U.S. Highlights from the Federal Reserve's Beige Book Report

The Federal Reserve’s Summary of Commentary on Current Economic Conditions, otherwise known as the Beige Book, compiled using data collected on or before July 8, 2013 in preparation for the July 30 and 31 Federal Open Market Committee (FOMC) meeting, indicated that economic activity continued to increase at a “modest to moderate pace” since the last report in June in all 12 Federal Reserve Districts. This compares to the previous report in which 11 Districts characterized growth as “modest to moderate” while one reported strong growth.

• Most Fed Districts reported that consumer spending increased during the reporting period, although gains were only “modest or moderate”. Four Districts, however, reported that sales had not met expectations with most of these noting that weather conditions had constrained retail activity. The outlook among retailers was positive, although there were notes of cautious optimism.
• Manufacturing expanded in most Districts since the last survey, with broad-based reports of increasing new orders, shipments, and production. One District (Kansas City) noted a slight contraction in activity; however, storms were cited as a cause of the slowing in activity. Firms were optimistic about the prospects for the second half of this year, although contacts in a couple of Districts do not expect production to be as high as previously thought.
• Activity in residential real estate markets increased at a “moderate to strong” pace in most Districts. Rising sales and low or declining inventories are putting upward pressure on prices. Half of the Districts reported particular strength in construction in multi-family residences. Commercial real estate market conditions continued to improve across the country as well.
• Reports on banking conditions were generally positive, with loan demand increasing modestly and credit quality seeing “slight to moderate” improvements across the Districts. Recent increases in interest rates led a shift toward new mortgages and away from refinancing. Credit standards remain largely unchanged, although some noted increased competition to ease.
• Hiring held steady or increased “at a measured pace” in most Districts. Contacts from some Districts noted a reluctance to hire permanent or full-time staff with stronger demand correspondingly seen for part-time workers. Wage pressures generally remained contained in most Districts, although some sectors (including technology and manufacturing) reported “modest to moderate” wage growth.
• Inflationary pressures remained stable or modest in most Districts although some noted price increases, with particular upward pressure seen on prices for construction materials.

The Beige Book’s anecdotal assessment of the US economy points to generally increasing activity levels but continues to highlight only limited improvement in labour market conditions and muted inflationary pressures. Fed Chairman Bernanke reiterated in his testimony earlier today that the FOMC expects the pace of growth to pick up in the coming quarters, thereby resulting in levels of unemployment and inflation that are consistent with the Fed’s dual mandates. Should things develop in line with these projections, then the Fed is likely to begin easing its foot off of the monetary stimulus gas pedal later this year. The upcoming FOMC meeting, however, will see the Fed stay on cruise control, with no changes to policy likely to be made.

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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