Beige Book: steady as she goes

There was little in the way of surprises in the Fed Beige Book that was released earlier today, unless you are a cynic and actually believed that the sky is falling. The overall message from the Beige Book is that the economy is doing a great job of executing a soft landing. Another message is that there are plenty of pockets of strength even if there are a handful of big drags such as the housing sector. An increase in commercial construction is helping to balance the decline in residential construction.

Highlights from the Beige Book summary:

Most Federal Reserve Districts reported modest expansion in economic activity since the last report, but several Districts noted some slowing. For example, New York characterized growth as well-maintained but with a few signs of deceleration. In addition, St. Louis said that activity increased more slowly than in the previous period, Boston reported some softening, and Dallas said economic activity continued to decelerate. On the other hand, Philadelphia reported economic conditions improved slightly.

The majority of Districts reported steady growth in retail sales, while vehicle sales remained sluggish. Tourism activity was generally positive, and the demand for services continued to expand in most Districts, with strong increases in health care, accounting, legal, and technology services. Manufacturing activity was steady or expanding, despite continued weakness in production related to the construction and auto industries. Almost all Districts reported that housing markets remained weak, but signs of stabilization were noted in several Districts. In contrast to the housing sector, commercial real estate markets continued to firm or remained solid. Lending activity remained mostly unchanged from recent periods, as increasing demand for commercial and industrial loans continued to offset declines in residential mortgage lending. Agricultural conditions generally improved across the country. Energy production and exploration remained at high levels, but some Districts reported a slowdown from the previous survey.

Most Districts noted further expansion in labor markets and continued tight supply of skilled and professional workers. With rising demand for many types of workers, wage pressures increased slightly in several Districts, although pay increases generally remained moderate overall. Most Districts characterized price pressures as little changed. Energy and construction-related materials prices fell, but food input costs increased in several Districts.

In short, there is no need for the Fed to change monetary policy in two weeks at the FOMC meeting.

The key message for most people: The sky is not falling. We are not facing an imminent recession.

-- Jack Krupansky