Economy Watch: Beige Book Reveals Trends Benefitting CRE

All 12 of the Federal Reserve Districts reported increased economic activity in the latest Beige Book. The Districts' residential rental markets had mixed results, with New York City seeing flat rents but decreasing vacancy rates.
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System (Photo by Paul Morigi)

Janet Yellen, Chair of the Board of Governors of the Federal Reserve System (Photo by Paul Morigi)

U.S. economic activity increased in each of the 12 Federal Reserve Districts between mid-February and the end of March, The Federal Reserve reported in its latest Beige Book, which was released on Wednesday. The pace of expansion was either “modest” or “moderate,” in Fed-speak. Fairly good, in other words.

Consumer spending varied among categories, as reports of stronger light vehicle sales were accompanied by somewhat softer readings in non-auto retail spending. Manufacturing continued to expand at a modest to moderate pace, although growth in freight shipments slowed slightly, which is of some concern to the industrial market.

Tourism and travel activity generally picked up, which is good for the hospitality industry. Nonresidential construction remained strong, but became more mixed in some regions, the book reported. Commercial property leasing activity generally improved at a modest pace.

The residential rental markets had mixed results. In New York, rents on larger apartments continued to decline, while smaller uni rents remained flat, with some landlords offering more generous concessions in early 2017. In New York City, rents have been flat, with vacancy rates edging down, partly due to more generous concessions.

Labor markets remained tight, and employers in most districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers, which bodes well for the office market. Modest wage increases broadened, and the Fed noted bigger increases for workers with skills that are in short supply.

A few districts reported that worker shortages and increased labor costs were restraining growth in some sectors, including manufacturing, transportation and construction. Businesses generally expected labor demand to increase moderately in the next six months, and predicted modest wage growth.