U.S. Beige Book Report: Activity Continues to Expand while Employment Assessment Improves


 
Author: RBC Financial Group Economics Department
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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