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Fed Beige Book: Commercial Real Estate Activity Continues to Experience Slight Growth

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Overall Economic Activity
Reports from the 12 Federal Reserve Districts indicated that the economy continued to expand from late November through the end of the year, with 11 Districts reporting modest to moderate gains and Dallas recording a robust increase. The outlook for 2018 remains optimistic for a majority of contacts across the country. Most Districts reported that non-auto retail sales expanded since the last report and that auto sales were mixed. Some retailers highlighted that holiday sales were higher than expected. Residential real estate activity remained constrained across the country. Most Districts reported little growth in home sales due to limited housing inventory. Nonresidential activity continued to experience slight growth. Most manufacturers reported modest growth in overall business conditions. Reports indicated that some manufacturers increased capital expenditures over the reporting period. Most reporting Districts noted continued growth in transportation activity. Loan volumes in many Districts were steady. Among reporting Districts, agricultural conditions were mixed and energy contacts described a slight uptick in activity.

Tenth District- Kansas

Real Estate and Construction
District real estate activity was mixed, with residential real estate conditions declining modestly and commercial real estate activity increasing slightly. Residential home sales were well below levels from the previous survey period and slightly below year-ago levels. Expectations for residential sales were positive in the coming months due to abating adverse seasonal factors. Sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Residential selling prices rose slightly, while inventories fell modestly. Residential construction activity was flat as both new home starts and construction supply sales remained at similar levels to the previous survey period. Activity in the commercial real estate sector increased slightly as sales rose modestly, absorption and construction underway edged slightly higher, rents and vacancy rates remained flat, and completions dropped slightly.

Banking
Bankers reported steady overall loan demand during the period of late November and December. A majority of respondents indicated a stable demand for commercial and industrial, commercial real estate, residential real estate, agricultural loans and consumer installment loans. Most bankers indicated loan quality was unchanged compared to a year ago. In addition, most respondents expected loan quality to remain stable over the next six months. Credit standards remained largely unchanged in all major loan categories. Overall, bankers reported steady-to-increasing deposit levels.

Manufacturing and Other Business Activity
Manufacturing activity expanded at a moderate pace in late November and December, while other business activity was mixed. Manufacturers reported sustained growth in production, particularly for food, aircraft, and electronics products. Shipments, new orders, and order backlogs grew at a modest pace since the previous survey period, and overall activity was higher than a year ago. Manufacturers’ capital spending plans rose moderately, and firms’ expectations for future activity remained favorable.

Outside of manufacturing, transportation firms reported strong sales increases and professional and high-tech contacts noted moderate sales growth. In contrast, activity among wholesale trade firms declined sharply. However, all firms expected a strong improvement in sales in the next six months. Professional, high-tech, and transportation firms reported moderate growth in capital spending plans, while wholesale trade firms anticipated spending to be relatively flat heading forward.

For more information about District economic conditions visit: www.KansasCityFed.org/Research/RegionalEconomy

For more information about Commercial Real Estate Conditions in Wichita, Kansas check out our Q3 2017 Market Report

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