Fed’s Beige Book: Growth continues across U.S.
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The Federal Reserve’s final Beige Book for the year has a quietly optimistic tone.
According to the round-up of economic conditions from the Fed’s 12 districts for mid-October through Nov. 18, the economy showed “modest” to “moderate” economic growth across regions. This sets the scene for what many experts believe will be a rate hike at the Federal Open Market Committee meeting on Dec. 13-14.
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Seven districts reported a tightening in labor market conditions but said employment growth on balance was modest, and that overall prices rose slightly.The strong U.S. dollar was cited as a headwind to demand for manufactured products in a few of the districts.
Several said they expect modest to moderate increases in capital investment, and business firms saw rising activity, especially in high-tech and information tech services.
The current strength of the dollar against other currencies could be a drag on international travel, especially for leisure travelers, if it continues, said respondents in Boston.
Credit demand
Demand for credit varied widely among the districts. New York, Philadelphia and St. Louis experienced strong demand for commercial and industrial lending, while the pace in Dallas slowed. Commercial real estate lending was strong in the New York, Philadelphia and Cleveland districts.
All districts saw improvements in residential real estate activity, with most districts noting slight to modest increases. Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City and Dallas all reported a boost in residential construction.
All contacts expected borrowing costs for commercial real estate to increase and price appreciation to slow or turn negative as a result.
Most districts said nonfinancial services showed growth since the previous reporting period. The exception was New York, which reported flat to declining activity among service-sector firms. Still, the New York report was upbeat for 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.
In the wake of the election, sources for the reports were cautiously optimistic. Most agreed it was too soon to predict the impact on commercial real estate markets. San Francisco expressed some anxiety about potential changes to the Affordable Care Act, which President-Elect Trump repeatedly has vowed to replace.
Inflation expectations
“Price levels rose modestly.” That’s the Beige Book inflation statement.
The picture seems to be brightening, albeit slowly, with most contacts reporting greater increases in the prices for goods and services. Manufacturers also noted paying higher prices.
For the outlook for the year ahead, manufacturers anticipate a 2 percent increase in prices they’ll receive for their goods and services and non-manufacturers expect a 2.8 percent rise.
Manufacturers also reported expectations of 2.3 percent annual inflation for consumers, and non-manufacturers expect slightly lower inflation at 2 percent.
After the Hurricane Matthew evacuations, flooding and temporary shut-downs in some coastal areas, sources for the Richmond District reported that rebuilding was underway and activity seemed to be returning to normal.
Agricultural activity increased slightly despite delays in harvesting related to the storm. Natural gas extraction was unchanged, while coal production rose slightly.
More significantly for Richmond, the poultry industry lost four million to five million birds to Hurricane Matthew and related floods, which had an impact on international trade.
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