US Beige Book Continues to Characterize Economy as Expanding Modestly

Yesterday’s Beige Book report, compiled in preparation for the September 17 to 18, 2013 Federal Open Market Committee (FOMC) meeting, provided an overall assessment that the economy was expanding at a “modest to moderate rate,” which represented little change from the prior assessment.

• The majority of Districts, nine of 12, indicated that consumer spending grew moderately or modestly. The exceptions were New York, where sales were mixed, Cleveland, where sales grow below expectations, and Richmond, where sales revenues weakened. Many Districts reported strong demand for home furnishings and home improvement items. As well, most Districts indicated a “robust pace of automobile sales” facilitated by attractive financing, which represented an upgrade from “moderate” sales reported in the previous Beige Book.
• The manufacturing sector continued to be characterized as expanding modestly. Several Districts indicated that demand was strong for inputs related to “autos, housing, and infrastructure.”
• There was little change in the characterization of the residential real estate market with the pace of single-detached home sales increasing moderately in most Districts. Several Districts reported that “rising home prices and mortgage interest rates may have spurred a pickup in recent market activity.” The report provided a slightly more upbeat assessment of non-residential real estate thereby indicating increased demand.
• Demand for non-financial services improved modestly since the last Beige Book update.
• The report indicated that lending activity weakened with several Districts reporting “less-favourable conditions than in the preceding reporting period.” The report went on to add that “lending standards were largely unchanged, which credit quality improved.”
• Although demand for agricultural products was strong, production was limited by weather extremes; however, the Chicago District noted that “crops were in better condition than they were during the drought last year.”
• Hiring was characterized as holding steady or increasing “somewhat in most Districts.”
• Wage pressures remained modest overall.

Yesterday’s Beige Book report indicated little change to economic conditions in the various Fed Districts relative to the previous report. Although there were areas of improvement such as in non-residential real estate and the pace of auto sales, it was offset by indications of some weakening in lending activity. The pace, however, remained robust enough that some near-term reduction in the extent of policy easing is still likely. Our forecast assumes that the Fed will start to reduce the pace of asset purchases sometime this fall likely at the October policy meeting.

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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