BEIGE BOOK REPORTS ECONOMY SLOWED FURTHER; PRICE PRESSURES INCREASING
The Federal Reserve’s Beige Book indicates the economy slowed further based on reports during the first half of July. Five Districts reported weakening or softening in their overall economies, Chicago and Kansas City characterized growth as sluggish and moderating, St. Louis and San Francisco indicated little growth. Only Cleveland, Minneapolis and Dalls reported slight improvements.
Consumer spending was reported sluggish in nearly all Districts with tax rebate checks boosting sales for a limited range of goods, such as electronics.
Auto sales were uniformly weak with sales particularly poor for trucks and SUVs.
Manufacturing activity declined in many Districts with support mostly coming from export growth.
Services growth continued to be mixed although better than the goods sectors. The growth in health care services and IT industries offsetting some of the weakness in other areas.
Residential real estate markets were weak and declining across most of the Districts with sales weak, inventories increasing, and home prices falling.
Commercial real estate activity was described in much weaker terms than in recent reports. Office market conditions were weak in Richmond and bleak in Washington, DC while the Boston District reported sentiment in the sector as “decidely morose”. Retail space was described as overbuilt in Boston and Chicago and there was a steep decline in commercial construction around San Diego.
Loan activity was reportedly weak in most areas with business loans slightly better than consumer and residential real estate loans. Most Districts reported a further tightening of credit standards, especially for construction and real estate loans.
Several Districts reported deterioration in loan quality with increased delinquencies on consumer, real estate and construction loans. While Dallas was not seeing appreciably poorer loan quality, it was expecting deterioration in coming months.
Cleveland reported that smaller banks were seeing some improvements in their deposits as investors sought safety.
All Districts reported overall price pressures as elevated or increasing with the increases widespread across commodities but especially acute for petroleum-based products. Many Districts reported that manufacturers were planning on passing costs through where possible but with concerns about reduced sales.
Labor markets are seen as unchanged or weaker since the last survey period. Wage pressures were modest with the only exception being for highly specialized skilled workers.