Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of September through early October. Eight Districts reported similar growth rates in economic activity as during the previous reporting period, while growth slowed some in the Philadelphia, Richmond, Chicago, and Kansas City Districts. Contacts across Districts generally remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.
Construction and Real Estate
Construction and real estate activity continued to improve in September. Residential construction increased moderately on balance, growing at a stronger pace in the Minneapolis and Dallas Districts but only slightly in Richmond and Philadelphia. Multifamily construction remained stronger than single-family construction in a number of Districts. Residential real estate activity continued to improve at a moderate pace in most Districts, as home sales and prices continued to rise and inventories remained low. Home sales in the New York and Dallas Districts were strong, with the exception of the Jersey Shore, which is still recovering from Hurricane Sandy. The Philadelphia, Atlanta, and Chicago Districts experienced a more modest improvement in home sales. A number of Districts reported concerns from homebuilders and realtors over rising mortgage rates. However, contacts in the Dallas District indicated that rising interest rates were not hurting affordability and contacts in the Boston District suggested some boost to activity by homebuyers entering the market in anticipation of future increases in rates. Nonresidential construction activity remained modest, but varied by market and District. Growth was strong in the Minneapolis District, but up only slightly in Richmond, Atlanta, and Philadelphia. The Cleveland, Chicago, and St. Louis Districts reported increased activity for industrial building, Cleveland noted strong demand from the healthcare sector, and redevelopment of vacant retail space picked up in Boston. Leasing activity continued to improve modestly in most Districts, but was particularly strong in the Dallas District. A number of Districts reported that vacancy rates continued to fall, rents rose, and the outlook for commercial real estate was generally positive.
The Eleventh District
The Eleventh District economy expanded at a moderate pace over the past six weeks. Manufacturing activity increased overall and retail sales edged up. Services firms reported mixed demand. The housing sector remained strong, with rising construction and sales. Office and industrial leasing activity picked up. Financial institutions said loan demand was flat to up modestly. Energy activity remained at high levels, and the severity of drought conditions eased somewhat. Prices held steady or rose at most responding firms. Employment levels were flat or slightly increased, and wage pressures picked up.
Construction and Real Estate
The District housing sector remained strong over the reporting period. Respondents said most major Texas markets continued to record robust sales, while demand slowed in some parts of the U.S. Home prices continued to rise, due in part to low inventories of existing homes and finished lots. Contacts expect the pace of price increases to moderate slightly when new home construction catches up to demand. The summer’s rise in mortgage rates had little effect on demand and reduced affordability only slightly, according to respondents. Contacts expect steady demand through the rest of the year and anticipate construction levels in 2014 will pick up further. Healthy apartment demand pushed occupancy rates higher despite high levels of multifamily construction activity. Increases in rents were strong in several major metros, and contacts are optimistic in their outlooks for 2014.
Office and industrial leasing activity strengthened, especially in Dallas and Houston, and contacts noted strong growth in rents for class A office space. Several respondents noted a pickup in investment sales for office and industrial buildings. Outlooks for Texas commercial real estate remained optimistic.