FED’S BEIGE BOOK-SLOWING GROWTH
The Federal Reserve’s “Beige Book” analysis of current economic conditions in the Federal Reserve districts provided little new information. The survey period, running from mid-November through December, does not provide any information on first quarter activity. In general, the anecdotal information suggested that growth continued but was slowing compared with the earlier survey period which ran from early October through mid-November.
Most districts reported that retail sales were sluggish or disappointing, in-line with the December retail sales report that was released earlier this week. Manufacturing activity was mixed with weakness in the housing-related industries and motor vehicles but stronger in industries that provide export products and those that compete with imports. The energy sector remained strong with rig counts and drilling activity increasing. Nonfinancial services remained generally positive with the exception of the demand for transportation services, which were weakening in some areas due to smaller freight volumes. Health care, hospitality and professional services continued to show good demand in most areas. Tourism, helped along by the declining dollar, was a bright spot in several district’s reports. Home construction continued to decline in most districts and home prices declined in several districts, though Dallas reported steady home prices and Boston and San Francisco said home prices were mixed. Reports on commercial real estate were mixed with several districts reporting steady to slowing leasing activity, although Cleveland, Dallas and San Francisco indicated some increases in activity. Boston and Chicago reported slowing commercial construction activity.
Most districts reported slowing business and consumer loan demand with mortgage lending contracting in all districts. Several districts reported declines in loan quality and increased delinquencies. Labor markets remained relatively tight overall, especially for skilled workers, but housing-related industries continued to trim payrolls. Wage pressures were modest except for a few skilled workers. Prices were rising in some industries as producers passed along higher energy costs.
Outlook for 2008 was termed cautious for retail, with auto dealers in particular expecting flat to lower sales than in 2007. All the districts expected the housing market to remain weak at least through the middle of 2008 and most areas were expecting some slowing in commercial real estate activity. However, new offshore platforms did indicate some increase in energy output in 2008.