Author: RBC Financial Group Economics Department

The Federal Reserve’s Summary of Commentary on Current Economic Conditions, otherwise known as the Beige Book, compiled using data collected on or before September 28, 2012 in preparation for the October 23 and 24 Federal Open Market Committee (FOMC) meeting, indicated that overall economic activity “generally expanded modestly” in the period since the last report in late August. 10 of the 12 Federal Reserve Districts reported that growth continued at a modest pace, while one noted a “levelling off” in activity and another indicated some slowing in the pace of growth. These assessments of economic conditions represent a modest improvement from the last report in which three Districts reported a slowing in growth and one cited mixed activity.

• Consumer spending was generally reported as flat across Districts with retail sales running only modestly ahead of a year ago. Business contacts cited rising gasoline prices, political uncertainty, concerns about the fiscal cliff, and weather as factors weighing on sales. Auto sales were generally viewed as being at favourable levels despite some Districts reporting moderating sales.
• Manufacturing activity was mixed across the country, although more Districts reported that conditions improved than worsened. Contacts in several Districts noted significant gains in manufacturing related to construction, energy, and transportation, with strength particularly evident in automotive-related manufacturing.
• The residential real estate sector continued to be an economic bright spot late in the summer as all 12 Districts reported a strengthening in existing home sales and an attendant firming in home prices. New home construction and sales also improved and residential rental markets continued to be characterized as strong. Commercial real estate conditions were mixed as some Districts noted a softening in activity, particularly in office markets.
• Overall loan demand increased slightly during September, and most Districts reported an increase in mortgage lending, especially for refinancing purposes. Credit standards were little changed since the last report while loan quality improved and delinquency rates generally held steady or declined.
• Labour market conditions were little changed since the August report, with contacts indicating that uncertainty related to the upcoming elections, fiscal policy, and the ongoing European debt crisis were restraining hiring. Several Districts reported that employers continued to have difficulties filling highly skilled positions, with some regions seeing firms increasing training programs to meet their staffing needs. Wage pressures remain modest.
• Most Districts reported that price pressures are contained with both finished good and input prices little changed since August. There were some reports that higher crop prices were starting to flow through to food prices at the consumer level.

 

The Beige Book’s anecdotal assessment of economic conditions in the US is slightly more upbeat than its previous release, but it still pointed to only modest growth across the country. Of particular interest from a policy perspective is the limited progress on the jobs front, indicating that the Fed’s desired “sustained improvement” in labour market conditions is not yet within reach. Moreover, the fact that uncertainty related to domestic political developments and the difficulties in finding appropriately skilled labour are supportive of the view held by “a few” FOMC participants that hiring is being restrained by “uncertainties and a range of structural issues” that are reducing the “scope for combating unemployment with additional monetary policy stimulus.” With that said, with inflationary pressures remaining subdued, we expect that the Fed will keep monetary policy highly accommodative in an effort to mitigate some of the effect of the impending fiscal tightening and to help promote overall economic growth.

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.

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