The “Beige Book” is a compilation of informal soundings of business conditions in each of the 12 Federal Reserve Districts, which are referenced by the name of their headquarters cities. The latest Beige Book , issued January 16, is based on information collected from late November through January 7 and included these comments relevant to construction (bolding added):
U.S. Summary: Economic activity increased in most of the U.S., with eight of twelve Federal Reserve Districts reporting modest to moderate growth….New home construction and existing home sales were little changed, with several Districts reporting that sales were limited by rising prices and low inventory. Commercial real estate activity was also little changed on balance….Outlooks generally remained positive, but many Districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.
Fourth District: Economic activity in the Fourth District increased slightly since our previous report, with firms across industries reporting mostly stable demand. District firms continued hiring at a moderate but slightly softer pace than in recent months. Contacts noted continuing wage pressures to attract and retain workers. Reported wage increases were moderate and in line with recent trends. Upward costs pressures, especially for raw materials, remained elevated. Contacts also noted higher transportation costs. Builders and manufacturers reported being able to pass through cost increases to their customers. Demand was stable or increased in retail, construction, and nonfinancial services but softened slightly in manufacturing and banking, a situation which contacts largely attributed to seasonal factors.
Employment and Wages: Reports of wage pressures were similar to those of the previous period, and firms across many industries offered increased incentives to retain workers and attract new talent. In addition to annual cost-of-living and merit increases, some construction contacts raised incentives for retention, and manufacturers increased base pay to attract skilled new hires.
Prices: Upward pressures on input costs and selling prices remained elevated and were similar to those reported in the previous survey period. Contacts reported strong pressure on input costs, especially for raw materials, including steel, concrete, and wood products. Various manufacturing firms continued to attribute cost increases to the effect of tariffs. Freight contacts reported recent decreases in diesel costs but noted that other costs have continued to increase, including truck parts and repairs. Retail contacts in turn noted continuing upward pressure on freight costs. Construction and manufacturing firms raised their prices to pass through higher costs of raw materials to consumers. The ability to pass through cost increases was similar to that reported in prior survey periods.
Real Estate and Construction: Residential builders and realtors reported stable demand in the current period, a break from a trend of softening demand for housing in the recent survey periods. While decreasing home affordability weighed on customer demand over the past year, a slight drop in mortgage rates spurred some demand recently. The decrease in home affordability was driven by rising interest rates and also by rising selling prices as builders boosted prices to cover their increases in wages and nonlabor costs. Realtors noted decreased demand from first-time homebuyers. Housing inventory was stable. Residential builders expect worsening demand both in the first quarter and in 2019 overall. Conditions in nonresidential construction continued to be strong and improved slightly during the period. Demand from the industrial and education sectors was noted to be especially strong. Backlogs remained elevated and were increasing. Commercial real estate developers reported stable conditions. Most nonresidential builders were optimistic about growth in the first quarter, and commercial real estate developers expect stable conditions. Nonresidential builders expect moderate growth in 2019 overall. Commercial real estate developers’ outlooks for 2019 were mixed.