Economy Continues to Slog Along: Fed Beige Book


The Federal Reserve’s December Beige Book, which surveys national economic conditions, reports that for the January to early February period economic activity expanded at a “modest to moderate” pace.

Consistent with other reporting, the Fed noted continued weakness at varied level in the residential real estate markets:

The Richmond, Atlanta, and Chicago Districts reported a slight improvement in the level of recent activity, while Boston noted that activity was mixed across New England. New York described the housing market as stable with some pockets of improvement. Demand was unchanged according to reports from the San Francisco District. Philadelphia, Kansas City, and Dallas described recent activity as sluggish, and St. Louis noted sales continued to decline.

With respect to housing prices, the Beige Book reported mixed news:

Atlanta and Kansas City observed persistent downward price pressure. Home prices continued to fall according to Philadelphia reports, but mainly at the high-end of the market. Cleveland and Chicago contacts described prices as little changed.

For home building, the Fed noted some increase in traffic but weak construction activity:

Construction activity was described as flat or down by Cleveland, Atlanta, Minneapolis, and Kansas City. Philadelphia and Atlanta contacts attributed weaker buyer traffic in January to inclement weather, and Philadelphia noted a pickup in early February. Richmond, Kansas City, and Dallas also indicated an increase in buyer traffic.

And for the outlook for residential real estate remains weak in the short-term:

Kansas City contacts anticipate a seasonal surge in sales activity this spring. Atlanta, Dallas and San Francisco also expect modest improvement, while little to no sales growth is expected among Philadelphia contacts. A slight uptick is expected in Chicago and San Francisco construction.

In other sectors of the economy, the Fed detailed generally improving retail sales, excluding certain weather related impacts. Several districts noted improving commercial real estate leasing activity but continued weak commercial construction. Manufacturing growth was seen as “solid” across the country, which may be good news for future jobs numbers. Indeed, the Fed noted that labor markets continued to strengthen modestly across the country.

With respect to lending, the Fed noted that lending standards remained tight across the country, which is consistent with reports from home builders of very tight lending conditions for ADC loans.

And finally, manufacturers and retailers in most parts of the country reported higher non-wage input costs. The Fed specifically noted that manufacturers and retailers were increasingly able to pass such costs increases to consumers, although it also noted that home builders could not.

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