Daily News: March 6, 2014

Fed Beige Book: Economy Continues Modest Expansion

The Federal Reserve’s latest Beige Book reports from most of the 12 Federal Reserve Districts indicated that economic conditions continued to expand from January to early February. Eight Districts reported improved levels of activity, but in most cases the increases were characterized as modest to moderate. New York and Philadelphia experienced a slight decline in activity, which was mostly attributed to the unusually severe weather experienced in those regions. Growth slowed in Chicago, and Kansas City reported that conditions remained stable during the reporting period. The outlook among most Districts remained optimistic.

Retail sales growth weakened since the previous report for most Districts, as severe winter weather limited activity. However, Richmond, St. Louis and Minneapolis reported modest sales growth since the beginning of the year. Weather was also cited as a contributing
factor to softer auto sales in many districts, with the exception of Cleveland, which saw strong gains. Tourism increased in a number of Districts but declined in Philadelphia and was reported to have been mixed in New York and Minneapolis. The demand for nonfinancial services was mixed compared with the last report; however, both Boston and San Francisco reported strong demand for technology-related services.

Manufacturing sales and production in several Districts were negatively impacted by severe winter weather; however, modest improvements were noted in Boston, Atlanta, Minneapolis and Dallas.

Districts reported that energy production and demand continued to increase as a result of increased demand due to the unusually cold winter. Employment levels improved gradually for most Districts, and shortages of specialized skilled labor continued to be reported. Price pressures remained subdued, with the exception of upward cost pressures for some energy and construction products. Wage pressures remained stable for most Districts.

Manufacturing activity expanded at a moderate pace from January through early February in most Districts. Several Districts reported that severe winter weather had a negative effect on sales and production during this period, including Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis and Dallas. The weather was cited to have
caused utility outages, disrupted supply chains and production schedules, and resulted in a slowing of sales to affected customers. Philadelphia and Richmond reported that shipments and orders declined during the first half of February. Steel producers in Cleveland indicated that they have excess capacity, and San Francisco reported low capacity utilization rates at steel mills. Boston and San Francisco indicated that semiconductor sales had been particularly strong. High tech contacts in Dallas reported a slight improvement in orders, as demand for memory chips remained strong and demand for logic devices remained weak but stable. San Francisco also cited growth in the commercial aerospace industry due to a backlog in orders for commercial aircraft, while defense-related manufacturers reported sluggish overall conditions and expected sales to trend downward. Auto production was strong in Chicago despite weather-related slowdowns in sales, and Cleveland reported auto production to be higher than a year ago. Most Districts were optimistic about the future and expect manufacturing activity to rise in the coming

Banking and Financial Services

District reports of loan demand and volume were mixed. Demand for residential mortgages decreased in New York, Richmond, St. Louis, and Kansas City, and softened in Philadelphia and Dallas. Cleveland and Atlanta noted increased demand for new purchase mortgages, while mortgage refinancing declined in New York, Richmond, Atlanta, and Kansas City. Demand for consumer loans grew slightly in Philadelphia, Cleveland, Chicago, and Dallas, and held steady in Kansas City. Decreased demand for consumer loans was noted by Richmond and St. Louis, and among small to medium-sized banks in New York. Boston reported commercial real estate loans were highly competitive and demand was solid. Richmond businesses looked for shorter-term commercial real estate loans in order to benefit from lower interest rates those loans offered. Chicago and Kansas City reported steady growth in commercial real estate loans, and demand for such loans improved marginally in Dallas. Small to medium-sized banks in New York reported no change in commercial real estate loan demand. New York noted modest declines in delinquency rates. Cleveland reported delinquencies were stable or trended lower, and St. Louis indicated delinquencies for most types of loans decreased. Loan quality in Kansas City improved compared with a year ago and continued to strengthen in Dallas. Bankers in Cleveland and Atlanta voiced concerns about recently enacted regulations and the potential negative impact on lending.

To link to the Beige Book reports, click here.