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 February 22 in preparation for the March 19 and 20 Federal Open Market Committee (FOMC) meeting, indicated that economic activity generally expanded at a modest to moderate pace since January 2013, although two Districts characterized growth as slow (the previous version of the report released on January 16 saw all 12 Fed Districts describe growth as modest or moderate).
- Consumer spending reportedly improved across the country and was led by strength in auto sales and tourism-related spending. Several Districts, however, report mixed to lower activity among non-auto retailers although business contacts in three Districts (New York) said that adverse weather conditions were to blame for a slowing in sales. As well, many Districts noted that the expired payroll tax holiday and the Affordable Care Act restrained sales growth while higher gas prices were also having a negative effect on activity.
- Manufacturing improved in most Districts, although the increases were generally modest. Contacts from several Districts cited concerns over government regulation and fiscal uncertainty as reasons for the slow growth. Manufacturing related to the housing sector (wood products, household goods, cement, and general housing construction products) was broadly reported as a source of strength.
- Housing market activity continued to strengthen across most of the country, against a backdrop of rising home prices and shrinking inventories of homes available for sale. Low interest rates are continuing to motivate homebuyers, and potential buyers are expressing greater confidence. Commercial real estate activity was mixed or slightly improved, and credit for development and transactions in the commercial space was reported as being widely available.
- Overall loan demand was stable to slightly higher in comparison to the previous reporting period. Several Districts reported strong demand for mortgage refinancing and auto loans while demand for commercial real estate loans was strong in a few Districts as well.
- Labour market conditions generally improved although several Districts reported restrained hiring, with the unknown effects of the Affordable Care Act being cited as a reason for planned layoffs and reluctance to hire more staff. Wage pressures were mostly limited.
- Inflationary pressures remained modest across Districts. Although some input prices continued to rise, plans to increase selling prices were limited.
The anecdotal assessment of US economic conditions provided by the Beige Book suggests that growth has continued with a modest upward trajectory so far in early 2013 although the pace of increase is being dampened by concerns related to the effect of government policies. Encouragingly, there are indications that the Fed’s accommodative monetary policy stance is indeed stimulating demand among interest rate-sensitive sectors, which is in turn generating positive spill-over effects for other areas of the economy. We believe that the Fed will continue to provide this support to the economic recovery, particularly against the backdrop of fiscal policy uncertainty, and we expect the Fed will make no changes to policy at the upcoming FOMC meeting. In fact, the fed funds rate is expected to hold steady in the current 0.00% to 0.25% range going into 2015.
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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