Beige Book Again Sees Modest-to-Moderate Growth

Beige Book Again Sees Modest-to-Moderate Growth

BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

Continuing to shrug off sequester cutbacks, but feeling the effects of adverse weather, the nation’s economy “continued to expand at a modest to moderate pace” from early July through late August, the Federal Reserve reported Wednesday in its Beige Book assessment.

The Beige Book, formally the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” is issued eight times a year, about two weeks before each meeting of the Federal Open Market Committee (FOMC), the Federal Reserve’s policy setting arm. The FOMC’s next meeting is scheduled for September 17-18. Though eagerly anticipated by investors, the Beige Book is rarely discussed at the FOMC meetings.

Echoing—or perhaps anticipating—FOMC concerns, the Beige Book said “hiring held steady or increased modestly” while “upward price pressures remained subdued, and prices increased slightly.”

The FOMC has said it will consider curtailing or tapering its stimulative easy money policy when the unemployment rate falls to 6.5 percent and inflation rises to 2.0 percent, easing concerns about disinflation which could threaten a still fragile recovery.

“Residential real estate activity increased moderately in most Districts, and demand for nonresidential real estate gained overall,” the Beige Book said in its anecdotal recap. “Lending activity was mixed. Lending standards were largely unchanged, while credit quality improved. Demand for agricultural products was strong during the reporting period, but growing conditions and production in some areas were somewhat weak as a consequence of extreme weather.”

The only references to the federal government’s across-the-board sequester budget cuts came in reports from Boston and San Francisco. The Boston Federal Reserve district report noted cutbacks in government travel had affected travel industry revenues, and the report from the San Francisco District said, “Defense manufacturers noted more muted demand due to the ongoing effects of the federal sequester.”

Defense firms in the Kansas City district also reported “the effects of the sequestration have already been passed through to actual reductions in production.”

For the most part, however, the report was upbeat, suggesting an economy growing steadily (albeit slowly), affected more by weather than political conditions.

“Demand for agricultural products expanded during the reporting period (which ended August 26), although production activity was limited by extreme weather in some areas,” the Beige Book said. “Droughts or dry weather in the Chicago, Kansas City, and Dallas districts constrained farming activity, but some growing areas within the Chicago and Dallas districts were relieved by much-needed rainfall. By contrast, extremely wet conditions led to delayed planting and reduced yields for some crops in the Richmond and Atlanta districts.”

Residential real estate activity, according to the Beige Book, “increased moderately” and “demand for nonresidential real estate increased,” though “lending activity weakened a bit.”

Here’s a brief district-by-district recap of the Wednesday’s Beige Book:

Boston: “Economic activity in the First [Boston] district continued to expand at a modest pace … higher interest rates appear to have different effects on commercial real estate [with] upward pressure on capitalization rates and residential real estate where … the prospect of rising rates ‘nudged’ buyers into the market, increasing demand … no firms report major cyclical layoffs but hiring remains subdued except among fast-growing technology firms. Sequestration has yet to have had any direct effect.”

New York: “Economic growth in the Second [New York] district has continued at a moderate pace … cost pressures remain moderate, while selling prices continue to be steady to up slightly … labor market conditions have shown further signs of improvement, while wage increases have remained subdued … bankers report steady to somewhat softer loan demand, little change in credit standards, some leveling off in loan spreads, and widespread declines in delinquency rates.”

Philadelphia: “Aggregate business activity in the Third [Philadelphia] district continued at a moderate pace of growth … homebuilders felt their sales may have been partially dampened by rising mortgage rates; however, construction remained well above its level of a year ago … general retail sales, commercial real estate leasing, staffing services, and tourism continued to expand at modest rates, while manufacturing and commercial real estate construction continued to expand only slightly … loan volumes grew at a modest pace.”

Cleveland: “Business activity in the Fourth [Cleveland] district expanded at a moderate pace … housing market activity has leveled out after a six-month period of strong growth; sales of new and existing homes were above year-ago levels … nonresidential builders experienced a rise in backlogs and the number of inquiries … shale drilling picked up in regions rich in wet gas and was above year-ago levels … applications for business credit were flat, while consumer demand for credit rose slightly … hiring was sluggish across industry sectors … staffing firm representatives reported that the number of job openings increased … however, job placements were lower.”

Richmond: “Economic conditions in the Fifth [Richmond] district improved moderately … manufacturing shipments and orders rose, and capital spending increased … retail weakened, with the exception of robust auto sales … residential real estate and construction activity varied, while commercial real estate and construction markets were little changed … heavy rains in the Mid-Atlantic hindered harvests and raised concerns about crop damage … labor markets improved modestly.”

Atlanta: “Economic conditions modestly improved [in the Sixth (Atlanta) district] … travel and tourism sector remained a bright spot … residential real estate continued to recover at a solid pace as sales and prices stayed ahead of last year’s level … low housing inventories were still restraining sales growth … bankers noticed very little pickup in loan activity, overall … payrolls improved slightly.”

Chicago: “The pace of economic activity in the Seventh [Chicago] district improved … growth in consumer and business spending picked up … manufacturing production increased, as did construction … credit conditions tightened some … cost and wage pressures were modest … abnormally dry weather hurt crop prospects … but to a much lesser degree than during last year’s drought.”

St. Louis: “The economy of the Eighth [St. Louis] district … expanded at a moderate pace … residential real estate market conditions have continued to improve, and commercial and industrial real estate markets have also improved … lending activity at a sample of large District banks was little changed during the second quarter of 2013 … prices, wages, and employment levels over the past three months have stayed the same or increased.”

Minneapolis: “The Ninth [Minneapolis] district economy grew at a moderate pace … growth in residential real estate and construction has slowed somewhat, but is still strong … mining sector was flat, and professional services were mixed … hiring announcements were more prevalent than layoff announcements … wage increases were moderate … prices were relatively level.”

Kansas City: “The Tenth [Kansas City] district economy expanded moderately … with further gains anticipated during the coming months … strong retail and auto sales fueled consumer spending with positive expectations for future sales … manufacturing activity picked up, and some plant managers were hiring additional workers … residential and commercial real estate markets continued to strengthen … banks reported improved loan quality and stable deposits, but slightly weaker loan demand.”

Dallas: “The Eleventh [Dallas] district economy expanded at a moderate pace … many respondents noted steady demand, there were more noting improving versus declining demand … sales grew for firms in residential construction, retail, accounting, fabricated metals, food and kindred products, and automobile dealerships … energy sector noted some flattening of activity at high levels … drought continued to plague the region although recent rains have slightly improved growing conditions in some areas.”

San Francisco: “Economic activity in the Twelfth [San Francisco] district expanded at a modest pace … price inflation was subdued for most final goods and services, and upward wage pressures were very modest … retail sales rose on net, while demand for business and consumer services was more mixed … demand for housing strengthened, and commercial real estate activity firmed … financial institutions indicated that loan demand increased slightly.”

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