Just as the US was turning its weary eyes to Barack Obama’s speech on the economy on Wednesday, the Federal Reserve Board released the sixth Beige Book report of the year. This most recent edition covers activity in the last half of July and all of August.
The unsurprising top line:
Reports from the twelve Federal Reserve Districts suggested continued growth in national economic activity during the reporting period of mid-July through the end of August, but with widespread signs of a deceleration compared with preceding periods.
As for individual categories, manufacturing activity seems to be caught somewhere between the optimistic ISM numbers from last week and the relative pessimism of August’s Fed surveys:
Manufacturing activity expanded further on balance, although the pace of growth appeared to be slower than earlier in the year. Most Districts reported further gains in production activity and sales across a broad spectrum of manufacturing industries. However, New York, Richmond, Atlanta, and Chicago noted that the overall pace of growth slowed, while Philadelphia, Cleveland, and Kansas City reported that demand softened compared with the previous reporting period. Recent weakness was most notable for construction-related products, according to reports from Cleveland, Richmond, Chicago, Dallas, and San Francisco. By contrast, orders and activity edged up for makers of steel and other metals in Cleveland, Chicago, and St. Louis, propelled largely by demand from the transportation equipment industry. …
Inflation remains mostly a non-issue, especially for wages. Exceptions were some food commodities, primary metals, and transportation-related items.
And as with the latest FOMC minutes, the structural vs cyclical dispute within the Fed’s ranks is likely to continue (our emphasis):
Hiring of permanent employees was held down in part by employers’ reliance on temporary and contract workers, as reported by Philadelphia and Atlanta, although Boston noted that conversions from temporary to permanent staff picked up. Contacts in the Boston, Chicago, and Kansas City Districts noted skill mismatches between available jobs and the workers applying for them, which caused a slight uptick in wage pressures for selected jobs in a narrow set of industries. More generally, however, the reports suggested ample supply of qualified applicants for open positions.
On housing, you already knew this next bit was coming:
Activity in residential real estate markets declined further. Most District reports highlighted evidence of very low or declining home sales, which many attributed to a sustained lull following the expiration of the homebuyer tax credit at the end of June. ..
Demand for commercial, industrial, and retail space generally remained depressed. Vacancy rates stayed at elevated levels in general and rose further in a few Districts, placing substantial downward pressure on rents. Asking rents continued to decline in parts of the New York and Kansas City Districts. High vacancies and negative absorption held nonresidential construction activity to the bare minimum in most Districts.
Not all the categories reported such dour news. Consumer spending and activity in the services sector were stable or slightly up, though not impressively so.
And as for the flow of credit:
Lending activity was stable to down slightly on net. Most Districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans. …
Lending standards were largely unchanged. However, New York reported tighter standards in all lending categories, particularly for commercial mortgages, and Kansas City reported that a few banks tightened standards for commercial real estate loans. By contrast, reports from Chicago indicated that credit availability and terms loosened for business and consumer loans. Credit quality also changed little on balance.
The downward trend on consumer credit was confirmed by a separate report just released by the Fed:
In July, total consumer credit decreased at an annual rate of 1-3/4 percent. Revolving credit decreased at an annual rate of 6-1/4 percent, and nonrevolving credit increased at an annual rate of 1/2 percent.
The results in the Beige Book were mostly expected given the news we’ve seen since July, with most indicators consistent with a stalled recovery — an economy that isn’t necessarily getting worse, but that nevertheless remains stuck in a pretty bad place.
Related links:
The Beige Book summary – Federal Reserve Board
A revisionist history of the week beginning Aug 30, 2010 – FT Alphaville
So much for “better than expected” – FT Alphaville