Author: RBC Financial Group

The Fed's Summary of Commentary on Current Economic Conditions, otherwise known as the ‘Beige Book', compiled using data collected on or before July 9, 2012 in preparation for the July 31 to August 1 Federal Open Market Committee (FOMC) meeting, indicated that overall economic activity "continued to expand at a modest to moderate pace" in the period since the last report in early June. Specifically, eight Federal Reserve Districts reported modest or moderate growth (compared to 10 in the last report), three Districts reported a slower pace of growth (compared to only one previously), and one cited "mixed activity" (there was one report of steady growth in the previous report to round out the Districts).

• Most Districts reported that retail spending was modestly higher than the levels seen last year; however, growth was reported as slowing in recent months compared to earlier in the year. Some business contacts noted that high summer temperatures had a negative effect on sales. Most Districts reported that vehicle sales remained robust, with particularly high demand for fuel-efficient vehicles.
• Manufacturing activity continued to expand in most Districts, although the pace of growth was more modest than earlier in the year. Several Districts reported deceleration in new orders, and a few others noted that shipments had even declined.
• Housing markets reports were largely positive across all Districts as sales and construction levels increased, and inventories of unsold homes declined. Residential rentals continued to strengthen with rising rents being noted, while demand for multi-family units supported improved activity in the commercial real estate space.
• Lenders in most Districts reported modest growth in loan demand, led by a pickup in demand for mortgages and auto loans. Credit standards were broadly unchanged while credit quality was noted to have improved.
• With respect to labor markets, employment levels grew "at a tepid pace" in most Districts with contacts citing US fiscal policy uncertainty or weak demand for their "conservative approach to hiring." Wage pressures were minimal and concentrated among highly skilled workers.
• Inflationary pressures remained modest across most Districts with many mentioning that declining energy prices contributing to lower-cost expectations. Contractors and builders in a few Districts noted increases in the costs of building materials.

Yesterday's release of the Beige Book is somewhat less dour compared to Fed Chairman Bernanke's testimony to Congress during the last two days. While the anecdotal assessment of the US economy is indeed more downbeat than the previous Beige Book with added emphasis on slowing in the growth of activity compared to earlier in the year, the report pointed to continued growth, albeit "modest to moderate," and business contacts across the Fed Districts reported being "cautiously optimistic about future business conditions." The indication of "tepid" employment growth is likely to be the key point in the policy discussions at the upcoming FOMC meeting, and with prices pressures described as easing, the Fed stands prepared to take "further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions" if it views that as necessary.

Source:

RBC Financial Group

The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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