US Beige Book, Economic Activity Improved in All Districts, but Pace of Growth was Modest

The Fed’s Beige Book, prepared with data collected on or before May 28, indicated that economic activity improved across all 12 Federal Reserve districts, although the pace of growth was generally seen as “modest.”

• Consumer spending improved during the reporting period, although it continues to be concentrated on necessities as opposed to discretionary “big-ticket” items.
• Business spending “increased moderately,” with some districts noting that inventories were levelling off. Capital spending was “slightly higher” in a number of districts, although continuing caution and tight credit availability were limiting expenditures.
• Manufacturing activity continued gradually to improve across all districts. Most districts reported increases in factory production, shipments and new orders.
• Residential real estate market activity improved since the last report, with most districts noting an increase in home sales and new home construction prior to the expiration of the homebuyer tax credit at the end of April. Activity, however, eased during May.
• The commercial real estate activity “generally remained weak” and office, industrial and retail vacancies continued to drift upward; however, the lower rents have led to a rise in leasing activity in a handful of districts.
• Commercial and industrial lending “remained weak” in most districts, although some districts indicated that business loan demand was firming. Consumer lending was noted to have weakened in most districts, while real estate lending increased despite standards on these loans remaining generally tight.
• Labour market conditions “improved slightly,” with permanent employment “edging up in most districts” and many districts also noting a rise in temporary hires.
• Prices of final goods and services were largely stable because higher input costs were not being passed along to customers and wage pressures continued to be minimal.

Today’s release of the Beige Book, compiled in preparation for the upcoming FOMC meeting, provides anecdotal support for the general theme seen in recent U.S. economic data releases: economic conditions continue to improve but inflationary pressures remain muted. As a result, this assessment is likely to argue in favour of the FOMC maintaining the current 0% to 0.25% range for the Fed funds “for an extended period.”

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.