Beige Book Sees Continued Modest Improvement in Economy

By: Mark Lieberman, Five Star Institute Economist 02/29/2012

Overall economic activity continued to increase at a modest to moderate pace in January and early February, the Federal Reserve said in its periodic Beige Book, an anecdotal report of conditions in each of the 12 Federal Reserve districts.

The report showed economic improvement varying across the country — economic activity rose at a “somewhat faster pace” in the Philadelphia and Atlanta districts but growth was slower in New York. Activity expanded at a “moderate pace” in the Cleveland, Chicago, Kansas City, Dallas, and San Francisco districts and St. Louis noted a modest pace of growth. Minneapolis characterized the pace of growth as firm, the Beige Book summary said, while the Boston and Richmond Districts reported economic activity expanded or improved in most sectors.

The Beige Book report was based on information collected through February 17.

Though followed closely by economists and the media, the Beige Book – issued two weeks in advance of a meeting of the Federal Open Market Committee – is rarely cited in the minutes of the Committee meetings. That said as an “anecdotal” report it often precedes confirming data and is sometimes considered “anecdatal.”

Residential real estate activity, according to the reports, increased “modestly” in most parts of the country. Philadelphia reported “strong” residential sales activity. The Boston, Cleveland, Richmond, Atlanta, Kansas City, and Dallas districts also reported growth in home sales, but without the adjective. New York noted “steady to slightly softer” home sales and home sales declined in St. Louis while San Francisco noted “home demand persisted at low levels.”

That said, the Beige Book reported “contacts’ outlooks on home sales growth were mostly optimistic” with contacts

in Boston, Philadelphia, Atlanta, and Dallas expecting home sales to rise further.

Home prices, the report said, declined or held steady in many areas. Cleveland and Atlanta reported little movement in house prices, while contacts in Boston, New York, Philadelphia, Richmond, Chicago, and Kansas City reported some declines.

Single-family residential construction was weak in Chicago and declined in St. Louis; Cleveland reported a year-end uptick seen in construction had slowed although Minneapolis noted increased single-family building permits. Boston, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco reported increased multifamily construction activity.

Reports on banking conditions were generally positive across the country. Lending increased in the New York, Philadelphia, Richmond, Chicago, Dallas, and San Francisco districts but was little changed in St. Louis and Kansas City. Loan demand was described as weak in Richmond and soft at regional banks in Atlanta.

Demand for residential mortgage loans increased in New York and Richmond. Mortgage demand was flat to moderately stronger in St. Louis but “softened” in Kansas City.

Overall, the Beige Book report said, lending standards remained restrictive in San Francisco and Richmond and were largely unchanged in St. Louis and Kansas City. Lending standards tightened further for commercial borrowers in New York. Credit conditions in Chicago improved slightly, while quality improved in Philadelphia and Kansas City. Delinquencies were steady or declined in Cleveland. Mortgage delinquencies were steady in the New York district but delinquencies decreased in other loan categories.

The Beige Book is often cloaked in secrecy. The district reports are sent to one of the banks, which prepares the national summary. The identity of district bank, which prepares the summary is closely guarded. This report was prepared by the St. Louis Federal Reserve Bank, which last wrote the summary in July 2010 when it reported “economic activity has continued to increase, on balance, since the previous survey, although the Cleveland and Kansas City districts reported that the level of economic activity generally held steady.” The nation’s economy swooned shortly after that report was issued.

The Federal Open Market Committee is scheduled to meet March 13 to review monetary policy.