Let's continue the Beige Book analysis with a look at consumer spending:
Retail spending showed improvement across all Districts, with most retailers reporting sales growth consistent with or ahead of plan for the recent 2010 holiday season. Boston, Richmond, Atlanta, Chicago, and Kansas City observed consumers positively reacting to promotions and discounting, although Philadelphia and San Francisco reported that retailers relied less heavily on discounting. Inclement weather, including the late December blizzard, had some impact on sales in the New York and Philadelphia Districts. New York , Cleveland, and Chicago cited increased consumer confidence.
Automobile sales were either steady or up in eight Districts during the reporting period, while New York stated that auto sales were "mixed but generally at favorable levels" and Kansas City noted limited auto sales but expected future improvement from additional incentives. Philadelphia, Cleveland, and Dallas indicated that vehicle inventories were at appropriate levels for the current sales rate. Cleveland reported an increase in leasing activity, while the effect of rising gasoline prices on sales of less fuel-efficient models was a concern cited by some dealers in Philadelphia.
Boston: The majority of contacted First District retailers report positive sales results for the months of November and December. Year-over-year comparable same-store sales are mostly increases ranging from the low single digits to the low double digits, with the exception of one contact who reports a drop in same-store sales but notes a recent positive turn. Several retailers indicate that consumers continue to react positively to promotions. Sales of apparel, sporting goods, cameras, and other gift items were strong leading up to Christmas. Respondents generally are pleased with early holiday shopping results.
NY: Virtually all non-auto retail contacts report that holiday season sales were strong and on or ahead of plan, while prices were generally stable. Two major retail chains note that sales in the region were substantially ahead of plan in the weeks leading up to Christmas. A New York State retail association notes that holiday-season sales were stronger than a year ago and stronger than most retailers had expected. While stores in the New York City area generally report brisk sales, a late-December blizzard reportedly curtailed business substantially in the days after Christmas. Two large malls in upstate New York report broad-based strength in sales, despite snowstorms on Black Friday and again in early December; traffic was brisk for most of the holiday season, helped by a steady flow of Canadian shoppers. Most retail contacts report that they hired somewhat more holiday season workers in 2010 than in 2009.
Automobile sales were mixed but generally at favorable levels, as both retail and wholesale credit conditions continued to improve. Rochester-area dealers report that sales of new autos surged 24 percent from a year ago in November and appear to be running about 10 percent ahead in December, helped by incentives. On the other hand, dealers in the Buffalo area report that sales were down slightly from a year earlier in November and remained fairly sluggish in December; the inclement weather was seen to be a factor.
Philly: Third District retailers generally reported year-over-year increases in line with plans for the year-end holiday shopping period. On balance, stores posted moderate increases in sales without significant unscheduled price reductions. Sales of winter outerwear and jewelry rose fairly well from year-ago levels, but sales of big-ticket electronic items were not strong. A snowstorm on the day after Christmas deterred some shoppers and forced some store closings, but merchants said sales picked up in subsequent days. "The shoppers came. We still did well," one merchant said. Looking ahead, most of the retailers surveyed for this report said they expect continued year-over-year increases in sales, although they also noted that consumer confidence remains fragile.
Third District auto dealers reported rising sales as 2010 came to a close. Dealers said that inventories were increasing as they took delivery of new models, but dealers generally considered their stocks of new and used vehicles appropriate for the current sales rate. Dealers expect sales to be somewhat higher in 2011 than in 2010, although several expressed concern that rising gasoline prices could restrain sales of less fuel-efficient models.
Cleveland: Reports from retailers on the holiday shopping season were generally positive. General merchandise stores had the strongest results, while activity at small specialty outlets was mixed. Almost all of our contacts said that sales increased in the low to mid-single digits when compared to year-ago levels. Some retailers noted that consumers are becoming more confident, and it is beginning to show in their buying patterns. Nonetheless, we still heard mixed reports on purchases of discretionary items. Looking forward to the first quarter of 2011, retailers generally expect transactions to rise in the low to mid-single digits on a year-over-year basis, and they believe that rising sales will include more discretionary items. Vendor pricing was generally stable. Most retailers plan a modest increase in capital spending during 2011 for remodeling, expansion, and e-business. Hiring was limited to temporary holiday workers and no pickup is expected in the new year.
Auto dealers reported new vehicle sales during November were steady to up slightly on a month-over-month basis. When compared to year-ago levels, sales were generally higher. A few of our contacts also noted an increase in leasing activity. Looking forward, dealers expect sales to follow seasonal trends through the winter months. However, they anticipate that sales will be slightly higher than the prior year's level. New car inventories are in line with demand. Reports on used vehicle purchases were mixed. Little change was seen in credit availability. Buyers with high credit scores can readily obtain financing. Dealers' spending on showroom upgrades to comply with factory mandates remains modest. More aggressive capital outlays are dependent on sustainable demand.
Richmond: District retailers reported a surge in December sales, particularly for groceries, toys and apparel, according to our recent survey. Several managers at chain discount stores reported solid sales leading up to Christmas. In addition, retailers indicated that Black Friday sales were brisk at big-box stores, as media attention helped pull in customers, but Cyber–Monday also brought a big jump in online sales. One exception was big-ticket sales, which continued to languish particularly for items driven by home sales, such as furniture, according to our latest survey. A central Virginia retailer told us that Black Friday left the local cluster of small shops "looking like a ghost town." However, a new promotion, "Small Business Saturday," bolstered sales that weekend. Retail merchants reported that customer buying patterns have changed; a furniture store owner commented that three out of four of her in-store customers had first browsed the store's website or called for product information. Although snow fell in many areas across the District in mid-December, most roads were clear on the Saturday before Christmas and, thus, the weather did not hinder shoppers. Retail price growth slowed compared to a month ago, according to our latest survey, while average retail wages grew more quickly.
Atlanta: Many District retail stores noted that holiday sales were above their expectations. Most indicated that traffic and sales increased compared with a year ago; however, smaller retailers reported less of an increase in business than larger stores. The majority of businesses contacted noted that sales were driven by a mixture of discounting and stronger demand. The outlook among merchants remained optimistic. District automobile dealers indicated that vehicle sales improved recently and were ahead of year-ago levels. Sales of commercial trucks were also up modestly.
Chicago: Consumer spending increased in December, as holiday retail sales exceeded those of a year ago. Retailers pointed to sales and promotions, rising consumer confidence, and some pent-up demand as potential reasons for better than expected holiday retail sales. Discretionary spending was up this holiday season--apparel, jewelry, and electronics accessories were particularly strong, while big-ticket electronics and furniture performed slightly better than a year ago. In contrast, auto dealers reported that sales held steady in December despite an increase in showroom traffic. Retailers, in general, expressed a positive outlook for 2011, expecting stable, moderate growth in sales in the first half of the year with the potential for spending to accelerate later in the year.
St. Louis: Economic activity in the Eighth District has increased modestly since our previous report. Manufacturing activity has continued to increase, and the services sector has improved slightly. Early reports from general retailers indicate that holiday sales increased over a year ago. Home sales have continued to decline across the District, and commercial real estate and construction activity was sluggish. Overall lending activity at a sample of small and mid-sized District banks declined in the three-month period from mid-September to mid-December.
Minneapolis: Consumer spending during the holiday season increased from a year ago. Sales activity was favorable during December compared with the prior year at a Minneapolis area mall. A North Dakota mall manager reported that traffic was up about 3 percent to 5 percent in December from the previous year. In South Dakota, a mall manager noted strong retail activity during the last week before Christmas; some stores reported lean inventory levels following unanticipated strong holiday sales volumes. Also in South Dakota, a toy retailer reported strong holiday sales compared with a year ago. A chamber of commerce representative in northern Wisconsin reported that area retailers were pleased with the holiday shopping season. A Minnesota bank director noted that holiday shopping began earlier this season.
According to an auto dealers association in Minnesota, new vehicle sales through November were up slightly from a year ago; light trucks gained market share relative to cars. A Minnesota domestic auto dealer reported strong December sales.
KC: Consumer spending improved in late November and December, and many retailers expected further gains in the coming months. Brisk holiday shopping boosted retail sales with some reports of price discounting. Store managers reported that major appliances and household items sold well. Retail sales were expected to edge up further in the next three months. After improving slightly in the last survey, auto dealers reported limited sales, which contributed to larger vehicle inventories. Dealers were optimistic, however, that auto sales would pick up with additional financing incentives and discounts. Restaurant operators reported stronger overall sales despite a continued decline in the average check amount.
Dallas: Contacts expect to finish 2010 on a positive note with holiday sales exceeding year-ago levels and outlooks improving modestly. Inventories are at desired levels and in-line with seasonal norms. Two large retailers noted that their sales in the District outperformed those nationwide during the reporting period, but the gap is expected to narrow. The outlook for 2011 remains muted and contacts expect demand to remain flat or grow modestly at best.
Automobile sales held steady over the reporting period, and 2010 sales should show a solid increase over 2009 levels. Contacts expected sales to be strong the final week of December. Inventories rose modestly but are in the desired range. The outlook for 2011 is for continued gradual improvement.
SF: Retail sales increased notably compared with the prior holiday season. Both traditional department stores and smaller specialty retailers reported that holiday sales exceeded their expectations, which were for modest growth. Moreover, tightly controlled inventories enabled many retailers to rely less heavily on price discounts and promotional activity than in the recent past. The pace of sales improved modestly for grocers compared with the prior reporting period, while it remained largely unchanged at a slow pace for retailers of furniture and major appliances. Demand for new automobiles continued to strengthen, particularly for light trucks. Demand for used vehicles was strong as well, and the resulting high trade-in values reportedly helped spur sales of new vehicles.
Let's look at some macro-level data.
Real retail sales continue to move higher, although they are not at their pre-recession levels yet.
Real PCEs are now above their pre-recession levels.
The largest component of PCEs (services) are now slightly higher than their pre-recession peak.
Real non-durable goods have clearly moved beyond their pre-recession levels, as have
Auto sales continue to move higher.
Here are some thoughts, in no order of importance:
- Overall spending was higher this holiday season, although the YOY comparisons are pretty easy
- Auto sales were up in general (tie this is with the positive manufacturing reports in the auto industry)
- Home items were mixed; Richmond reported lower home related purchases, but KC reported increases
- There were reports of a large store/small store split, with larger stores performing better (Atlanta and Richmond)
- There were far fewer reports of discounting (SF)
- Promotions are working by bringing people into the stores
- There is some optimism for the next 3-6 months on the part of retailers