Econintersect: The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) characterizes economic activity that “the economy continued to expand at a modest to moderate pace from early October through mid-November“. The previous report said “economic activity continued to expand at a modest to moderate pace during the reporting period of September through early October“.
Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession.
Overall, the report indicates the economy is expanding, and because the same words were used to describe economic activity for the last several reports – it is assumed the economy is growing at the same rate for the last 3 months.
The summary for the 04 November 2013 release reads as follows:
Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest to moderate pace from early October through mid-November. Activity in the New York, Cleveland, Richmond, Atlanta, St. Louis, Minneapolis, and Dallas Districts grew at a moderate pace, while Philadelphia, Chicago, Kansas City, and San Francisco cited modest growth. Boston reported that economic activity continued to expand.
Manufacturing activity continued to expand in most Districts, with gains noted in the motor-vehicle and high-technology industries. Manufacturers in many Districts expressed optimism about near-term growth prospects. Demand for professional business services experienced stable to moderate growth, especially in computer technologies. Freight volume showed signs of strengthening. Reports on retail spending were positive. Looking forward to the holiday shopping season, retailers reported being hopeful, but cautious. Sales of new motor vehicles were reported as moderate to strong across much of the United States. Tourism increased in most reporting Districts, although the federal government shutdown had a negative impact in some areas. Residential real estate activity improved across many Districts, with multifamily construction experiencing moderate to strong growth. Some slowing in single-family home sales was attributed to seasonal factors. Activity in nonresidential real estate was stable or improved slightly across many Districts. Agricultural conditions were generally favorable. Mining activity was mixed, while natural gas production increased. Banking conditions were largely stable, with some improvement seen in loan demand. Several Districts reported an easing of lending standards.
Hiring showed a modest increase or was unchanged across Districts. Difficulty with finding qualified workers, especially for high-skilled positions, was frequently reported. Upward pressure on wages and overall price inflation were contained. Contacts in many Districts voiced concern about future cost increases attributable to the Affordable Care Act and other types of federal regulation.
Manufacturing
Manufacturing activity expanded at a modest to moderate pace in most Districts during the reporting period. Firms in Philadelphia and Cleveland are beginning to take a more conservative stance toward capital spending, while capital outlays remain solid in Boston and Kansas City. Companies across a number of sectors in Philadelphia noted a reduction in activity due to the federal government shutdown, while defense contractors in Boston reported that sequestration has not yet affected them significantly. Chicago highlighted the motor-vehicle industry as a main source of strength due to a large number of new vehicle launches and increasing demand for medium- and heavy-duty trucks. Cleveland and St. Louis also reported increased motor-vehicle production. Steel producers in Dallas and San Francisco indicated that demand was steady, while producers in Cleveland and Chicago experienced a slight drop-off in production, even though they are beginning to see a reduction in the quantity of steel imports. San Francisco noted an increase in demand for semiconductors driven by demand for mobile-technology products, while the aerospace industry in the Pacific Northwest reported a large backlog of orders for commercial aircraft. High-tech manufacturing firms in the Dallas District said that demand was flat to modestly weaker; however, respondents expect a gradual increase in demand over the next three to six months. In Kansas City, sales among high-tech firms moderated but were positive overall; several firms cited a reduction in government contracts due to sequestration as the main cause for the slowing. Wood-product manufacturers in Minneapolis and San Francisco saw an improvement in business activity. Contacts in the Boston, New York, Philadelphia, Chicago, Minneapolis, and Kansas City Districts expressed varying degrees of optimism about near-term business activity. Nonetheless, some contacts in Cleveland and Chicago observed that heightened levels of uncertainty, driven in part by fiscal issues, could dampen demand.
Nonfinancial Services
Demand for nonfinancial services was stable or grew at a moderate pace across most reporting Districts. Boston and San Francisco noted that demand for software and information technology (IT) services was strong. IT contacts in Boston have grown more optimistic and are expecting continued growth into 2014. The Richmond District noted growth in server farms. Dallas reported that multiple service sectors, including accounting, legal, and intellectual property, were experiencing stable to improving demand. Most of the Districts that commented on the partial shutdown of the federal government said that its impact on service providers was modest or temporary. The Dallas District reported that airline activity is mixed but has increased since the cessation of the shutdown; however, seasonal factors were also noted. Concerns linger in Dallas about the upcoming second round of sequestration cuts.
Transportation and freight services, especially those related to railroads, ports, and trucking, strengthened across Districts. Port activity in Richmond was robust, with exports of containerized grain and imports of housing-related products continuing to grow. Imports and exports of autos and auto parts remained strong. Year-to-date shipping volumes were higher in Cleveland when compared to the same time period in 2012. Freight haulers were hiring for both replacement and capacity expansion. Retail and e-commerce activity in Dallas continued to drive growth in the transportation sector. Logistics contacts in Atlanta were forecasting record volumes during the holiday season due to online sales.
Consumer Spending and Tourism
Consumer spending increased in almost all Districts at a modest to moderate pace. A Boston retailer noted that sales performance during the 2013 holiday season will be a better test of what seems to be an improving trend. Philadelphia retailers reported hopeful, but very uncertain expectations for the holiday season, while retailer expectations in the Atlanta District for the holiday season are only mildly optimistic. Stores in Minneapolis and Kansas City are cautiously optimistic about the buying mood of holiday shoppers. Demand for home furnishings was strongest in Boston, Richmond, Chicago, and Kansas City. Apparel sales were strong in the Boston, Cleveland, and Kansas City Districts. Retailers in Boston, New York, Cleveland, and Dallas indicated that their store inventories are at desired levels.
Sales of new motor vehicles continued at a moderate to strong pace across most Districts, although Dallas reported a slight decline, which was attributed to a lack of consumer confidence and continued uncertainty. Motor-vehicle purchases in Kansas City were flat. Dealers in Cleveland and St. Louis saw a pick up in purchases of SUVs and cross-over vehicles. Chicago indicated that lower gasoline prices were motivating buyers to shift away from more fuel-efficient vehicles. Used-car sales were mixed, with Cleveland and St. Louis reporting an increase, while purchases in the New York District were soft.
Reports on tourism varied. Due to the federal government shutdown, tourist destinations in the Boston, Richmond, and Minneapolis Districts experienced lower traffic. In Philadelphia, some super-storm Sandy-affected areas of the New Jersey shore continued to experience lighter traffic than normal. Boston reported that tourism activity at hotels and restaurants exceeded usual expectations due to additional business brought in by the World Series. New York reported strong tourism activity attributed in part to Broadway performance openings. Cold-weather expectations have boosted ski bookings in Richmond. Contacts there noted that the strength in bookings has allowed them to raise rates for the first time in several years. Atlanta and Minneapolis reported that tourism expanded. In the San Francisco District, Hawaii maintained its solid pace of growth. In contrast, Las Vegas tourism remained relatively weak, and contacts pointed to a moderate year-over-year decline in automobile traffic in the region.
Real Estate and Construction
Residential real estate activity improved in Boston, Philadelphia, Chicago, St. Louis, Minneapolis, and San Francisco, while remaining steady or softening in other Districts. Some slowing in single-family home sales was attributed to seasonal factors. Nonetheless, sales remain largely above year-ago levels. Increasing demand, low to declining levels of inventory, and slowly rising new-home construction were cited by almost all Districts as reasons for a continued rise in home prices, but at a slower pace than was observed earlier in 2013. Historically low inventories of unsold homes were reported in Philadelphia, Richmond, Chicago, Kansas City, and Dallas. Chicago noted that the inventory of homes for sale is at a record low. In the Philadelphia, Cleveland, Kansas City, and San Francisco Districts, builders continued to face a scarcity of high-skilled trade workers. Boston, New York, Philadelphia, Cleveland, Richmond, and Chicago indicated that multifamily construction continued to experience moderate to strong growth, with strength concentrated in the apartment segment. Vacancy rates declined across most Districts.
Commercial real estate activity remained stable or improved slightly across many Districts. Philadelphia, Cleveland, Richmond, Chicago, St. Louis, and Minneapolis all saw gains in industrial construction, while Boston, Chicago, and St. Louis cited a rise in hotel construction. The technology sector drove demand for commercial real estate in the San Francisco District, and Cleveland saw gains in affordable housing and shale-gas-related activity. The outlook of market participants is for continued improvement in the Philadelphia, Atlanta, Kansas City, and Dallas Districts, while contacts were cautiously optimistic in Boston and Cleveland.
Banking and Finance
On balance, banking conditions remained stable in a majority of reporting Districts. Loan volume showed a modest increase in Philadelphia, Chicago, and San Francisco, while Boston and Atlanta reported a moderate rise. Dallas noted that loan demand softened across most lines of business during the reporting period. An increase in business-credit activity was seen in a number of Districts. Commercial real estate lending increased in New York, Cleveland, Atlanta, Chicago, Kansas City, and San Francisco. Demand for commercial and industrial (C&I) loans rose in the New York, Atlanta, and Kansas City Districts, but weakened in St. Louis. C&I lending was unchanged in Chicago. In the Philadelphia, Richmond, Atlanta, Chicago, and San Francisco Districts, some bankers eased lending standards in response to aggressive competition for quality loans. Lending standards remained unchanged across loan categories in New York, Cleveland, St Louis, and Kansas City. Consumer borrowing weakened in a few Districts, including New York, Richmond, and St. Louis. In Cleveland, Kansas City, and Dallas, demand for consumer loans was little changed, while it increased in Chicago. Lower residential mortgage activity was reported in many Districts. Bankers in Cleveland, Richmond, and Atlanta attributed the decline in part to higher interest rates than earlier in the year. New York, Atlanta, Chicago, and Dallas reported declines in refinancing activity as well. Several Districts reported increased credit quality, as delinquencies have continued to decline and fewer problem loans have been reported.
Strong crop yields were reported, while in general, agricultural commodity prices fell and drought conditions stabilized or improved. Richmond, Chicago, and Kansas City reported strong crop yields for fall harvests. Contacts in the Kansas City District noted decreases in farm incomes and increases in the demand for farm operating loans, as prices softened in response to rising yields. The Chicago, Kansas City, Dallas, and San Francisco Districts indicated strong demand and increased profitability in livestock due to lower feed costs. Atlanta contacts reported making investments in various types of agricultural equipment as a means to further improve production and contain costs. Prices paid to farmers for wheat, corn, and soybeans fell in Atlanta, Chicago, and Minneapolis. However, in Chicago, higher exports cushioned the decline. The Kansas City District indicated rising farmland values, although the rate of increase slowed.
Reports indicated a continued expansion in energy demand and production. Coal mining activity was mixed across the Cleveland and Richmond Districts and higher in St. Louis. In Cleveland and Richmond, the completion of pipeline connections and gas-processing plants contributed to an increase in natural gas drilling and extraction, while gas production rose in the Minneapolis, Dallas, and San Francisco Districts. San Francisco noted an increase in wind and solar energy production facilities. In Minneapolis, regulatory approval has been obtained for a large wind farm in North Dakota. The Minneapolis District also reported solid mining activity in precious metals and an increase in iron ore production, while oil and gas exploration was flat or fell slightly.
Employment, Wages, and Prices
Hiring showed a modest increase in the Philadelphia, Richmond, St. Louis, Minneapolis, and Dallas Districts, while hiring in the remaining Districts was largely unchanged. Industries that reported moderate employment growth included construction, software and IT services, manufacturing, and healthcare. Temporary holiday hiring is in progress. Cleveland reported that year-over-year growth in retail holiday hiring is expected to be flat; however, some employers noted that they are having difficulty finding seasonal workers. In Chicago, part-time seasonal hiring is slightly lower than normal as a result of retailers’ choosing to increase current employees’ hours instead of hiring new workers. Some employers in the Philadelphia, Cleveland, Richmond, Atlanta, Kansas City, and Dallas Districts reported having difficulty finding qualified workers for certain permanent, high-skilled positions. In Philadelphia, a builder reported that contractors are reluctant to hire workers who require training. Instead, contractors are aggressively hiring skilled labor from each other. On net, staffing services across Districts remain more optimistic than they were three months ago, expecting steady growth through the end of the year and into 2014.
Overall wage pressures remain contained across most Districts, with a modest increase reported in Boston, New York, and Dallas. Contacts in the Cleveland, Atlanta, Kansas City, Dallas, and San Francisco Districts noted some upward pressure on wages for skilled jobs, such as craft labor, engineering, IT, and accounting. Contacts in California’s restaurant industry projected higher labor costs, as the state’s minimum wage increases take hold over the next few years. Builders in the Philadelphia and Cleveland Districts cited a scarcity of high-skilled trade workers. As a result, there is upward pressure on wages, and subcontractors are demanding and getting higher rates.
Price inflation is contained, with phrases such as “minimal,” “no change,” and “stable” being common across most Districts. However, in New York, service-sector firms reported that price pressure was moderate and that a sizable number of firms were planning at least some price increases in the coming months. The Cleveland, Kansas City, and San Francisco Districts also commented that prices for residential construction materials, such as lumber and drywall, continued to rise, but the Cleveland District noted that the rate of increase has recently slowed. Contacts across many Districts continue to voice concerns about future cost increases attributable to the Affordable Care Act and other types of federal regulation.
Click the “source” hyperlink below to read the full report.
Fed’s Words When Economy is entering a Recession
For the December 2007 recession, 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