The latest release of the beige book by the Federal Reserve shows that the overall economy is expanding at a modest to moderate pace. While many other reports have shown that things are not looking good, this report shows that things are not as bad as many would believe. Despite the numerous financial worries out there, the economy is still growing; albeit at a slower pace than many would like.
Retail sales in nearly all 12 districts showed positive increases. Like retail sales, the housing market reported surprisingly positive numbers. New sales and construction have increased more than many people expected leading to a decline in the housing inventory; and the number of people seeking loans, especially real estate loans, has increased. While manufacturing has slowed, the report still shows positive increases throughout many sectors. Despite higher energy costs, people are still taking their vacations. Consumer spending and tourism are remaining strong. Consumer spending accounts for a huge part of the economy, and is closely watched by economists. Auto sales are up showing that people are still confident enough to make large purchases.
While many of the sectors are up, there are several sectors that are still dragging things down. Commercial real estate is not faring as well as it could be. Agriculture, not surprisingly, has been very hard hit due to the drought conditions and the scorching hot weather. And as many people already know, employment levels “grew at a tepid pace.”
The recent decrease in energy costs has led to lower than expected inflation levels. This sets the stage for the Fed to more seriously consider QE3 at their next meeting at the end of this month. Quantitative easing needs low inflation numbers, or else all it will do is drive up the costs of goods across the board.
All in all the beige book report was better than expected, but it still shows that the recovery has slowed down considerably. Although slow, it has not stopped. The increase in housing sales is a great sign. People being willing to spend on large ticket items such as autos shows consumer confidence. The economy is poised to spring back to pre-recession levels. However, until worries over domestic politics, European politics, healthcare reform, and a number of other items weighing on people’s minds subside, we can expect to see many more similar reports that show the economy is just bouncing along.
The Fed beige book is release around two weeks before the FOMC meeting. It is compiled of information as reported from each of the 12 districts and gives a clear indication into the direction of the economy, and how local areas are faring throughout.
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