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posted on 30 November 2016

November 2016 Beige Book: Reading Between The Lines - No Change in the Rate of Growth

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated "that the economy continued to expand across most regions from early October through mid-November". The previous report stated the economy expanded at "outlooks were mostly positive, with growth expected to continue at a slight to moderate pace in several Districts.".

Analyst Opinion of this month's Beige Book

Does not seem that there is much change to the rate of growth. So much for the FOMC saying the economy is strengthening. The Fed advised the following changes were going to be made to the Beige Book in 2017:

The Federal Reserve on Wednesday announced changes that will begin in 2017 to its Beige Book publication. The modifications will standardize specific core topics included in each of the 12 Federal Reserve Bank District reports, provide a more consistent presentation of the national summary, and enhance the design of the publication.

The national summary, along with each District report, will consistently cover three core topics: overall economic activity, employment and wages, and prices. Each District report will continue to include other topics or industry-specific reports of particular interest in that District. Additionally, the national summary will include highlights from each District.

The Beige Book characterizes regional economic conditions and prospects across the 12 Federal Reserve Bank Districts based upon a variety of information gathered from businesses and community organizations in each District. Its qualitative nature creates an opportunity to identify dynamics and emerging trends in the economy that may not be readily apparent in available economic data. The Beige Book is generally released on the Wednesday two weeks prior to each Federal Open Market Committee meeting.

The first Beige Book in the new format will be released on January 18, 2017. A template of the new format is attached.

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 18 November 2016. The summary for this release:

Reports from the twelve Federal Reserve Districts indicate that the economy continued to expand across most regions from early October through mid-November. Activity in the Boston, Minneapolis, and San Francisco Districts grew at a moderate pace, while Atlanta, Chicago, St. Louis, and Dallas cited modest growth. Philadelphia, Cleveland, and Kansas City cited a slight pace of growth. Richmond characterized economic activity as mixed, and New York said activity has remained flat since the last report. Outlooks were mainly positive, with six Districts expecting moderate growth.

Demand for manufactured products was mixed during the current reporting period, with the strong dollar being cited as a headwind to more robust demand in a few Districts. Modest to moderate increases in capital investment are expected in several other Districts. Business service firms saw rising activity, especially for high-tech and information technology services. Reports from ground freight carriers were mixed, while port cargo increased. A majority of Districts reported higher retail sales, especially for apparel and furniture. New motor vehicle sales declined in most Districts, with a few Districts noting a shift in demand toward used vehicles. Tourism was mostly positive relative to year-ago levels. Residential real estate activity improved across most Districts. Single-family construction starts were higher in a majority of Districts, while multifamily construction reports were mixed. Activity in nonresidential real estate expanded in many Districts. Banking conditions were largely stable, with some improvement seen in loan demand. Farmers across reporting Districts were generally satisfied with this year's harvests. However, low commodity prices continue to weigh on farm income. Investment in oil and gas drilling increased slightly, while reports on coal production were mixed. A tightening in labor market conditions was reported by seven Districts, with modest employment growth on balance. Districts noted slight upward pressure on overall prices.

Demand for manufactured products was mixed during the current reporting period. Boston, New York, Atlanta, Chicago, and St. Louis reported modest or moderate growth, while Richmond noted that factory activity declined. The remaining Districts said that production was mixed or grew slightly. Gains in activity among chemical firms were reported in Boston, Philadelphia, and Dallas. The auto industry was a source of strength in Cleveland, Richmond, Chicago, and St. Louis. Machinery manufacturing rose in Philadelphia, St. Louis, and Kansas City, but it declined in Chicago and Dallas. Aerospace-related manufacturers saw improving activity in Chicago, St. Louis, and Kansas City, while their counterparts in San Francisco saw orders decline. Philadelphia and Dallas noted weakening in fabricated metal products manufacturing, while producers in St. Louis are expanding capacity. The electronics industry expanded in Kansas City and San Francisco, while firms in Philadelphia noted weaker activity. The strong dollar remains a key concern for exporters in the Boston, Dallas, and San Francisco Districts. In contrast, Kansas City reported that export orders continued to expand. Modest to moderate increases in capital investment are expected in the Philadelphia, Richmond, St. Louis, Minneapolis, and Kansas City Districts, with several companies announcing facility expansion plans in St. Louis and Minneapolis. The overall outlook by manufacturers in New York, Philadelphia, Atlanta, St. Louis, Kansas, and Dallas is positive, with most expecting growth in new orders and production during the next several months.

Nonfinancial Services
Most Districts experienced growth in nonfinancial services since the previous reporting period. New York was an exception, with reports of flat to declining activity among service-sector firms. Nevertheless, New York service contacts remained positive about the near-term outlook. High-tech and information technology services expanded in Richmond, St. Louis, Kansas City, Dallas, and San Francisco. Most healthcare contacts anticipated future growth; however, San Francisco expressed concerns about potential changes to the Affordable Care Act.

Reports on transportation services were mixed. Kansas City reported a moderate decline in activity, while Atlanta reported little change and Dallas reported mixed cargo volumes. On the other hand, Cleveland, Richmond, St. Louis, and San Francisco experienced varying degrees of expansion. Atlanta and San Francisco noted continued strength in e-commerce shipments, while Cleveland contacts noted that Internet retailers are transitioning to on-demand delivery service providers for shipping as opposed to traditional ground carriers. Atlanta reported growth in port cargo shipments and a decline in trucking activity. Richmond noted stronger port traffic in recent weeks, and a national trucking firm in that District reported downward rate pressures because of excess capacity. Dallas noted steady truck and seaport cargo volumes.

Consumer Spending and Tourism
The Boston, Minneapolis, and San Francisco Districts reported that retail sales expanded at a moderate pace on balance. Retailers in New York, Chicago, St. Louis, and Kansas City reported that sales were mixed to slightly higher, while their counterparts in Philadelphia, Richmond, and Atlanta characterized sales as unchanged. Weakening sales were seen in Cleveland and Dallas. Apparel sales were doing well in Boston, Philadelphia, Minneapolis, and San Francisco, while contacts in Cleveland and Dallas suggested that the unusually warm weather may have hurt apparel sales. Boston, Cleveland, and Chicago saw an increase in furniture purchases. Cleveland and San Francisco noted declining sales at brick-and-mortar stores, a situation which they attributed to a consumer shift toward online purchasing. Contacts in Cleveland and Atlanta noted that sellers have little control over product pricing. Retailers in Boston, Cleveland, Atlanta, and Kansas City expect modest positive sales growth during the rest of the year and remain optimistic for the holiday season. Dallas suggested that retail demand may not increase in the near term, driven partially by low sales in border cities because of the strong value of the dollar.

Motor vehicle sales declined slightly in most reporting Districts during the period. Kansas City saw sales decline well below year-earlier levels. In contrast, new vehicle sales in Chicago were characterized as strong, a circumstance which dealers attributed in part to aggressive incentives. Philadelphia indicated that light vehicle sales were plateauing at high levels, while Cleveland reported modest growth in motor vehicle sales but noted that this was driven by the used vehicle market. The New York and St. Louis Districts also noticed a shift in demand toward used vehicles. Richmond and St. Louis contacts suggested that softening vehicle sales might be attributed to uncertainty surrounding the presidential election, while contacts in Dallas point to energy-related weaknesses as a factor in the sales decline. Respondents in St. Louis and Kansas City expected a modest pickup in vehicle sales during the next several months, while contacts in Dallas were less confident for future growth.

Tourism was mostly positive relative to year-earlier levels: Boston, Minneapolis, and San Francisco experienced strong growth, while Philadelphia and Kansas City reported modest growth in activity. Respondents in Boston noticed continued strong international travel, although some contacts expressed uncertainty about the trend's continuing in 2017 if the dollar remains strong. New York reported that attendance at Broadway theaters slumped in October; however, revenues have increased and are on par with those of a year earlier.

Real Estate and Construction
Residential real estate activity improved across Districts. Reports about existing- and new-home sales were mixed, but most Districts noted a slight to modest increase during the period. Residential construction was up in the Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas Districts. Home prices grew in many Districts, including Boston, Philadelphia, Cleveland, Atlanta, St. Louis, Kansas City, and San Francisco. Philadelphia reported that the strength of the single-family market is in high-end housing. In contrast, Kansas City reported that sales of low- and medium-priced homes continued to outpace sales of higher-priced homes. Dallas reported that the sales of lower-priced homes remained solid. Home inventories were generally reported to be low or declining and restraining sales growth. Boston, Philadelphia, Cleveland, Richmond, and Minneapolis reported low or decreasing inventories. Reports on inventory levels varied in Atlanta, while inventories held steady in Kansas City.

Commercial construction activity moved higher in the New York, Cleveland, Richmond, Atlanta, St. Louis, Kansas City, and San Francisco Districts. In contrast, Minneapolis noted a slowing in commercial construction. The Boston, Richmond, Minneapolis, and San Francisco Districts reported increases in leasing activity, while Philadelphia noted a lull in nonresidential leasing growth compared with the prior period. Dallas reported leasing activity as mostly unchanged. Commercial sales activity continued to be robust in Minneapolis and grew modestly in Kansas City. Ongoing multifamily construction has been steady at a fairly high level in New York. Multifamily construction varied in the Atlanta District and slowed somewhat in Richmond, Minneapolis, and San Francisco.

Banking and Finance
District reports indicated that the demand for credit varied widely. On the commercial side, New York, Philadelphia, and St. Louis experienced strong demand for commercial and industrial loans, while C&I lending was slower in Dallas. Commercial real estate lending was strong in the New York, Philadelphia, and Cleveland Districts. In Atlanta, some small businesses had trouble obtaining credit, and St. Louis reported slightly lower credit worthiness for agricultural customers only. Residential mortgage activity was steady in New York and Kansas City; higher in Philadelphia, Richmond, Chicago, and Dallas; and strong in Cleveland and St. Louis. Auto lending was unchanged in St. Louis, up in Philadelphia and Dallas, and strong in Cleveland and Chicago. Credit quality was unchanged across most Districts, though improvements were seen in New York, Philadelphia, and Chicago. Credit standards tightened in select loan categories in the Boston, New York, and Philadelphia Districts, but they loosened slightly in Richmond, where contacts reported facing competition that used more aggressive loan structures.

Agriculture and Natural Resources
Although agricultural conditions varied widely, farmers across reporting Districts were generally satisfied with this year's harvests. However, low commodity prices continue to weigh on farm income. Atlanta, Chicago, Minneapolis, and Dallas reported strong yields of corn and soybeans. Cotton harvests were above year-ago levels in Atlanta, St. Louis, and Dallas. The Richmond District reported that the biggest impact on international trade was in the poultry industry, with the loss of four million to five million birds killed by Hurricane Matthew and related floods. San Francisco noted that the strong dollar continued to hold back exports of agricultural products, particularly apples and pears. Contacts in St. Louis, Minneapolis, Kansas City, and Dallas said that farm incomes are flat or lower compared to those of a year ago. There were scattered reports about issues surrounding loan repayment and crop financing for 2017.

The energy sector continued to improve slowly across many of the reporting Districts. Cleveland, Minneapolis, Kansas City, and Dallas saw a slight increase in oil and gas drilling. Contacts in Dallas re-affirmed that oil and gas activity will pick up gradually in 2017. However, these expectations have moderated in light of recent revisions to the global oil demand and supply outlooks. An oversupply of crude oil and gasoline continued in the Atlanta District, a situation which perpetuated a high demand for inventory storage. Coal production increased slightly in the Cleveland and Richmond Districts, but declined in St. Louis. The Minneapolis District noted that shipments of iron ore on the Great Lakes in September were more than 5 percent below levels of a year earlier. Contacts in Minneapolis and Atlanta reported expansion of renewable energy projects, particularly solar and wind.

Employment, Wages, and Prices
Employment continued to expand during the period. The Richmond, Chicago, St. Louis, and San Francisco Districts all reported moderate increases, while Boston and Minneapolis saw employment rise at a modest pace. Overall, employment increased slightly in Philadelphia, was little changed in Cleveland, and held steady or increased in Dallas. Manufacturing employment reports were mixed, with four Districts reporting flat or declining payrolls and two Districts reporting increases in manufacturing employment. The Boston, Philadelphia, and Cleveland Districts noted increases in retail employment or hours, while the Richmond District noted decreases. Most Districts saw increases in staffing activity. Boston reported fairly strong activity, with most staffing firms' revenues increasing 10 percent to 25 percent year-over-year. Staffing firms in Cleveland attributed a modest decline in the number of job openings and placements to uncertainty stemming from the presidential election.

As in the past four Beige Books, wage growth was characterized generally as modest, on balance, by district contacts. The St. Louis, Minneapolis, and San Francisco Districts all reported moderate wage growth. Wage growth was modest in six of the twelve Districts: Boston, New York, Philadelphia, Atlanta, Kansas City, and Dallas. In the Richmond District, wages increased slightly. Cleveland reported that wage pressures were more evident for select occupations, while Dallas noted that wage pressures were more widespread. Seven districts--Boston, New York, Philadelphia, Atlanta, Chicago, St. Louis, and Dallas--noted that labor markets were tightening. Staffing services reported rising wages or difficulty filling positions without wage increases in a majority of the Districts.

Overall, there was slight price growth during the period. The Philadelphia, Chicago, St. Louis, and Minneapolis Districts reported modest price increases, while most of the remaining Districts reported slight or limited price increases. The retail and services sectors reported slight to modest price increases, while agricultural product prices have stabilized at low levels. Contacts in the Philadelphia, Cleveland, Atlanta, St. Louis, and Minneapolis Districts reported increases in the cost of building materials, and contacts in the Atlanta and Dallas Districts noted downward pressure on freight transportation prices.

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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