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Economy Continues ‘Modest to Moderate Expansion’ Per Beige Book

The U.S. economy ""continued to expand at a modest to moderate pace in June and early July"" the ""Federal Reserve"":http://www.federalreserve.gov/ said Wednesday in its periodic ""Beige Book"":http://www.federalreserve.gov/monetarypolicy/beigebook/default.htm.


The national summary, based on reports from each of the 12 Federal Reserve districts, noted ""modest growth"" in the Atlanta, St. Louis, and San Francisco districts while economic activity for the Boston, Chicago, Minneapolis, Kansas City, and Dallas districts was ""advancing moderately."" The New York, Philadelphia, and Cleveland districts said ""activity continued to expand, but at a slower pace"" and the Richmond district described activity as ""mixed.""

All district housing market reports, the Beige Book said, were ""largely positive"" with both sales and construction activity increasing and home inventories declining.

The Beige Book acknowledged ""employment levels grew at a tepid pace for most Districts since the last report"" with the Boston, Cleveland, Atlanta, Chicago, and Dallas Districts saying ""employment levels were flat to up slightly.""

Retail sales, the report said, ""increased slightly in all parts of the country except Boston and Cleveland, ""where sales were categorized as flat, and New York, where sales softened."" The report noted ""strength"" in auto sales in the parts of the country where sales increased.

The Beige Book is a compilation of anecdotal reports prepared about two weeks before each meeting of the Federal Open Market Committee. The FOMC is scheduled to hold a two-day meeting beginning July 31. The summary was prepared based on district reports received through July 9 which means it did not include the most recent statistical report on retail sales which showed sales declined in June.

The report found slow expansion in manufacturing activity in most districts but said ""several districts reported a deceleration in new orders, and the Philadelphia and Richmond Districts reported declines in shipments and orders.""
The Beige Book said ""demand for loans, particularly those related to real estate, grew modestly in most districts"" and ""credit standards remained unchanged in New York, Richmond, and Kansas City, while credit quality improved in Philadelphia, Kansas City, Dallas, and San Francisco.""

District reports on residential housing markets, the Beige Book said ""remained largely positive"" with sales reported as improving or increasing in all districts. However, according to the summary, gains in the Boston District eased from earlier in the year. New home sales, according to the Beige Book, ""were described as disappointing in the Philadelphia District.""

Most Districts, the Beige Book said, ""reported declines in home inventories."" Homes prices, according to the report, ""have begun to stabilize in some markets and price increases were noted in select markets. Boston and Atlanta noted that appraisals were coming in below market prices.""
The report also found ""rising apartment rents"" in the Boston, New York, Atlanta, Chicago, and Dallas Districts while ""strong demand for rental units spurred increases in multifamily construction in the San Francisco District.""

Multifamily construction, at the same time, was described as strong in the Atlanta and Chicago Districts and ""apartment construction is expected to pick up over the next several months in the Dallas District,"" according to the Beige Book.
Activity in commercial real estate markets was described as ""mixed"" with ""modest improvements"" in Boston, Atlanta, and St. Louis and stronger demand in the San Francisco District. At the same time, ""softer conditions were reported in the New York and Richmond Districts.""
""Overall,"" the report concluded ""the outlook among commercial real estate contacts and contractors was slightly positive.""

""Most Districts< the Beige Book said, ""reported an increase in mortgage lending, with Dallas noting especially strong demand and a healthy backlog of loans. Refinancing of mortgage loans was steady or increasing in New York, Cleveland, Richmond, and Chicago, but Philadelphia noted a recent slowdown."" The New York, Richmond and Kansas City Districts reported ""credit standards remained largely unchanged,"" the report said. Cleveland reported some loosening of auto lending guidelines, while San Francisco indicated credit standards were somewhat restrictive for businesses and consumer loans. Philadelphia, Kansas City, Dallas, and San Francisco noted general improvements in credit quality. Delinquency rates, according to the Beige Book, held steady or declined in the New York and Cleveland Districts and banking contacts in the Cleveland, Atlanta, Dallas, and San Francisco Districts noted stiff competition for quality loan customers. Most districts, the said, saw ""modest increases in retail spending on a year-over-year basis, but many reported slower growth in recent months compared with earlier in the year"" Boston and Cleveland reported sales as flat, and New York cited softer sales. Sales for home furnishings and major appliances were reported as flat in the San Francisco District while Boston reported sales for furniture and electronics had slowed, and retailers in the New York District reported that home goods sales were weak. Travel and tourism activity was reported as strong across several districts, the Beige Book said adding ""hotel occupancy rates and revenue per room were robust in many areas according to reports from New York, Richmond, Atlanta, Chicago, and San Francisco."" Hiring at manufacturing firms continued to vary by District. Kansas City said that fewer plant managers were planning to hire, according to the Beige Book, while the St. Louis District reported plans for plant expansions later in the year. The Dallas District cited strength in food production, while makers of food products in the Philadelphia District noted a ""falloff in demand."" Many Districts noted, the Beige Book said, wage pressures ""were minimal"" since the last report. ""Wage increases were mostly concentrated in highly skilled workers in information technology, health care, transportation, some professional services, and highly skilled manufacturing workers,"" according to reports from the Atlanta, Chicago, Minneapolis, Kansas City, and Dallas Districts. The Beige Book is often cloaked in secrecy. The district reports are sent to one of the banks to prepare the national summary. The identity of District bank which prepares the summary is closely guarded. This report was prepared by the Atlanta Federal Reserve Bank which last wrote the summary in March 2011 when the economy was beginning a swoon after some signs of improvement. The Atlanta Fed wrote then ""overall economic activity continued to expand at a modest to moderate pace in January and early February [2011] with expanded or improving conditions in nine of the 12 districts.

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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