Housing a drag on growth

Written by DOUG WILLIAMS The News Journal Jan. 11, 2012

The economic recovery in Delaware and the Philadelphia region continues to trudge along slowly, with evidence that the dormant housing sector is holding back stronger growth in manufacturing, banking and consumer goods sales.

Manufacturers, retailers and auto dealers say modest growth continues and prospects for hiring appear to be brightening in auto sales, health care and energy-related industries, according to the Beige Book report released Wednesday by the Philadelphia Federal Reserve Bank.

But housing and commercial construction and leasing still are struggling, and officials from companies in those realms have the bleakest outlook going into 2012.

The regional report is in line with the Fed's national report, which found that economic expansion improved last month across most of the country while hiring was limited and housing remained stagnant.

"The reports on balance suggest ongoing improvement in economic conditions in recent months," the Fed said. "The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases."

Growth in the Philadelphia region, which includes Delaware, Pennsylvania and New Jersey, was modest at best. The region has regained its footing since spring and summer, when its results were weaker than those in many of the Fed's other regions.

"Manufacturing activity has continued to grow modestly, retail sales overall generally increased for the holiday season and car dealers experienced further strong sales growth and strong pricing power," according to the report.

Manufacturers reported modest gains in orders and shipments, and most said they saw little sign of inflationary pressure. Those making goods related to the housing sector voiced the most pessimism.

Retailers said they had a strong holiday shopping season, although customers were looking for discounts so profits were stressed. Of retailers, the most optimistic were auto dealers, who hinted of some plans to hire should sales continue at the present pace.

The auto dealers said there seems to be considerable pent-up demand that not only is keeping the sales pace relatively strong but also is allowing them to avoid heavy discounting or incentives, adding to profit margins.

The outlook was less positive in the banking and service-industry sectors, where growth remains sluggish. Both tend to rely on housing-related business, and that sector continues to suffer.

Builders said their late-year business was soft -- worse than is normally the case in winter, when sales traditionally dip. Prices continue to erode, leaving some buyers leery of going forward with a contract.

Builders and sellers of existing homes remain pessimistic going into 2012.

Aside from some signs of possible hiring in the auto sector, the employers contacted by the regional Fed planned to either stand pat or expand their use of temporary workers or contractors.

Nationally, the report reinforces the views of a majority of Fed officials, who see an economy that's expanding without being strong enough to reduce joblessness as quickly as they would prefer. The unemployment rate dropped to 8.5 percent in December from 9.4 percent a year earlier. Delaware's rate fell in November to 7.6 percent, its lowest level since March 2009. December data are due in two weeks.

New York Fed President William C. Dudley said last week that the "outlook for unemployment is unacceptably high" and that it's "appropriate" for the Fed to consider steps to ease monetary policy, he said.

The Beige Book said that "upward wage pressures were modest overall" for workers across the U.S. The Labor Department said Jan. 6 that 200,000 jobs were added to payrolls in December, the most since September. The jobless rate declined for a fourth straight month to the lowest since February 2009.

Even so, the residential real estate market "largely held steady at very low levels" except for increasing construction of multifamily homes, the Beige Book said. The rental market "tightened in some areas," the report said. Both trends were evident in the Philadelphia regional report.

Lending "edged up overall" on higher demand from businesses, with the New York and Cleveland regions reporting increased loans in commercial mortgages, the Fed said. Consumer lending "was largely flat compared with the prior reporting period," the central bank said.

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