Beige Book: Modest Growth and Optimism
Eight times a year, all of the 12 Reserve Banks gather anecdotal information on current economic conditions in their districts through reports from Bank and branch directors as well as interviews with key business contacts, economists, market experts, and other sources. Then, approximately two weeks prior to each Federal Open Market Committee meeting, results are published in the Beige Book on the Federal Reserve Board of Governors' website.
Because the lead sentence—of the national summary and of each region's section—often gives a broad view of economic conditions in that region, that first sentence often gets much attention. Here is a roundup of the first sentences of these sections:
National: Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to increase at a modest to moderate pace since the previous survey.
Boston: Economic activity in the First District continues to expand at a moderate pace, according to business contacts.
New York: Economic activity in the Second District has continued to expand moderately since the last report.
Philadelphia: Aggregate business activity in the Third District maintained an overall moderate pace of growth during this current Beige Book period.
Cleveland: The economy in the Fourth District expanded at a moderate pace during the past six weeks.
Richmond: District economic activity strengthened moderately in recent weeks.
Atlanta: Reports from Sixth District business contacts indicated that economic activity expanded at a modest pace in June and early July.
Chicago: Economic activity in the Seventh District expanded at a moderate pace in June, and contacts remained cautiously optimistic about growth prospects in the second half of the year.
St. Louis: The economy of the Eighth District has expanded at a moderate pace since our previous report.
Minneapolis: The Ninth District economy showed signs of moderate growth.
Kansas City: The Tenth District economy grew modestly in June, and expectations for future activity improved slightly.
Dallas: The Eleventh District economy generally expanded at a slightly stronger pace over the past six weeks than during the previous reporting period.
San Francisco: Economic activity in the Twelfth District expanded at a modest pace during the reporting period of late May through early July.
Here are some notable highlights from the Atlanta Fed's portion of the Beige Book:
Employment and prices
Since the last report, District payrolls grew at a modest pace. In general, most input costs remained relatively stable, helping to support slightly stronger profit margins in the face of improving, but still below pre-recession sales levels. The Atlanta Fed's Business Inflation Expectations survey showed year-ahead unit cost expectations ticking down from 2 to 1.8 percent in June, marking the lowest reading since January.
Consumer spending and tourism
Reports from District retailers were mixed. While most merchants experienced modest growth, growth was lower than expected in some cases. Some attributed lackluster sales to weather conditions. Auto dealers continued to experience strong growth. Travel and tourism activity continued to exceed expectations. Contacts throughout the District reported that key indicators of demand (visitation, hotel occupancy, average daily rate, and revenue per available room) and profitability were positive and steadily rising.
Real estate and construction
District brokers continued to report that existing home sales remained ahead of last year's level and were mostly ahead of expectations. However, brokers still report that inventories remain at low levels, and thereby restrain sales. Shortages were also said to be putting upward pressure on home prices.
District homebuilders reported that new home sales and construction were ahead of year-earlier levels. However, builders noted that access to financing and a shortage of developed lots continued to constrain construction activity. Most contacts reported that new home inventories were below the year earlier level and prices rose modestly.
District commercial real estate contacts indicated that demand continued to improve from earlier in the year. Construction activity was described as flat to slightly up from earlier this year and was dominated by build-to-suit projects and renovations of existing space. Brokers reported that most markets still favored tenants; however, rate increases continued to be noted in select submarkets.
Regional manufacturers reported expanding activity; however, the rate of growth slowed as a result of a decrease in new orders, production, and finished inventory. Less than half of purchasing managers expect production to be higher in the next three to six months, slightly lower than our previous report.
Banking and finance
Some institutions reported a pickup in mortgage loan demand attributed to improved housing markets and increasing interest rates. They also indicated that while mortgage refinancing had slowed, new purchase loan demand had increased. Some bankers indicated vigorous competition for loans has led them to change loan features, such as relaxing guarantee requirements or covering a substantial chunk of closing costs. Local community bank contacts had eased up on covenants and guarantees and were willing to take more risks, particularly when a loan fit a category in which they were interested.
A final thought: The Atlanta Fed's Beige Book summary notes that "The outlook for the rest of the year remains optimistic for most firms." This matches up well with Atlanta Fed President Dennis Lockhart's view, which he shared in a June 27 speech in Marietta, Georgia:
I expect the moderate pace of growth we have been experiencing to continue, resulting in a GDP number for the year as a whole in the range of 2 to 2.5 percent. To achieve that, the second half will have to be a little stronger than the first half, and I expect 2014 to improve slightly on the pace of the second half of 2013.
The next Beige Book will be published September 4.
By Mike Chriszt, a vice president in the Atlanta Fed's public affairs department
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