manufacturing, although contacts in Cleveland noted that year-to-date production of automobiles is lower than at this time last year. Conditions in the primary metals industry were mixed: Contacts in Philadelphia and Dallas reported declines in new orders and weaker activity, while contacts in Cleveland and Chicago reported an increase in demand for steel. In Boston, Chicago, and Minneapolis, manufacturers with ties to the energy sector reported weakness.

Growth in the nonfinancial services sector was described as slight to modest by reporting Districts. Increases in activity in the professional business services sector were reported by Minneapolis, Kansas City, and Dallas, and increases in activity in the health care sector were reported by Richmond, St. Louis, and Dallas. Reports from the technology sector were mixed, with contacts in San Francisco reporting slower sales, contacts in Kansas City reporting modest increases in activity, and contacts in Boston reporting robust growth. Conditions in the transportation sector were mixed. Overall freight volume was down in Cleveland, and reports from Chicago indicate a decline in demand for transportation services. Contacts in Atlanta and Dallas noted a decrease in rail cargo volume. In contrast, container volume increased at ports in the Richmond and Atlanta Districts. Contacts in Cleveland, Atlanta, and St. Louis cited the slowdown in the energy sector as a contributor to low cargo volume.

Real Estate and Construction
Residential real estate activity continued to strengthen since the previous period. Single-family home sales increased at a moderate pace overall, with Boston, Cleveland, and St. Louis reporting strong growth. Many Districts indicated that inventories continue to be low. Despite this persistent inventory issue, Boston, Atlanta, Kansas City, and Dallas all report that contacts have a positive outlook for the market in the next few months. Districts generally reported that house prices increased. Residential construction activity was mostly positive across Districts. Cleveland and Kansas City indicated strong growth in housing starts. Conversely, New York reported that single-family construction tapered off through most of the District, and Chicago reported little change in residential construction activity. Philadelphia, Richmond, St. Louis, and San Francisco noted a lack of available lots to build on.

Commercial sales and leasing activity remained stable or improved in almost all Districts. Absorption rate and rent increases were documented in Atlanta and Kansas City. Improving industrial real estate markets were noted in New York, Richmond, and Dallas. Several contacts in Richmond also reported robust retail leasing activity. Office market conditions were mixed among reporting Districts. Commercial construction activity grew modestly from the previous reporting period. Construction activity picked up in New York, and Cleveland continued to report project pipelines are strong. Reports on multifamily construction were mixed in Richmond, Atlanta, and Dallas. New York noted that multifamily construction has tapered off through most of the District.

Banking and Finance
Overall loan demand increased, although reports on the pace of growth varied from steady but slow in Cleveland to strong in St. Louis. Reports from Chicago were mixed while loan growth softened in Dallas. Residential lending increased variedly in all reporting Districts, from anemic expansion in Dallas to strong growth in St. Louis. Loan demand for commercial and industrial loans was mixed across reporting Districts, ranging from declining growth in Dallas to strong growth in St. Louis. Demand increased for commercial real estate loans in New York, Philadelphia, Richmond, and Kansas City and plateaued in Dallas. Consumer lending was unchanged or improved in all reporting Districts, except for declines in auto lending in Cleveland and revolving credit in San Francisco. Asset quality improved across reporting Districts, except in Chicago and Kansas City where it was mostly unchanged. Lending standards were unchanged in New York, Cleveland, and Kansas City. Dallas reported relaxed standards for all sectors except energy.

Agriculture and Natural Resources
Agricultural activity was mixed but improving on average. Most reporting Districts noted higher prices for their respective major crops at the time farmers were able to lock-in for the fall harvest, while Cleveland, Richmond, and Chicago reported that some crop prices have declined recently. Planting for key crops compared favorably with historical progress in reporting Districts. Most reporting Districts noted that growing conditions are currently good, but Richmond reported flood damage in West Virginia and Atlanta reported varying degrees of drought. Farm income is expected to improve from very low levels in Chicago, St. Louis, Minneapolis, Kansas City, and Dallas. Livestock prices were mixed in the reporting Districts.

Energy firm downsizing or weak growth was reported by contacts in Cleveland, Atlanta, Kansas City, and Dallas; however, the outlook for oil and gas is improving in Kansas City and Dallas. Dallas and Atlanta noted that credit availability is a major downside risk for the outlook. The number of operating drilling rigs declined in Kansas City, was unchanged in Cleveland, and increased in Minneapolis and Dallas; natural gas extraction growth was flat in Richmond. A continued, severe decline in coal production was reported in St. Louis, while Richmond reported no change in production.

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First District--Boston
First District reports reflect modest gains in economic activity on balance. Same-store growth in retail sales is nil to modest, and expectations are positive but muted for sales growth moving forward. Reports from manufacturers are mostly positive, but an unusually high number of manufacturing contacts could not be reached. Also based on a small number of contacts, software and IT services firms report robust growth in sales from a year earlier. Hiring activity is cautious in both retail and manufacturing. Hiring is potentially stronger in software services, but that conclusion is based on a single contact's report. Tight labor markets are seen for at least some positions in each of retail, manufacturing, and software/IT services, and a severe labor shortage is said to restrain hiring and expansion in Massachusetts' restaurant industry. Commercial real estate activity is flat or improving across most of the District, but a modest slowdown in office leasing is reported for greater Boston. Single-family home sales increased in all states in the District amid robust buyer demand but low inventory continues to weigh on the residential market. The outlook is generally positive for at least modest growth moving forward. While a number of contacts cited the UK's "Brexit" vote to exit the European Union as a downside risk to aggregate economic growth, those with direct exposure do not expect severe negative impacts on their own firms' outcomes.
Retail
Among retail contacts, year-over-year sales are either flat or up 1 to 2 percent over one year ago, although one contact reports an increase in the high teens that reflects the impact of new acquisitions. Firms are hiring only to replace departing employees, and some report increased difficulty in making such hires. Contacts expect only modest gains in sales moving forward, consistent with their modest expectations for overall U.S. economic growth.

A contact in the restaurant industry predicts that sales in the second quarter of 2016 will be up 1 to 2 percent over a year earlier and expresses hope that growth will improve during the summer tourist and vacation season. However, the contact reports that the restaurant industry in Massachusetts is facing the worst labor shortage he has seen in 35 years of experience. While restaurant owners in the state are finding creative ways to deal with the problem, such as sharing employees across multiple establishments, what he terms the labor "crisis" is starting to negatively affect owners' expansion plans.

Manufacturing
Fewer contacts than normal were reached this cycle. Some were on vacation and others were reportedly busy in the wake of the Brexit vote; the resulting sample is skewed towards the semiconductor industry. Reports overall are positive. Semiconductor contacts report that business picked up in the first half of 2016 after a weak second half of 2015. A manufacturer of frozen fish reports weak retail sales in the second quarter, attributed partly to unseasonably warm weather which led people to eat out more. A manufacturer of materials for engine filters says that demand from mining and construction firms is weak and in the case of mining the weakness reflects continued low commodity prices.

Nothing unusual is reported concerning pricing. Any pricing pressures are skewed to the downside, related in one instance to demands for lower prices by large and powerful customers.

No major shifts in inventories are reported. A contact with customers in the mining industry reports that those customers are trying to figure out the "new normal" level of sales and to adjust inventories accordingly. A contact in the semiconductor industry notes that thanks to a more efficient supply chain inventory mismatches are much less of a problem than in the past.

Contacts are cautious about hiring. A semiconductor manufacturer restructured in the first half of 2016 and reduced its headcount by 100 workers. The frozen fish manufacturer reduced its workweek to deal with slower sales. Three contacts report having difficulties hiring engineers and machinists. Capital expenditure plans are unchanged. However, a contact that sells to automotive and aerospace firms says that although capital spending was below plan for the first half of 2016, full-year spending is expected to remain on plan. The outlook is positive among all contacts. One semiconductor manufacturer is very confident about the third quarter but his outlook is uncertain beyond that period.

Software and IT Services
A contact that sells software solutions for health care providers experienced over-the-year growth in revenues in the high single-digits and growth in operating profits in the low double-digits. The same firm's prices are unchanged but its labor costs fell as the pace of retirements doubled between the first and second quarter of 2016. The firm is hiring across the board, but is setting very high quality standards when hiring new software developers.

A manufacturing IT contact reports over-the-year growth in bookings in the low teens. Investments and hiring at that firm are focused on "internet of things" projects, which are seeing stronger demand growth than traditional industrial projects. The firm's net hiring budget is flat, and competition for labor to fill financial positions is described as robust.

Both contacts cite the Brexit vote as a potentially destabilizing factor but appear mostly comfortable with their direct exposure to the event. The manufacturing IT contact cited the strong dollar of 2015 as a factor that restrained demand for its exports, and foresees renewed weakness in export demand if the dollar continues to strengthen in response to the referendum. However, contacts are bullish concerning their respective outlooks for the next 1 to 2 years.

Commercial Real Estate
On balance commercial real estate markets appear stable or improving in the First District. In greater Boston, a modest slowdown in office leasing is reported, especially for high-rent space, but rents are steady amid low vacancy rates. Office leasing activity held steady at a moderate pace in Portland and Providence, but in Hartford activity remains light and some firms gave up space. Investment sales activity is down in Boston from last year's brisk pace. However, industrial sales activity picked up recently in Boston and parts of Connecticut, and a Portland contact sees a strong industrial property market with potential for new construction. Throughout the District, office construction remains limited in light of high building costs. Infrastructure construction is on the rise in Rhode Island, and hotel construction is planned for greater Portland. A regional lender to commercial real estate reports an uptick in loan demand at his firm amid reduced competition from other lenders. The outlook for Connecticut's commercial real estate market remains somewhat pessimistic based on weak job growth in the state. A Boston contact expects the Brexit vote to exert downward pressure on economic activity in the U.S. and the region, but notes that the vote should also boost foreign investment in Boston's commercial real estate market. Elsewhere in the District contacts are cautiously optimistic for commercial real estate but see risks as tilted to the downside based on global economic and political uncertainty.

Residential Real Estate
Residential real estate markets in the First District remain strong. Five of the six First District states, as well as the greater Boston metro area, reported sales and inventory trends for the period May 2015 to May 2016; New Hampshire reported on trends between April 2015 and April 2016.

Closed sales of single-family homes are up by moderate-to-large margins in every state in the District, and pending single-family sales increased at a slow-to-moderate pace depending on the state. A contact in Rhode Island considers a summer slowdown "unlikely" in light of strong recent sales. Median sales prices for single-family homes are on average up modestly from a year ago--with Vermont and Connecticut reporting moderate price declines and the remaining states reporting small-to-moderate increases. Condominium sales figures varied across states. Closed sales of condominiums are up in all states except Connecticut and Vermont, while pending sales increased in Massachusetts and New Hampshire and decreased in Rhode Island, Maine, and Vermont. As in the single-family market, median condo sales price changes are moderate, with the exception of a large over-the-year decline in Rhode Island. However, a contact in that state believes the decline is likely transitory because the data are prone to volatility.

For both single family homes and condos, inventory is down in every reporting region. In addition, number of days on market decreased from a year earlier in all states reporting such data, as did months' available supply of both single-family homes and condominiums. Contacts continue to attribute the lack of inventory to a combination of lack of new construction and a dearth of sellers coming to market.

Despite persistent inventory issues, contacts are optimistic. Those in Massachusetts, Vermont, and Rhode Island all expressed a positive outlook, primarily attributable to strong buyer demand. They cite stable employment figures and continued low interest rates as the key factors supporting such demand.

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Second District--New York
The Second District's economy has picked up, growing modestly since the last report, and labor markets remain tight. Contacts note continued moderate pressure on input prices and wages but little change in selling prices overall. Manufacturers report a modest rebound in activity, while service-sector businesses indicate a slight increase. Consumer spending was little changed, on balance, and tourism activity has remained sluggish. Residential real estate markets were mostly improved but weaker at the high end, while commercial real estate markets were steady to stronger. Residential construction has tapered off, whereas commercial construction has picked up. Banks report further strengthening in loan demand and continued improvement in delinquency rates.
Consumer Spending
Retail merchandise sales have picked up somewhat in recent weeks but remain at sluggish levels. Retail contacts generally note that sales were below plan in May but picked up somewhat in June and were little changed from a year earlier, but on or close to plan. In upstate New York, a mall contact reports that higher-priced retailers have been struggling, reflecting more value-driven consumers. Retailers report steady prices but somewhat more discounting than in recent months. Inventories, which had been described as somewhat high, are now back on target.

New vehicle sales are reported to have softened somewhat in May and June, though they are still said to be at fairly high levels. Inventories of new vehicles are reported to be mixed, largely reflecting availability of financing incentives on some models but not others. The used car market also remains soft, with both sales activity and prices drifting down in recent months. Retail and wholesale credit conditions generally remain favorable.

Tourism activity has been mixed but generally sluggish. Hotels across parts of upstate New York note weaker occupancy rates, while New York City hotels report that both occupancy and room rates are running below 2015 levels. Attendance at Broadway theatres has picked up somewhat since mid-May. However, average effective ticket prices are down somewhat relative to a year earlier, keeping overall revenues below comparable 2015 levels. Consumer confidence in the Middle Atlantic states (NY, NJ, PA) rose in May but retreated slightly in June.

Construction and Real Estate
The District's housing markets have been mixed since the last report, with widespread signs of weakness at the high end of the market. New York City's rental market has shown further signs of slackening: rents have been flat to down slightly in Manhattan, while they have continued to edge up in Brooklyn and Queens. In all these areas, rents on larger units have declined. Vacancy rates across the city, though still low, have moved up, and landlord concessions (e.g., free month's rent, waived fees) have reportedly grown more widespread.

New York City's co-op and condo resale market has strengthened somewhat--mainly in Brooklyn and Queens, where prices are up 8-10 percent or more from a year ago and sales volume has picked up as well. Manhattan resale prices are up roughly 5 percent from a year ago, with most of the rise on smaller apartments, while sales volume has receded from high levels. The inventory of resale units remains low, while the inventory of newly developed apartments for sale, mostly luxury, is reported to be high.

Elsewhere across the region, resale activity for single-family homes has picked up across New York State and in northern New Jersey. A real estate contact in the Buffalo area characterizes the local housing market as particularly robust and notes strong demand for downtown properties. There has also been a strong pickup in sales volume in suburbs around New York City, though prices have held steady. Residential construction has tapered off throughout most of the District, in both the multi-family and single-family sectors.

Commercial real estate markets have been stable to somewhat stronger through mid-year. Office availability rates edged up in Manhattan; despite a pickup in leasing activity, a large amount of space coming onto the market was not fully absorbed. Elsewhere, office availability rates were steady to down slightly; across upstate New York, they were at multi-year lows. New office construction has picked up in New York City but remains sluggish across the rest of the District. Industrial real estate markets strengthened further--particularly across the New York City metro region--with asking rents continuing to climb briskly and vacancy rates falling to their lowest levels since before the recession. New factory and warehouse construction picked up in the second quarter.

Other Business Activity
Contacts across the District generally report modest improvement in business conditions. Manufacturers report a small rebound in activity, while service-sector contacts report that business activity has increased slightly. Both manufacturing and service-sector contacts continue to report little change in selling prices, on balance, but moderate upward cost pressures.

The labor market has remained tight since the last report, and hiring activity has been fairly brisk for this time of the year. Manufacturers continue to report little change in staffing levels and do not expect much hiring in the months ahead. In contrast, service-sector businesses report moderately increasing employment and expect to ramp up staffing this year. Two major New York City employment agencies and one upstate agency report that demand for workers has been steady and fairly strong, while wage pressures have intensified, at least in some areas of work. One contact notes an uptick in demand for administrative and support staff. The telecom strike, which had idled approximately 15,000 workers in the District for about six weeks, ended in late May.

Financial Developments
Small to medium-sized banks across the District report strengthening demand for both residential and commercial mortgages but little change in demand for consumer and commercial & industrial loans. Bankers indicate that credit standards were unchanged across all loan categories. Banks report that spreads of loan rates over cost of funds were little changed for consumer loans but narrowed across all other loan categories--particularly commercial mortgages. Delinquency rates are reported to have eased further across all loan categories but to a lesser degree than in the last report.

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Third District--Philadelphia
Aggregate business activity in the Third District continued at a modest pace of growth during the current Beige Book period. Employment trends remained the same, with most contacts reporting a modest pace of hiring, staffing firms continuing to be more bullish, and manufacturing firms reporting further job declines. On balance, prices continued to rise slightly over the current period; home prices, which had been essentially flat over the prior period, also rose slightly. Contacts appeared to be in more agreement than last period that current wage pressures had remained modest. On balance, firms continued to expect modest growth over the next six months.
Only two sectors of the Third District have reported changes in the direction or pace of their growth since the prior period. Manufacturers' reports improved from a slight decline to slight growth in general activity. In contrast, nonauto retail sales weakened further from a modest pace of growth to a slight decline in sales. The remaining sectors indicated no change compared with their prior performances, which ranged from a slight decline for auto sales to moderate growth for staffing services and lending volumes. Contacts from general services, tourism, commercial contractors, commercial leasing agents, and real estate brokers continued to report modest growth. Homebuilders continued to report slight growth.

Manufacturing
Contacts reported that overall activity has climbed into slightly positive territory since the prior Beige Book period; however, reports of shipments and new orders remained slightly negative. Firms also reported that the number of employees and the average employee workweek continued to fall. The makers of lumber products, fabricated metal products, and industrial machinery noted overall gains in activity from the prior period, while the makers of paper, primary metals, and electronic products noted weaker activity. However, these trends may be seasonal in nature, as they are similar to what these sectors noted during the same time period last year. Overall, contacts expressed somewhat lower expectations of growth during the next six months than during the last Beige Book period. The change in outlook was driven, in part, by lower percentages of firms expecting increases in shipments and new orders and higher percentages expecting a decrease in general activity than during the prior period. Expectations of future capital expenditures also fell, with fewer firms expecting increases and more expecting decreases.

Retail
Overall, nonauto retail contacts reported a slight decline in sales during the current Beige Book period, following modest growth during the prior period. At mall stores, the biggest decline in apparel sales in some time was accompanied by weak or declining sales in most other categories, including restaurants. Similarly weak results were reported for outlet stores. Convenience store operators noted that 20 days of rain in May hurt sales. While June sales were better, they observed some slowdown overall, which they attributed to competition, not less consumer spending. Generally, contacts expect modest growth to resume for overall retail sales through 2016.

Overall, Third District auto dealers reported that light vehicle sales slowed further during the current period but remain at high levels. More precise early period reports indicate that sales were lower than during the same time last year; anecdotal reports for recent weeks suggest sales will be flat, at best, with last year. Dealers are content with the relatively high sales numbers; however, they spoke of "managing the plateau" and of caution against overextending their businesses financially. Dealers still see growth potential in 2017.

Finance
Third District financial firms continued to report moderate growth of total loan volumes over the Beige Book period. Volumes within all lending categories have grown since the prior period, except for home equity loans. All categories except home equities and automobile loans grew at a faster pace than during the same period one year ago. The strongest growth during the current Beige Book period was for credit cards and automobile loans. Commercial real estate, commercial and industrial loans, mortgages, and other consumer lending grew modestly or slightly this year after declining slightly over the same period last year.

On balance, banking contacts continued to describe their loan portfolios as healthy and their customers' credit quality as slightly improving. Also, as before, they characterized the lending environment as competitive and expected mergers and acquisitions to increase. Contacts also continued to report riskier loans by competitors, but this was cited somewhat less often than during the previous period. Contacts generally described the wage and inflation environment as "pretty benign," with rising wage pressures for only some skilled positions. Contacts remained cautiously optimistic that slow, steady growth would continue through year-end.

Real Estate and Construction
Homebuilders reported that economic activity continued to rise slightly. Demand for new single family homes remains soft, and the lack of affordable land for lots hampers new development in suburban markets, while urban locations are attracting infill and redevelopment to meet greater demand for rental properties, ranging from affordable to upscale units. Builders noted some cost pressures for labor and as a consequence of new building codes in New Jersey; material costs pressures were less pronounced.

Brokers in the major Third District housing markets reported continued modest year-over-year sales growth. A major Philadelphia-area broker noted that sales appeared to be slowing somewhat because of the lack of inventory. Overall, home prices are rising slightly, although this varies somewhat across markets and price categories.

Nonresidential real estate contacts, predominately in the Greater Philadelphia area, reported little change in the ongoing modest gains in construction activity and in leasing activity. A developer noted that demand for Lehigh Valley industrial/warehouse space is as great as it's ever been. Driven by e-commerce, these projects bring hundreds of new jobs and are creating upward pressure on $14 to $15 per hour wages. The City of Philadelphia office market also continues to tighten as vacancy rates continue to drop.

Services
Third District service-sector firms reported no significant change in their overall modest pace of activity. However, contacts noted small net overall declines in the pace of sales and new orders. One large national service-sector firm described some degree of weakness in its business, education, and health-care segments. Employment indicators were mixed, as contacts have noted higher full-time employment, similar part-time employment, and a lower average workweek since the prior period. Staffing firms reported continued moderate growth, including direct full-time placements, new temporary positions, and conversions to permanent positions. Tourism contacts continued to note modest growth, although interrupted by rain in May. June activity was strong again in the mountains, and parts of the shore experienced their best June in three years. Atlantic City casino revenues edged down again in May. Expectations for future growth in services remained about the same as the prior Beige Book period, with over half of service-sector contacts expecting activity to grow over the next six months.

Prices and Wages
On balance, price levels have continued to rise slightly since the previous Beige Book period. Over half of all contacts reported no significant changes in the prices they pay or in the prices received for their goods and services -- a somewhat lower percentage than last period. Of the firms that indicated a change, more noted increases than decreases. Bankers and staffing contacts reported little change in relatively modest wage pressures and relatively few labor shortages. Overall, contacts continued to report only modest wage pressure.

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Fourth District--Cleveland
Business contacts in the Fourth District reported a steady level of activity over the period, with little change in the pace of growth. Reports by industry were mixed. Production at manufacturing plants was stable, though steel producers were encouraged by a boost in demand and higher prices. The housing market continued to grow at a steady pace, with higher unit sales and higher prices. Commercial builders reported that construction pipelines are strong, and they expect revenues to grow for the next couple of years. Retailers experienced disappointing same-store sales. The pace of growth in retail car sales has slowed. Commercial and retail credit conditions expanded slowly. 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 except in the construction sector, which saw strong growth. Wage pressures were most evident in high-skilled and entry-level jobs in the banking, construction, and retail sectors. Staffing firms noted an increase in the number of job openings, especially for temporary positions. However, job placements lagged openings. Other than small increases for select petroleum-based and steel products and declines in agricultural products, input and finished-goods prices were steady.

Manufacturing
Manufacturing output was little changed over the period. The most often cited factor tempering output growth is weakness in the global economy. Downward pressure attributable to the strong dollar is starting to ease. Activity for suppliers to the motor vehicle, aerospace, commercial construction, and housing industries remains elevated. We heard reports about growing opportunities for manufacturers of LED lighting products and retail supply chain equipment. Oil price increases are providing some encouragement to the energy-sector supply chain. Year-to-date production through May at District auto assembly plants declined 4 percent when compared to that of the same time period during 2015, but the industry remains strong. Although steel producers are encouraged by the increase in domestic steel prices and a rise in demand, some contacts believe that the industry is at the peak of a mini cycle that will correct itself during the back end of the year. The more optimistic outlook that was expressed by many manufacturers during the past few cycles was tempered. A majority now expect that business conditions will be little changed during the third quarter.

Capital allocations are primarily for maintenance projects and equipment. However, a growing number of contacts cited increased spending for product development, while the number planning a footprint expansion has fallen sharply. On balance, raw-materials prices drifted higher over the period, a circumstance which was primarily attributed to higher steel prices. That said, reports indicated declining prices for other commodities--agricultural and metals. Finished-goods prices moved slightly higher in response to rising input costs. Payrolls were little changed across job categories. Several manufacturers noted annual cost-of-living increases. Otherwise, wages were steady.

Real Estate and Construction
Year-to-date sales through April of new and existing single-family homes increased 9 percent compared to those of a year earlier. The average sales price rose almost 5 percent. Builders and real estate agents reported that the low interest rate environment is a primary factor driving sales at this time. Year-to-date estimates of single-family construction starts were significantly higher across all regions of the District compared to those of a year ago. New-home contracts remain concentrated in the move-up and high-end price point categories. New-home list prices rose about 2 percent on average over the period to cover higher labor costs and to increase margins. Homebuilders' capital budgets rose slightly; allocations are mainly for land and equipment purchases. Some contacts expressed concern about a slowing in the sales of new homes during the fourth quarter that goes beyond normal seasonal variation.

In general, commercial contractors reported favorable business conditions. Revenues and backlogs are typically higher than those of a year ago. Several builders reported capacity issues that are resulting in pushing out a project's construction cycle. Construction demand is broad based. Contractors in the eastern part of the District are encouraged by the decision to move forward with constructing an ethane cracker and by ongoing investment in oil and gas pipeline and midstream projects. General contractors continue to increase their billing rates with little pushback in order to boost margins and cover higher labor costs. Construction project pipelines are strong, and contractors expect revenues to grow for the next couple of years. It appears that customers are not allowing a potential rise in interest rates or presidential election politics to interfere with their building plans.

Home builders and commercial contractors reported a modest increase in building materials prices, especially for steel, concrete, and drywall. Payrolls expanded at a robust pace over the period. New positions being created are primarily in the skilled trades and to a lesser extent in sales. The industry is experiencing wage pressure, especially for attracting and retaining high-skilled, high-performing employees. Subcontractors remain very busy. They are challenged by labor shortages and, as a result, are selective when bidding. In order to cover rising labor costs and to widen margins, many subcontractors are increasing their rates.

Consumer Spending
Retailers reported disappointing same-store sales in the weeks prior to the Memorial Day weekend when compared to those of the same time period a year ago. Although apparel remains challenged as a segment, sales of on-trend fashion items are doing well. Furniture sales were characterized as strong. One major chain reported that its digital sales outpaced its brick-and-mortar transactions during the first quarter. A shopping center developer commented that brick-and-mortar retailing, including high-end stores, continues to contract as consumer shopping preferences shift to the Internet and mobile devices. Retailers expect total revenues to rise in the near to medium terms, as the benefits of capital investments targeted at restructuring and adapting to the new retail market-place are realized. Vendor prices were fairly stable other than declines for food. Several retailers and restaurateurs reported either raising prices or reducing promotions as a means of widening margins. Changes in staffing were limited to store openings and closings. There are growing concerns about how the implications of minimum wage increases and the new overtime rule will affect retailers' ability to staff stores.

Year-to-date sales through May 2016 of new motor vehicles were on par with those of a year ago. Original equipment manufacturer incentives continue to rise and are now reportedly above 10 percent, but average transaction prices are also rising because of the ongoing shift in consumer preferences from cars to light trucks (including SUVs). New-vehicle unit volume is expected to remain at high levels this year, though dealers anticipate retail transactions to decline and fleet sales to rise. Consumers are seeing increasing value in the purchase of used cars. The large number of leased vehicles being turned in is putting downward pressure on their resale prices. Year-to-date sales of used vehicles rose almost 5 percent compared to those of a year ago. Dealer payrolls increased along seasonal trends.

Banking
Bankers were generally satisfied with their commercial and retail credit portfolios. Growth was characterized as steady overall, albeit at a slow pace. On the commercial side, loan demand from business services and healthcare providers has increased. C&I lending was slower than desired: Customers reportedly have confidence in the sustainability of their own businesses, but they have less confidence in the overall economy. In the CRE segment, financing remains competitive as developers are turning to alternative lenders such as pension funds or other equity partners for long term financing. Reports from retail banking indicated a seasonal pickup for loans to purchase recreational vehicles. Home equity products remain in high demand, while auto lending has slowed. Little change was reported in loan-application standards and delinquencies. Core deposit balances in consumer and business accounts increased over the period; however, the pace of growth has slowed. Banks' capital budgets expanded slightly, with spending allocated primarily for technology. Payrolls were stable on balance. Newly created jobs in commercial lending, regulatory compliance, and risk management were offset by jobs lost to cost-cutting measures and attrition. Wage pressures are being felt in select competitive job categories and at the entry level.

Energy
The number of rigs operating in the Marcellus and Utica Shales was little changed during this reporting period after declining precipitously during the past year. Nonetheless, the number of producing wells and regional natural gas output both remain at historic highs. Several contacts expressed the sentiment that the oil and gas industry may have reached the bottom of the current cycle, and they are hopeful that the industry will begin turning around late this year. Wellhead prices rose slightly. Investment in pipeline and midstream projects moved forward. Little hiring is occurring in the oil and gas industry at this time, and wage increases are sluggish.

Freight Transportation
Freight volume contracted over the period and on a year-over-year basis. Our contacts attributed this situation to a slowdown in economic activity, especially in the industrial sector, and to rapid changes in retail distribution. Weakness was seen in energy, fabricated metal products, machinery, and food products. Segments experiencing strong volume were automotive and building materials and furnishings. We heard reports about overcapacity in the system, and this overcapacity is forcing some haulers to lower shipping rates and to reduce capital budgets. One contact noted that most locomotives scheduled for delivery this year will not be used, but kept in storage. The number of parked locomotives is reportedly the same as in 2008. The outlook by contacts is cautious, and they expect little change in volume on balance during the upcoming months. Hiring is limited to replacement and some seasonal staffing.

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Fifth District--Richmond
The Fifth District economy expanded modestly on balance since the previous Beige Book report. Manufacturing activity softened, with slower growth in shipments and the volume of new orders. Retail sales growth also moderated, and services firms reported little change in revenues. Tourism experienced typical seasonal growth. Consumer loan demand rose slightly, while commercial lending increased modestly. Residential and commercial real estate markets strengthened somewhat. Agricultural production rose modestly. Natural gas extraction and coal production were unchanged since the previous report. The demand for labor increased moderately, with more frequent reports of wage pressures. According to our most recent surveys, manufacturing employment was unchanged, while more services firms were hiring. Prices of raw materials rose at a somewhat slower rate, and prices of finished goods rose at a slightly faster, but generally modest, pace. Price increases at retail establishments remained contained but rose more rapidly in recent weeks, while the previously modest pace of non-retail services price increases slowed.
Manufacturing
Manufacturing activity softened overall since the previous report. More firms reported slower growth in shipments and in new orders. Also, producers' expectations weakened compared to the previous report. A South Carolina box manufacturer and a Virginia heating component manufacturer reported that business slowed, with fewer new inquiries. Textile and chemical manufacturers indicated that exports remained weak, due in part to the strong dollar. An executive at a chemical company in South Carolina stated that overall sales were flat compared to last year, noting that domestic business was good while international business has slowed. In contrast, North Carolina and Virginia food manufacturers reported modest growth in new orders. Additionally, producers of machinery, plastics, and transportation equipment saw a slight uptick in new orders. An equipment manufacturer in Maryland said that demand for his product was strong and that operations were at full capacity, and a furniture manufacturer a reported an increase in new orders and backlogs. A robotics and automation manufacturer reported that international demand was steady. According to our most recent survey, prices of raw materials rose at a somewhat slower rate, and prices of finished goods rose at a slightly faster, but generally modest, pace.

Ports
Port activity remained generally strong since the previous Beige Book. Automobile imports continued to be robust. Container volume rose overall, but varied by location, increasing year over year each month at one port while similarly declining at another. Expectations are for a strong peak season in container imports of consumer goods beginning in August. Imports and exports of agricultural and construction machinery remained soft.

Retail
Retail sales softened on balance since the previous Beige Book. Gas station sales dropped and sales of building supplies in parts of North Carolina fell due to extended periods of rain. Automobile sales varied by location. A dealership in western Virginia reported that a recent increase in their digital footprint has helped push up foot traffic and sales, and an executive at a dealership just outside of Washington, D.C. said that sales have been stronger since our previous report. Dealerships in central North Carolina and the Hampton Roads region of Virginia reported that sales remained steady at previous levels. Sales of heavy trucks declined, according to a dealer who also noted that higher prices caused by changes in engine emissions requirements in the next model year could weaken future sales. Prices at retail establishments remained contained but rose more rapidly in recent weeks.

Services
Services firms reported little change in revenues since the last report. A wealth advisor said while individual investors seem to be doing okay, he is concerned that they may be taking on "unhealthy" levels of risk as they search for alternatives to low yield investments. The owner of a CPA firm in West Virginia has seen no change in demand but said the outlook for his business is good. An executive at a national trucking firm also reported flat demand in recent weeks, and he expects normal seasonal slowing in early summer. Demand for healthcare services remained strong. Healthcare facilities are preparing for expected changes in Medicare rules that will affect physician compensation. Price growth at services firms slowed in recent weeks, but remained modest.

Tourism
District tourism had a typical seasonal increase since the previous Beige Book, even with a slowdown during a couple of weeks of widespread extended rain. An executive on the outer banks of North Carolina said hotel bookings and rental home reservations were robust in June, and July is expected to be another strong month. In contrast, an hotelier in the Hampton Roads area of Virginia said tourist bookings slowed by double digits in recent weeks and that July is coming in a little below expectations. However, government and other group bookings were doing well there. Room and rental rates were generally unchanged, although a resort manager in the Virginia mountain region said that pricing had become more dynamic at his establishment, allowing for more responsive pricing during peak demand.

Finance
On balance, loan demand increased modestly since our previous report. Residential loan demand rose slightly in most of the District. In Maryland, loan demand softened slightly. Refinancing demand picked up slightly in central Virginia but was largely reported as unchanged in the rest of the District. Commercial loan demand continued to improve. Commercial real estate loan demand rose in some areas, according to contacts in the District of Columbia, South Carolina, and Virginia. Bankers in North Carolina reported mixed conditions with one contact citing some softening in commercial and industrial lending while another reported growth in commercial lending. In Maryland and West Virginia, commercial loan demand was characterized as flat to slightly lower, with some respondents concerned that multi-family and hospitality lending may have peaked. Interest rates were slightly lower for both residential and commercial loans. Competition remained high and net interest margins continued to compress slightly as a result. Credit standards tightened for commercial and industrial lending, according to a North Carolina banker. Lenders indicated that credit quality was generally unchanged to slightly improved.

Real Estate
Residential real estate activity grew moderately since the previous report. District real estate agents continued to report low levels of inventories. Days on the market varied across price range and region. A Washington, D.C. broker stated that sales increased since the previous report, and added that he continued to see multiple offers on appropriately priced homes. A residential broker in Greensboro, North Carolina reported an increase in buyer traffic in the $200,000-plus range. A Roanoke, Virginia contact said that demand increased for homes in the $300,000 to $700,000 range and remained strong for the $250,000 and lower price range. A broker in Owings Mills, Maryland stated that communities with good school districts were seeing improvement, as well as areas with higher-end homes. In contrast, a real estate agent in Northern Virginia reported a slowdown across all price ranges. Most residential builders reported that demand for new single family homes was robust, but that supply was constrained. The low level of inventories was attributed to both a dearth of available lots and shortages of construction workers. Multi-family construction reports were mixed, although leasing activity remained strong. Overall, builders were optimistic.

On the commercial side, leasing activity increased moderately overall, with a few reports of strong growth; commercial construction varied across submarket and region. A commercial broker in Columbia, South Carolina said that activity was strong across the board, with robust retail and industrial sales and leasing. He noted speculative construction in retail. A commercial Realtor in Richmond reported solid leasing activity, particularly for small retail spaces. Additionally, commercial brokers in Frederick, Maryland indicated that the retail leasing market was robust. In some areas of Maryland there were reports that commercial and industrial leasing was strong and that a few speculative industrial buildings had leased at 100 percent capacity. In North Carolina, sales were strong for repurposed furniture mills. A commercial real estate contact in South Carolina stated that the market was a "mixed bag," but reported an increase in clearing and repurposing of older properties. In contrast, a broker in Roanoke, Virginia said that retail and office construction slowed since the previous report. Commercial real estate activity in Charleston, West Virginia remained sluggish. Rental rates and vacancy rates varied across submarkets and locales.

Agriculture and Natural Resources
Agricultural activity increased modestly since our previous Beige Book report. Fifth District farmers stated that spring planting of cotton, peanuts, and corn was complete. Farm input prices remained unchanged in recent weeks while prices of grains, cotton, and corn declined. While the damage has yet to be assessed, sources in West Virginia expect that recent severe flooding will force farmers in some areas of the state to plow under their crops in the weeks ahead.

Natural gas extraction and coal production were unchanged since the previous report. Prices of natural gas edged down in the past month, and coal prices remained low.

Labor
Since our previous report, labor demand continued to increase at a moderate pace. Throughout the District, employers and staffing agents reported increasing demand for workers at all skill levels. For example, a staffing agent in Maryland cited high demand for low-skilled warehouse and production workers while an agent in North Carolina said high-skilled IT workers were in demand. Across the District, contacts reported difficulties finding workers in manufacturing, distribution centers, cyber security, biotech, and professional services fields. According to our most recent surveys, manufacturing employment was flat while service sector businesses continued to add employees at a moderate pace. The number of reports of wage increases and upward wage pressures continued to increase in recent weeks. A Maryland staffing service said that most clients were increasing starting wages. Those who were not changing wages either could not fill the positions or were left with the least motivated and least skilled employees. Additionally, an executive in South Carolina stated that skilled workers could name their price. A staffing agent in North Carolina, on the other hand, said employers were only raising wages reactively to attract the best candidates. According to our most recent surveys, wage increases were more prevalent in recent weeks at manufacturing and service sector businesses.

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Sixth District--Atlanta
On balance, reports from Sixth District business contacts indicated that economic activity expanded slightly from mid-May through June. However, the outlook among businesses remains positive as most anticipate higher growth in the near term.
District merchants noted mixed sales activity over the reporting period. Vehicle sales continued to grow, albeit at a slow pace. The tourism sector experienced a slight weakening in some parts of the District. Reports from residential brokers and builders indicated home sales increased from year earlier levels. Real estate contacts also noted that home prices modestly appreciated since the previous report. Commercial real estate contacts continued to cite improved demand for most property types and construction increased from a year ago. Manufacturing activity slowed since the previous report. Bankers noted credit continued to be available for qualified borrowers. District firms continued to report difficulties filling high demand, high-skilled positions. Businesses reported modest non-labor input cost pressures and wage growth.

Consumer Spending and Tourism
District retail contacts reported mixed sales activity from mid-May through June. Retailers continued to report soft sales from international visitors while sales from domestic shoppers strengthened since the last report. Automotive dealers reported some slowing in the pace of auto sales in May. Merchants expect sales to remain relatively flat over the next few months.

Some District tourism and hospitality contacts reported softer activity since the previous report and expect the trend to continue through the summer. Average daily rates at hotels continued to trend upward while the lengths of stay were compressed. Georgia reported a decrease in convention bookings, year over year. Central Florida tourism contacts indicated that traffic for both domestic and international travel was up, year over year, while South Florida noted international inbound travel was below expectations.

Real Estate and Construction
Residential real estate contacts across the District continued to report slow but steady growth. Most builders indicated that construction activity was up from the year-ago level. The majority of builders and brokers said home sales were up slightly compared with one year earlier. Most indicated that buyer traffic was equal to or higher than the previous year's level. Builder reports on inventory levels were mixed, while the majority of brokers reported that inventory levels were down from the year earlier level. Builders and brokers continued to note modest gains in home prices. As the summer season approaches, the majority of builders and brokers anticipate sales over the next three months to be comparable or slightly higher than the year-ago level. The majority of builders expect construction activity to increase slightly over the next three months.

Commercial real estate contacts continued to report improvement in demand resulting in increased rents and increased absorption across property types, but cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Most commercial contractors indicated that the pace of nonresidential construction activity increased from one year ago, with many reporting backlogs of one to two years. Amid ongoing concern about the overbuilding of apa