Beige Book: Full Text

Most Districts reported a further tightening of credit standards, especially for residential real estate and construction loans. Dallas reported that lenders were tightening non-price terms and boosting loan spreads in response to increases in their cost of capital. Tighter standards for construction loans were reported in the Atlanta and Chicago Districts, and San Francisco indicated that credit standards remained quite restrictive for both residential real estate and construction loans. Tighter standards for business loans were reported in three Districts, but banks in the Atlanta District were reported to be competing more intensely for business customers with good credit histories. Kansas City and Boston reported that tightened standards were especially prevalent on commercial real estate loans.

Among the Districts that commented on bank loan quality, some deterioration was reported, including in the Philadelphia, Richmond and San Francisco Districts. New York reported increased delinquencies on consumer and residential real estate loans, and San Francisco indicated that declines in loan quality were greatest for real estate loans and construction loans. In the Dallas District, contacts had not yet observed a significant decline in loan quality but expected deterioration in coming months, especially for residential real estate and consumer loans.

Agriculture and Natural Resources
Agricultural conditions were mixed across Districts following June precipitation, while high input costs trimmed profits. Drought conditions eased in the Richmond, Atlanta, Minneapolis, and Dallas Districts with increased rainfall. However, Chicago, St. Louis, Minneapolis, and Kansas City reported that cool, wet weather delayed corn and soybean development, and Chicago cited major crop losses due to flooding. Heavy rains also delayed the winter wheat harvests in the Richmond, St. Louis, and Kansas City Districts, although initial reports indicated average or above average wheat yields. San Francisco noted robust agricultural export activity, but wildfires hindered growing conditions in that District. Most Districts reported concerns about higher input costs. Kansas City attributed slightly lower farm income expectations and increased agricultural loan demand to these higher costs. Chicago, Minneapolis, Kansas City, and Dallas also indicated that livestock producers were struggling with higher feed costs.

Energy activity strengthened further with rising energy prices. Oil and natural gas drilling remained strong in the Cleveland, Kansas City, Dallas and San Francisco Districts, with expectations of further exploration. In the search for new energy sources, Dallas noted increased drilling activity toward unconventional natural gas sources, and Kansas City cited rising interest in tapping shale oil deposits. Minneapolis stated that wind farm development continued, although ethanol production slowed with higher corn prices. Mining activity increased in the Cleveland and Minneapolis Districts. Cleveland indicated that equipment costs were rising, while the lack of equipment constrained oil and gas production in the Kansas City District.

Prices and Wages
All reporting Districts characterized overall price pressures as elevated or increasing. Input prices continued to rise, particularly for fuel, other petroleum-based materials, metals, food, and chemicals. Chicago said the rate of growth in steel prices had flattened, but overall levels remained high. Construction industry contacts in the Cleveland District noted rising prices for all types of products, including concrete, shingles, and steel. Boston reported that contacts were anticipating further price increases in oil derivatives, shipping, and travel. Many Districts reported on manufacturers' plans to raise selling prices as a result of higher input prices, with several commenting on fears of a corresponding decrease in customer demand and overall sales volume. Several firms in the Philadelphia District indicated that sluggish demand has made it difficult to raise prices, and Atlanta District businesses were hesitant to pass-through increases due to a reduction in discretionary consumer spending. One producer in the Richmond District indicated that his company would attempt to pass along price increases to customers but it may not be enough to offset cost increases. Retail prices increased in several Districts, including in the Kansas City District-which reported an increase in hotel, restaurant, and resort prices-and in the Chicago District, where retailers said they raised selling prices in response to higher wholesale prices. On the other hand, New York and Cleveland reported relatively stable retail prices. San Francisco also reported that final prices for many retail items were stable or down, partly due to extensive discounting, although some contacts noted that pressures were likely to increase in coming months. One major retail chain in the New York District said that while costs under existing contract were not up substantially, some escalation in prices was expected within the next year.

Most Districts reported labor markets as unchanged or slightly weaker compared with the last survey period, and that wage pressures were generally modest. Demand for labor remained high for skilled workers in most industries, while several Districts reported widespread weakness in the financial services, auto, and construction industries. Contacts in the Cleveland, Atlanta, Chicago, and Kansas City Districts reported very little upward wage pressures, with the exception of the energy and skilled labor markets. San Francisco noted some downward movement in wages for construction, finance, real estate, and retail jobs. But Boston and Dallas said more workers were requesting wage adjustments to supplement cost of living increases.