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posted on 13 July 2016

July 2016 Beige Book: Reading Between The Lines - The Rate Of Economic Expansion Is Unchanged.

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated that the economy "continued to expand at a modest pace across most regions from mid-May through the end of June". The previous report showed "modest economic growth since the last Beige Book report". My interpretation is that the Fed is saying the rate of economic expansion is the same as the previous period.

Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession. The Beige Book completely missed the 2001 recession, and was late in seeing the Great Recession.

This report is based on information collected on or before 01 July 2016. The summary for this 13 July 2016 release reads as follows:

Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand at a modest pace across most regions from mid-May through the end of June. Business contacts in Cleveland reported a steady level of activity, while Minneapolis reported that activity increased at a moderate pace. Labor market conditions remained stable as employment continued to grow modestly since the previous report and wage pressures remained modest to moderate. Price pressures remained slight. Consumer spending was generally positive but with some signs of softening. Manufacturing activity was mixed but generally improved across Districts. Real estate activity continued to strengthen, and banks reported overall increases in loan demand. Agricultural activity was mixed but generally improving. The natural resources and energy sector has remained weak. The outlook was generally positive across broad segments of the economy including retail sales, manufacturing, and real estate. Districts reporting on overall growth expect it to remain modest.

Employment, Wages, and Prices
Employment continued to grow modestly since the previous report. Reports of growth ranged from little change in Cleveland to moderate growth in New York. Firms in the Dallas District reported varying degrees of changes in employment across sectors while contacts in Boston and Atlanta reported cautious hiring activities. Contacts in several Districts reported strong demand for skilled labor, with challenges filling positions in fields such as IT, biotechnology, and healthcare services. Manufacturing employment was largely unchanged in Boston, New York, Cleveland, and Richmond and lower in Philadelphia and Dallas. Retail employment was weak relative to other sectors, with contacts in Boston, Cleveland, and Dallas reporting little to no change in retail employment and the San Francisco District reporting employment reductions in the retail grocery sector.

Wage pressures remained modest to moderate in most Districts, with the strongest pressures linked to skilled workers and difficult-to-fill positions. Contacts in Cleveland, Chicago, and San Francisco reported increased wages for entry-level employees. Wage pressures picked up in Richmond and San Francisco, with a staffing contact in Richmond noting that firms that have not increased their wages have been left with the least-skilled employees. Wage pressures in the construction industry were highlighted in the Philadelphia, Cleveland, and San Francisco Districts.

Price pressures remain slight, with contacts generally reporting no movement in selling prices and increases in input prices and housing prices. Contacts in New York, Philadelphia, Cleveland, Atlanta, Chicago, and St. Louis reported little to no changes in selling prices. Upward pressure on input prices was reported in most Districts except San Francisco which reported a decrease. Livestock prices were mixed in most reporting Districts. Crop prices generally increased, although Cleveland, Richmond, and Chicago noted the more recent decline in crop prices.

Consumer Spending and Tourism
Overall consumer spending was positive but with signs of softening. However, the outlook for consumer spending activity in the months ahead was predominantly optimistic across most reporting Districts. General retail sales activity was mixed, with slight to modest declines reported in Philadelphia, Cleveland, and Richmond, mixed sales activity reported in Atlanta and Chicago, and modest to moderate growth reported in St. Louis, Minneapolis, Kansas City, and San Francisco. Among general retailers, the outlook was mainly optimistic in Boston, Philadelphia, and Kansas City, while contacts in Atlanta and St. Louis expect sales to be flat or slightly higher in the months ahead. Most Districts noted that automobile sales slowed during the reporting period, but remained at fairly high levels. Contacts in Cleveland, Kansas City, and Dallas expressed an optimistic outlook for future automobile sales. Travel and tourism activity exhibited modest to moderate growth across most Districts. New York, however, described its tourism activity as generally sluggish, and hospitality contacts in San Francisco reported lower occupancy rates. In contrast, strong growth in tourism activity was reported in Richmond, Chicago, and Kansas City.

Manufacturing and Other Business Activity
Manufacturing activity was mixed since the previous report. The reporting Districts noted that the outlook remained positive but deteriorated. Activity declined in Richmond and Dallas, remained unchanged in Cleveland and San Francisco, and increased in Boston and Atlanta, but at a slower pace than previously reported. Activity continued to increase at a modest pace in Chicago and Minneapolis. Several Districts reported a rebound following a decline in the previous reporting period, including New York, Philadelphia, St. Louis, and Kansas City. Several Districts reported strength in aircraft and automobile manufacturing, although contacts in Cleveland noted that year-to-date production of automobiles is lower than at this time last year. Conditions in the primary metals industry were mixed: Contacts in Philadelphia and Dallas reported declines in new orders and weaker activity, while contacts in Cleveland and Chicago reported an increase in demand for steel. In Boston, Chicago, and Minneapolis, manufacturers with ties to the energy sector reported weakness.

Growth in the nonfinancial services sector was described as slight to modest by reporting Districts. Increases in activity in the professional business services sector were reported by Minneapolis, Kansas City, and Dallas, and increases in activity in the health care sector were reported by Richmond, St. Louis, and Dallas. Reports from the technology sector were mixed, with contacts in San Francisco reporting slower sales, contacts in Kansas City reporting modest increases in activity, and contacts in Boston reporting robust growth. Conditions in the transportation sector were mixed. Overall freight volume was down in Cleveland, and reports from Chicago indicate a decline in demand for transportation services. Contacts in Atlanta and Dallas noted a decrease in rail cargo volume. In contrast, container volume increased at ports in the Richmond and Atlanta Districts. Contacts in Cleveland, Atlanta, and St. Louis cited the slowdown in the energy sector as a contributor to low cargo volume.

Real Estate and Construction
Residential real estate activity continued to strengthen since the previous period. Single-family home sales increased at a moderate pace overall, with Boston, Cleveland, and St. Louis reporting strong growth. Many Districts indicated that inventories continue to be low. Despite this persistent inventory issue, Boston, Atlanta, Kansas City, and Dallas all report that contacts have a positive outlook for the market in the next few months. Districts generally reported that house prices increased. Residential construction activity was mostly positive across Districts. Cleveland and Kansas City indicated strong growth in housing starts. Conversely, New York reported that single-family construction tapered off through most of the District, and Chicago reported little change in residential construction activity. Philadelphia, Richmond, St. Louis, and San Francisco noted a lack of available lots to build on.

Commercial sales and leasing activity remained stable or improved in almost all Districts. Absorption rate and rent increases were documented in Atlanta and Kansas City. Improving industrial real estate markets were noted in New York, Richmond, and Dallas. Several contacts in Richmond also reported robust retail leasing activity. Office market conditions were mixed among reporting Districts. Commercial construction activity grew modestly from the previous reporting period. Construction activity picked up in New York, and Cleveland continued to report project pipelines are strong. Reports on multifamily construction were mixed in Richmond, Atlanta, and Dallas. New York noted that multifamily construction has tapered off through most of the District.

Banking and Finance
Overall loan demand increased, although reports on the pace of growth varied from steady but slow in Cleveland to strong in St. Louis. Reports from Chicago were mixed while loan growth softened in Dallas. Residential lending increased variedly in all reporting Districts, from anemic expansion in Dallas to strong growth in St. Louis. Loan demand for commercial and industrial loans was mixed across reporting Districts, ranging from declining growth in Dallas to strong growth in St. Louis. Demand increased for commercial real estate loans in New York, Philadelphia, Richmond, and Kansas City and plateaued in Dallas. Consumer lending was unchanged or improved in all reporting Districts, except for declines in auto lending in Cleveland and revolving credit in San Francisco. Asset quality improved across reporting Districts, except in Chicago and Kansas City where it was mostly unchanged. Lending standards were unchanged in New York, Cleveland, and Kansas City. Dallas reported relaxed standards for all sectors except energy.

Agriculture and Natural Resources
Agricultural activity was mixed but improving on average. Most reporting Districts noted higher prices for their respective major crops at the time farmers were able to lock-in for the fall harvest, while Cleveland, Richmond, and Chicago reported that some crop prices have declined recently. Planting for key crops compared favorably with historical progress in reporting Districts. Most reporting Districts noted that growing conditions are currently good, but Richmond reported flood damage in West Virginia and Atlanta reported varying degrees of drought. Farm income is expected to improve from very low levels in Chicago, St. Louis, Minneapolis, Kansas City, and Dallas. Livestock prices were mixed in the reporting Districts.

Energy firm downsizing or weak growth was reported by contacts in Cleveland, Atlanta, Kansas City, and Dallas; however, the outlook for oil and gas is improving in Kansas City and Dallas. Dallas and Atlanta noted that credit availability is a major downside risk for the outlook. The number of operating drilling rigs declined in Kansas City, was unchanged in Cleveland, and increased in Minneapolis and Dallas; natural gas extraction growth was flat in Richmond. A continued, severe decline in coal production was reported in St. Louis, while Richmond reported no change in production.

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Click the "source" hyperlink below to read the full report.

The Beige Book is a summary of current economic conditions:

Commonly known as the Beige Book, this report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.

Fed's Words When Economy is entering a Recession

For the recession starting December 2007, here is the lead up summary words from the Beige Books:

  • 28Nov2007 - "expanding"
  • 16Jan2008 - "increasing moderately"
  • 05Mar2008 - "growth slowed"
  • 16Apr2008 - "weakened"

For the March 2001 recession which ended in November 2001, here are the Beige Book summary words:

  • 17Jan2001 - "economic growth slowed"
  • 07Mar2001 - "sluggish to modest economic growth"
  • 02May2001 - "slow pace of economic activity"
  • 13Jun2001 - "little changed or decelerating"
  • 08Aug2001 - "slow growth or lateral movement"
  • 19Sep2001 - "sluggish"
  • 24Oct2001 - "weak economic activity"
  • 28Nov2001 - "remained soft"
  • 16Jan2002 - "remained weak"

Source: Federal Reserve

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