Economy Expanding ‘Gradually’, Real Estate Markets ‘Improving’: Fed
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MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST
The nation’s economy expanded “gradually” from early July through mid-August, the Federal Reserve reported Wednesday in its periodic Beige Book. The description of the economy, drawn from reports from each of the 12 Federal Reserve Districts differed from the usual tone of Beige Books which have recently described economic growth as “modest” or “moderate.”
Six Districts, according to the Beige Books, “indicated the local economy continued to expand at a modest pace and another three cited moderate growth,” including Chicago which said growth had slowed from the last Beige Book report which was released July 18. Two other districts — Philadelphia and Richmond — reported “slow growth in most sectors and declines in manufacturing” and the report from e Boston was “mixed” with “some slowdown since the previous report.”
The Beige Book is issued two weeks ahead of each scheduled meeting of the Federal Open Market Committee. Though closely watched, it is rarely cited at FOMC meetings or referenced in meeting minutes. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall sumary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.
Real estate markets were generally reported as “improving,” according to the latest Beige Book.
“All 12 Districts cited increases in home sales, home prices, or housing construction,” the report said.
Housing markets across most districts, the Beige Book said, showed “signs of improvement, with sales and construction continuing to increase.” Descriptions of housing sector activity ranged from “significant levels of buyer traffic” and, “strong pending sales” in Dallas and Richmond respectively to “slow and modest” in New York, Philadelphia and Chicago. Reports from Philadelphia and Kansas City cautioned “the possibility of shadow inventory entering the market remains a concern” while inventory declines were reported in Boston, New York, Philadelphia, Atlanta, Dallas, and San Francisco, putting upward pressure on prices.
“In general,” the report said, “outlooks were positive, with continued increases in activity expected, although the projected gains were more modest in Boston, Cleveland, and Kansas City.”
Credit conditions, the Beige Book said “have improved over the reporting period according to District reports.” The Beige Book said “credit spreads were lower and competition for high-quality borrowers among lending institutions has increased.”
Bankers in the Cleveland District mentioned a moderate loosening of lending guidelines, the Beige Book said while the New York, St. Louis, and Kansas City Districts reported “unchanged credit standards.”
Reports on loan demand were mixed. Richmond and Atlanta, for example, reported generally low demand for loans, but some pockets of growth. Chicago said growth in business loan demand was generated mostly from small and mid-size firms and for the purpose of refinancing rather than financing capital expenditures. Cleveland, St. Louis, and San Francisco cited only small positive or negative changes in business credit demand but relatively strong demand for consumer credit. Kansas City reported stable demand for commercial and industrial loans and commercial real estate loans, while Dallas noted softer demand for loans overall. Both districts though saw increases in demand for residential real estate loans and New York and Philadelphia reported growth in most lending categories.
Commercial real estate market conditions held steady or improved in nearly all Districts, the Beige Book said. New York, Philadelphia, Minneapolis, and Kansas City all reported commercial leasing increased and vacancy rates fell. New York and Kansas City reported increases in office rents as well while Kansas City also cited a rise in commercial construction.
Retail activity, including auto sales, increased since the last Beige Book report in most districts, although Cleveland, Chicago, St. Louis, Dallas, and San Francisco noted the retail improvements were small and Atlanta said retail growth had slowed. Philadelphia though indicated growth in retail sales was “somewhat faster than in the previous report.”
Most Districts, the report said, reported employment was “holding steady or growing only slightly,” adding “several Districts including Boston, New York, Philadelphia, and Richmond noted a softening in employment relative to expectations.”
The Beige Book said “upcoming layoffs were reported by a defense contractor in the Boston District and by firms in sectors such as air transportation, appliances, and business support services in the St Louis District.”
At the same time, according to the Beige Book, “almost all Districts indicated that manufacturers were continuing to hire, albeit modestly” with demand strongest for skilled manufacturing and engineering positions, as well as for IT services. Cleveland, Richmond, Atlanta, Kansas City, and Dallas all reported some difficulty meeting demand for truck drivers.
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 Boston Federal Reserve Bank which last wrote the summary in January 2011 when the economy was beginning a swoon after some signs of improvement. In that report, the Beige Book said “economic activity continued to expand moderately from November through December [2010].”
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