FED’S BEIGE BOOK-SLOWER ECONOMIC GROWTH, PRICE PRESSURES MODEST
The Federal Reserve’s Beige Book on current economic conditions showed a continuing expansion of the economy but at a slower pace than during the previous survey period. This survey period covered October through mid-November. Retail sales were generally soft, the report describes them as “downbeat”, with several districts reporting early holiday discounting. Reports on expectations for sales during the holiday season overall were slightly pessimistic with most retailers expecting modest increases, at best, when compared to last year. Several reports indicated that retail inventories were somewhat above desired levels. Transportation, especially, trucking and freight movement, showed some slowing. Manufacturing growth appear stable on balance with those sectors having strong export markets doing the best. Tourism, especially foreign tourist visiting the U.S., one of the largest U.S. exports of services, is doing well in most areas. Residential real estate remains quite depressed and the pace of new homebuilding is very low with builders continuing to shelve projects. No significant pickup in homebuilding is expected until well into next year at earliest. Commercial and public construction remained high in most regions although some regions were beginning to see some leveling off. Lending to business was generally high but at a slower rate of increase. Reports indicated a slight increase in delinquencies on commercial and industrial loans and slightly larger increases in commercial mortgages. Lending standards were tightening for commercial construction and real estate projects. Residential lending continued to slide with more stringent credit conditions tightening lending. Mortgage delinquencies increased significantly in many areas. Price increases were modest except for food and energy costs. Increases in energy prices were putting upward pressure on transportation costs. Wage increases continued to be modest with most people estimating increases of 3-4%. Labor markets did loosen in some areas but there were still selected skills in short demand. The Beige Book overall indicates a somewhat pessimistic outlook with the housing downturn and related events as well as tighter credit conditions leaving the impression of at least a softening economy. Given today’s market reaction to generally poor economic data, we can’t imagine the market suddenly turning south on this sodden report.