Here’s the bulk of the Fed’s press release with my comments and bolded sections.
Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from early April to late May. Activity in the New York, Cleveland, Atlanta, Chicago, Kansas City, Dallas, and San Francisco Districts was characterized as growing at a moderate pace, while the Richmond, St. Louis, and Minneapolis Districts noted modest growth. Boston reported steady growth, and the Philadelphia District indicated that the pace of expansion had slowed slightly since the previous Beige Book.
Manufacturing continued to expand in most Districts. Consumer spending was unchanged or up modestly. New vehicle sales remained strong and inventories of some popular models were tight. Sales of used automobiles held steady. Travel and tourism expanded, boosted by both the business and leisure segments. Demand for nonfinancial services was generally stable to slightly higher since the last report, and several Districts noted strong growth in information technology services. Conditions in residential and commercial real estate improved. Construction picked up in many areas of the country. Lenders in most Districts noted an improvement in loan demand and credit conditions. Agricultural conditions generally improved, and spring planting was well ahead of its normal pace in most reporting Districts. Energy production and exploration continued to expand, except for coal producers who noted a slight slowing in activity.
Wage pressures overall were modest. Hiring was steady or increased slightly, and contacts in a number of Districts reported difficulties in finding qualified workers, particularly those with specialized skills. Price inflation remained modest across Districts, and overall cost pressures eased as the price of energy inputs declined. Economic outlooks remain positive, but contacts were slightly more guarded in their optimism.
Manufacturing continued to expand, and most Districts reported gains in production or new orders. The only exceptions were from the Philadelphia, Richmond and St. Louis Districts, where factory activity was mixed or had softened slightly. Demand appeared to be the strongest in auto and steel manufacturing. Reports from the Cleveland, Atlanta, Chicago, and St. Louis Districts noted vibrant activity for auto manufacturers, and an auto maker in the Atlanta District reported plans to add a third shift to keep up with increased global demand. Steel manufacturing remained robust, with contacts in the Chicago District reporting the highest capacity utilization rates since the end of the recession and firms in the St. Louis and Minneapolis Districts noting plans to upgrade or expand operations. Producers of semiconductors and high-tech equipment saw continued growth in orders in the Dallas and San Francisco Districts. Aircraft and parts makers noted further increases in orders according to reports from Boston, Richmond, and San Francisco, while the Dallas District reported steady demand. Demand for agricultural and construction equipment remained strong according to the Chicago District report, and industrial machinery manufacturers in the Philadelphia District noted gains. Food producers in the Philadelphia and Dallas Districts noted solid demand for their products, and pharmaceutical manufacturers in the San Francisco District reported robust activity. Activity at refineries and petrochemical manufacturing facilities expanded further. Demand for construction-related products improved in the Dallas District, and orders for lumber and wood products increased in most reporting Districts.
Hiring at manufacturing firms was mixed, but manufacturers in some Districts reported difficulty finding qualified workers such as welders. Capital spending plans in most reporting Districts were positive. Ongoing capital investments and plans for future capacity expansions were reported by various manufacturers in the Chicago, St. Louis, Minneapolis, and Kansas City Districts. Firms in the Cleveland District noted spending on capital outlays was on track, while producers in the Philadelphia District reported a decline in future spending plans since the previous report. Manufacturers’ outlooks were positive in the Philadelphia, Cleveland, Chicago, and Kansas City Districts; however, contacts in a number of Districts were concerned that a slowdown in Europe and domestic political uncertainty may affect future business conditions.
Consumer Spending and Tourism
Retail spending was flat to modestly positive in nearly all Districts. Firms in the Richmond, Chicago, and Minneapolis Districts noted sales increased at a more modest pace than in the previous report, as unseasonably warm weather and an earlier Easter holiday had shifted sales into the previous reporting period. By contrast, warm spring weather continued to boost traffic and sales for retailers in the Philadelphia and Cleveland Districts. Sales of household goods increased in the Boston and Kansas City Districts, and gains in apparel sales were reported by the Boston and Dallas Districts. Sales of big ticket items declined in the Richmond and Chicago Districts, and there were a few reports of high fuel prices affecting consumer spending and sentiment. Inventories were generally at desired levels and were being managed carefully. Outlooks were optimistic, and retailers in several Districts expect modest sales growth in the near term. In particular, contacts in the Kansas City District expect stronger sales growth in coming months, while some retailers in the Chicago District plan to add inventories in expectation of higher back-to-school sales compared with last year.
Automobile sales generally remained strong, although the pace of growth moderated in a few Districts. Sales of used vehicles held steady, and a slight decline in prices was reported. Inventories of popular vehicles were tight. Outlooks were positive and contacts across several Districts expect steady growth in sales in coming months.
Reports from most Districts pointed to continued strength in travel and tourism, bolstered by both the business and leisure segments. Favorable spring weather spurred tourism in the Minneapolis and Kansas City Districts. Time-share rentals were strong in the Richmond District, and foreign visitors boosted activity in Florida as well as at theme parks in the Philadelphia District. Restaurants and food service contacts in the Richmond, Kansas City, and San Francisco Districts noted increased sales. Ticket prices and attendance at Broadway theaters strengthened in the New York District, boosting revenues to well above year-ago levels. Business travel picked up in the Boston, New York, and Atlanta Districts, and convention bookings were strong according to the Atlanta District. Hotel bookings were strong in the Boston and New York Districts, and solid gains or high levels of occupancy and room rental rates were noted by hotel contacts in most reporting Districts. Atlanta’s report noted that hospitality-related projects were underway in several areas of the District.
Demand for nonfinancial services was generally stable to slightly stronger since the previous report. Several Districts noted some growth in information technology services, including Boston, Richmond, Kansas City, Dallas, and San Francisco. Solid demand for healthcare services was also noted by some Districts.
A few Districts said that activity expanded for professional and business services, such as accounting, engineering, advertising, and legal services. The Boston District noted some renewed activity in the financial sector, although engineering and accounting demand remained weak. The Richmond District said architectural engineering firms reported stronger revenues, and Minneapolis noted strength in engineering near oil producing areas, in part due to planned future construction. Responding firms in the Dallas District noted strength in legal services and accounting.
Advertising sales picked up in the Philadelphia and San Francisco Districts, and air travel improved in the Dallas and San Francisco Districts. Freight transportation volumes moved higher in Cleveland, and railroad contacts in the Atlanta District noted continued growth. However, Kansas City’s report noted flat activity in transportation, and the Dallas report noted mixed results from shipping firms.
Real Estate and Construction
Activity in residential real estate markets improved in most Districts since the previous report. Several Districts noted consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile. The apartment market continued to improve, and multifamily construction increased in several Districts.
Home sales were above year-ago levels in most areas of the country and several Districts noted sales had improved since the previous report, although some noted that the pace was well below the historical average. In particular, the New York, Cleveland, and Richmond Districts noted a pickup in the pace of distressed sales. Residential brokers and some builders in the Philadelphia, Atlanta, and Dallas Districts said home sales were exceeding expectations. Contacts in the Richmond District said homes were being snapped up as investors become more confident in the housing recovery, and the Atlanta report noted stronger sales to cash buyers and investors in Florida. Chicago said more sales had multiple offers. Apartment rental markets improved in the New York, Atlanta, and Dallas Districts. One contact from the New York District noted rising apartment rents have made buying more attractive, contributing to a slight uptick in sales.
This does not sound like an excuse to do more QE. It mirrors what I have been seeing and reporting.
Most Districts reported that home inventories decreased. Overall, home prices remained unchanged in many Districts, although reports were mixed. There were a few reports that sellers were lowering asking prices, leading to downward pressure on housing prices.
This statement runs counter to the factual data.
New home construction increased in a number of Districts, including Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco. Contacts in the Philadelphia District said demand for new home construction eased slightly. Builders in Kansas City noted housing starts were down, but they expected an increase in the next three months. The Boston, Atlanta, and Chicago Districts reported an increase in multifamily construction, and the Minneapolis District noted numerous multifamily projects were in the pipeline.
Commercial real estate conditions improved in most Districts, and there were some reports that commercial construction picked up. Commercial leasing remained steady or increased in most Districts including Philadelphia, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. The New York, Dallas, and San Francisco Districts noted growth in the technology sector was prompting the absorption of commercial space. Energy activity was helping boost demand for space in the Richmond and Dallas Districts. Boston’s relatively strong commercial market continued to generate robust investor interest, although commercial property sales in the New York District remained slow.
Build-to-suit construction was noted by the Boston and Philadelphia Districts. The New York District reported new office development projects in the pipeline, and St. Louis’ report noted a pickup in speculative industrial projects. The Richmond District said expansion in manufacturing led to a pickup in construction. Reports from the Cleveland and Chicago Districts suggested an increase in hotels and higher education projects, and a New York contact noted that interest in luxury hotel development increased. Outlooks were positive overall, although there were a few reports of increased uncertainty from still unknown U.S. fiscal changes and Europe’s debt situation.
Banking and Finance
Most Districts that commented on lending noted steady or slightly stronger loan demand. Small and medium-sized banks in the New York District reported the most broad-based increase in loan demand since the mid-1990s. Several bankers in the Richmond District said the volume of small business loan applications was markedly higher. Drivers of business loan demand included energy, healthcare, and commercial real estate. Several Districts noted increased demand for capital spending loans.
Reports on mortgage lending generally indicated slow improvement. The New York District noted stronger mortgage lending, although growth in refinancing eased. The Cleveland District indicated strong mortgage demand and a shift from home refinancing to new purchases. The Richmond District cited continued improvement in mortgage demand, although refinancing still dominated much of the mortgage lending. The Atlanta District said that more applicants had ample cash for down payments or enough equity in their homes to meet refinancing requirements. Demand for commercial real estate loans was generally reported to be stronger.
A number of Districts, including Cleveland, Atlanta, Chicago, Dallas, and San Francisco, said loan pricing remained quite competitive. New York District respondents noted a decrease in spreads of loan rates over the cost of funds, particularly for commercial mortgages. Lending standards were relatively unchanged to slightly easier across Districts and loan types. Bankers reporting on deposit growth indicated that deposits were steady or continued to increase. Credit quality remained solid, and there were several reports of improved loan quality. Most District banks said loan delinquencies continued to decline.
Agriculture and Natural Resources
Agricultural conditions generally improved since the previous report. Rainfall provided much needed moisture in several parts of the Richmond, Minneapolis, and Dallas Districts. Spring planting and crop emergence was well ahead of the normal pace in most reporting Districts, and corn producers in the Chicago District were hopeful that this promising start may result in a record harvest. Producers in the St. Louis, Kansas City, and Dallas Districts noted that the winter wheat crop was in fair-to-good condition. Farm incomes rose further in the Minneapolis and Kansas City Districts, and the San Francisco District reported further sales growth for most crop and livestock products. Producers in the Chicago and San Francisco Districts expressed concern that persistent dry conditions may undermine crop production. Although prices of most agricultural commodities declined, hog and cattle prices rose since the previous report.
Energy activity remained robust, with drilling expanding further in the Cleveland, Atlanta, Minneapolis, Kansas City, and Dallas Districts. Atlanta’s report noted that increased investment in transportation infrastructure was needed to accommodate the recent rise in domestic and Canadian energy production. Exploration and production continued to shift away from dry-gas to wet-gas or oil-directed drilling in the Dallas and San Francisco Districts in part due to low natural gas prices. Firms in the Kansas City District said they would like to expand payrolls but reported difficulty finding engineers and experienced field workers. Iron-ore and rock mining continued to expand at a strong pace according to the Minneapolis District report. In contrast, demand for coal slowed in the Cleveland and St. Louis Districts, and contacts noted that production was below year-ago levels. Limestone quarries in the Minneapolis District continued to report sluggish demand.
Employment, Wages, and Prices
Hiring was steady or showed a modest increase. Reports of hiring were most prevalent in the manufacturing, construction, information technology, and professional services sectors. Staffing firms in the Cleveland and Dallas Districts noted a pickup in orders, and contacts in the Boston and Philadelphia Districts reported steady growth in orders. Demand for temporary workers rose in the Richmond District, and several employers in the Minneapolis District noted a tightening labor market. New York’s report indicated that demand for staffing services was mixed, but manufacturers and other business contacts expect hiring to pick up in coming months. Atlanta’s report pointed to positive employment growth in the District. Hiring remained limited in the Chicago District, and modest employment increases were noted in the San Francisco District report. There were widespread reports that firms continued to face difficulty finding highly trained or skilled workers–especially in information technology, engineering, and manufacturing fields–and manufacturers in the Chicago District said they were easing job requirements or using interns to fill open positions. Overall upward wage pressures continued to be fairly modest. There were reports of slight wage increases for skilled workers in the Boston, Cleveland, Minneapolis, Dallas and San Francisco. Contacts in the Philadelphia and Chicago Districts noted increases in healthcare costs.
Price inflation was modest across most areas of the country. Reports from several Districts, including New York, Philadelphia, Richmond, Chicago, Minneapolis, and Dallas indicated selling prices were stable or had softened somewhat since the previous report. Some Districts, including Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco noted cost pressures eased as the price of energy inputs fell. However, Atlanta’s report noted some firms had implemented price increases tied to previous increases in energy costs, and firms in the Kansas City District noted higher input and final goods prices.
Taken as a whole, there’s nothing here that would suggest that the Fed needs to do more QE. European and some Chinese capital flooding into the US is continuing to keep the banking system flush with cash, is pushing up housing prices in major coastal markets, and most importantly, is funding the record low interest deficit spending of the US Government. It’s that spending that keeps the US economy on life support and slowly growing.
As long as that continues, the Fed will have no need, and no excuse, to print. Even the mention of more QE, such as came from Dr. Bernankenstein’s ventriloquist dummy Jon Hilsenrath yesterday, trigger big moves up in gold and energy prices. With the release of the beige book, the players realized that there was little reason for the Fed to print, so they sold the commodities. In fact, the move down started before the beige book release. Somebody knew.
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