All twelve Federal Reserve Districts report that economic activity expanded during the current reporting period. The pace of growth was characterized as moderate in the Boston, New York, Richmond, Chicago, Minneapolis, Dallas, and San Francisco Districts, and modest in the remaining regions. Compared with the previous report, the pace of growth picked up in the Cleveland and St. Louis Districts but slowed slightly in the Kansas City District.
Consumer spending expanded across almost all Districts, to varying degrees. Non-auto retail sales grew at a moderate pace across most of the country: Although improved weather generally gave a boost to business, lingering wintry weather in the Northeast continued to weigh on sales in parts of the Boston and New York Districts. Increasingly strong new vehicle sales were reported by more than half the Districts, with most other regions seeing steady sales; demand was generally reported to be less robust for used vehicles than for new vehicles. Tourism was steady to stronger across most of the country–particularly in most of the eastern seaboard Districts.
Activity in the service sector, excluding finance, grew across most reporting Districts, though New York and San Francisco reported a mixed performance. Boston, Kansas City, and San Francisco noted particular strength among technology firms. Transportation activity strengthened in most Districts reporting on that sector, with Richmond and Atlanta observing brisk growth in port activity, and Cleveland noting a rebound from weather-related weakness in the prior report. Manufacturing activity expanded throughout the nation, and at an increasingly strong pace in a number of Districts–notably along the East Coast, as well as in the St. Louis and Kansas City Districts.
Residential real estate activity was mixed across the country, with some reports of low inventories constraining sales–specifically in the Boston, New York, and Kansas City Districts. Still, home prices continued to increase across most of the country, while the markets for both condos and apartment rentals were mostly robust. Residential construction activity was mixed, with half the Districts reporting increases but a few indicating some weakening in activity; multi-family construction remained particularly robust. Both non-residential construction activity and commercial real estate markets were generally steady to stronger since the last report.
Overall lending activity increased throughout the nation. Roughly two-thirds of the Districts reported rising loan demand, with particular strength reported in New York and San Francisco. Credit quality and delinquency rates generally improved, while credit standards were mostly unchanged.
Among Districts reporting on agriculture, drought conditions caused problems in the Dallas and San Francisco Districts, and, to a lesser extent, in the Chicago District; conversely, Atlanta and Minneapolis reported that excessive moisture delayed plantings. Energy industry activity strengthened in most Districts, though coal production was steady in Cleveland and declined in the Richmond District.
Labor market conditions generally strengthened in the latest reporting period, with hiring activity steady to stronger across most of the country, and several Districts reporting shortages of skilled workers. In most Districts, wage increases have remained generally subdued, though Chicago and Dallas noted increased costs for health benefits. Prices of both inputs and finished goods and services were mostly steady to up slightly.
Valuentum’s Take
The Beige Book, issued June 4, was very encouraging regarding economic conditions in the US (above, we’ve bolded most of the positive commentary, which was prevalent throughout the release). Though we’ll be watching closely for signs of a slowdown, it is important that members understand that economic activity typically lags stock-market performance, and broader economic prognostications are not nearly as important as industry and firm-specific analysis as it relates to stock-selection and portfolio composition. That is not to say, however, that an economic assessment is not useful or insightful at times, but stock prices (via the wealth effect) are a driver behind economic activity — not the other way around. The stock market, for example, is included as one of the ten components of The Conference Board Leading Economic Index (1). In any case, we were very pleased with the Beige Book, and we wanted to make you aware of this solid economic data point as it relates to specific pockets of strength (from increasingly strong new vehicle sales to particular strength among technology firms and beyond).
(1) The ten components of The Conference Board Leading Economic Index for the U.S. include:
Average weekly hours, manufacturing
Average weekly initial claims for unemployment insurance
Manufacturers’ new orders, consumer goods and materials
ISM® Index of New Orders
Manufacturers’ new orders, nondefense capital goods excluding aircraft orders
Building permits, new private housing units
Stock prices, 500 common stocks
Leading Credit Index™
Interest rate spread, 10-year Treasury bonds less federal funds
Average consumer expectations for business conditions
Relevant ETFs: SPY