US Beige Book, Overall Economic Activity “Increased Somewhat”

04/14/10 - The Fed’s Beige Book, prepared with data collected before April 5, indicated that U.S. economic activity “increased somewhat” since the last report across all Districts except one (St. Louis), which reported that conditions “softened”.

• Consumer spending increased during the reporting period, with the Districts generally reporting improvements in retail sales and vehicle sales. Several Districts described consumers as “somewhat more confident” and businesses were reported to be “cautiously optimistic” about future sales.
• Manufacturing activity increased since the last report, with all Districts except St. Louis reporting improvements in orders, shipments or production.
• Residential real estate market activity increased from low levels in most Districts. Some Districts, however, expressed concern as to whether sales growth would continue after the expiration of the first-time home buyer tax credit at the end of this month.
• The commercial real estate sector “remained very weak” in most Districts, and several Districts expressed concern that lease concessions from landlords were putting downward pressure on rent.
• The banking and finance sector reported mixed lending activity across the Districts, because loan volumes and credit quality decreased, but there were some indications that credit demand was stabilizing and that credit quality “appeared to have turned the corner”.
• While overall labour markets remained weak, there was a pickup in hiring activity, “particularly for temporary staff”. Wage pressures, however, were again characterized as “minimal or contained”.
• The price of some inputs to production increased, but retail prices “generally remained level” as producers were largely unable to pass those cost pressures through to selling prices.

Today’s release of the Beige Book provides anecdotal support for the general theme seen in the recent U.S. economic data releases: economic conditions are improving, but inflationary pressures are subdued. Given this low inflation and the fact that hiring intentions are only now beginning to rise, we expect that the Fed will maintain interest rates in their current stimulative range of 0% to 0.25% into the fourth quarter to ensure that the recovery is sustained. We expect that the Fed will then begin gradually to raise rates, with the Fed funds rate finishing the year at 0.75%.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.