Author: RBC Financial Group Economics Department

The Federal Reserve’s Summary of Commentary on Current Economic Conditions, otherwise known as the “Beige Book,” which was compiled using data collected on or before August 20, 2012 in preparation for the September 12 and 13 Federal Open Market Committee (FOMC) meeting, indicated that overall economic activity “continued to expand gradually” in the period since the last report in mid-July. Eight of the Federal Reserve Districts saw modest or moderate growth during the reporting period while three noted a slowing growth and one cited mixed reports from business contacts (this distribution of assessments was unchanged from the previous report).

• Most Districts reported that retail spending was higher than that seen in the previous reporting period (June and early July), with one attributing the increased pace of growth to “heavy discounting by retailers clearing space for back-to-school items.” Retailers are “cautiously optimistic,” and sales are expected to rise until the end of the year. Demand for autos remains strong across most Districts, and expectations are for strong vehicle sales to continue.
• Manufacturing activity was mixed across the Fed Districts. Some regions reported increasing demand and sales, although the improvement was generally described as “small and uneven,” while half of the Districts saw demand decline. The outlook, however, was somewhat more positive as manufacturers in most Districts expected increasing demand.
• Housing markets continued to improve across all 12 Districts with sales and construction increasing further, and prices stabilizing. Commercial real estate market conditions held steady or improved in nearly all Districts as leasing demand picked up and rents increased. Multifamily real estate developments continue to be a key driver of construction activity.
• Lenders in a majority of Districts reported an increase in demand for most types of loans. Credit conditions were cited as having improved and credit spreads narrowed. Credit standards were broadly unchanged, although delinquency rates were reported to have been falling.
• Employment held steady or grew “only slightly” in most Districts during the reporting period. Several regions noted a softening in employment relative to expectations. Wage pressures are “very contained.”
• Selling prices of finished goods were largely stable despite increases in input prices. Agricultural commodity prices were higher mainly due to the drought in key growing regions, while some Districts cited higher gasoline prices as a potential concern. The more expensive raw materials are expected to result in future price increases in a few Districts.

 

The Beige Book’s qualitative assessment of US economic conditions is somewhat more positive than July 2012’s edition, but it is not exactly a ringing endorsement that there has been a “substantial and sustainable strengthening in the pace of economic recovery.” Indications that the pace of growth remains modest with limited improvement in labour market conditions and subdued inflationary pressures are unlikely to sway the “many members” who judged that “additional monetary accommodation would likely be warranted fairly soon” at the last FOMC meeting. Attention now turns to Fed Chairman Bernanke’s speech at Jackson Hole on Friday for clues as to the central bank’s next steps.

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.

 

To subscribe or visit go to:  http://www.riskcenter.com