U.S. Beige Book Report: Activity Continues to Expand while
Employment Assessment Improves
Location: Toronto
Date: 2014-01-16
- Today’s Beige Book report, compiled in preparation
for the January 28 and 29, 2014 Federal Open Market Committee
(FOMC) meeting, provided an overall assessment that the economy
“continued to expand across most regions and sectors,” while the
number of districts reporting “moderate” growth increased to
nine from seven in the previous report, thus indicating some
strengthening in activity.
- Eight districts reported increases in hiring, with the
Richmond Fed in particular citing “strong labor demand.” This
represents an improvement on the previous employment assessment
when hiring picked up modestly in five of the 12 districts but
remained unchanged in the others.
- Most districts reported continued growth in consumer
spending with activity “modestly to moderately higher” and
holiday sales on plan or slightly stronger than in the previous
year. Demand for motor vehicles was mixed, with several
districts reporting stronger auto sales in December while some
districts reported a slight decline in the month.
- Manufacturing activity was generally reported to be growing
steadily, with all but one of the 12 districts reporting sales
growth and an optimistic outlook. Investment in the
manufacturing sector has generally increased and further growth
is anticipated. Areas of strength in manufacturing activity were
commercial aviation, autos, and construction materials.
- Residential real estate activity continued to improve with
most districts reporting increasing home sales toward the end of
2013, although three districts indicated that year-over-year
sales growth had slowed from earlier in the year. Home prices
continued to increase in six of the 12 districts, while three
districts reported steady prices. Residential construction
increased slightly or moderately in most districts while eight
districts expect activity will pick up further in the near term.
Activity in commercial real estate was strong in most districts
while investment strengthened in “numerous” districts. 10
districts reported a recent pickup in commercial construction
activity and most saw the outlook continuing to improve.
- Banking conditions were once again stable with no
substantial changes in loan volumes reported; six districts
reported moderate loan growth while three reported no change. No
major changes in credit standards were reported, although three
districts noted some relaxation of financial institutions’
underwriting standards, which was attributed to competition in
the sector. Mortgage lending declined in several districts due
to slowing refi activity although some offset was provided by
slight increases in new purchase loans in some districts.
- Demand for non-financial services increased moderately with
stronger demand for information technology services and staffing
services reported in some districts. Growth in various
transportation services was also reported. Contacts in most
districts expect activity will continue to increase at a
“moderate to strong” pace.
- Wage and price pressures were “contained” in most districts,
with five reporting stable prices, four reporting slight
increases in prices, and two seeing modest price growth; several
districts reported “slight to modest” increases in wages.
The Beige Book report provided a slightly more upbeat
assessment of the US economy compared to December’s report. Most
districts continue to see a moderate pace of demand growth, with
some reporting strengthening activity, while the near-term outlook
remains positive in most districts. The reported improvement in
hiring provides some offset to December’s weak jobs report, which we
expect the Fed will largely look through given recent volatility in
payroll employment and strong underlying growth momentum. With
above-trend growth in the second half of last year forecast to
continue into 2014, thus resulting in further employment gains, we
expect the Fed will continue to reduce monthly asset purchases in
“measured steps,” with a complete cessation of purchases toward the
end of 2014.
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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