The 16-day U.S. government shutdown, which has resulted in an economic data drought, has made the anecdotal evidence in the Federal Reserve’s Beige Book even more significant in determining the state of economic activity.
“Economic forecasting is often said to be similar to driving a car by looking through the rear-view mirror. But with the government shutdown meaning that some key economic data are not being released at all, economists, market participants and policymakers now appear to be driving at night with no headlights,” said Capital Economics’ Paul Dales, in a note to clients.
Eight times per year, the central bank releases the Beige Book, a snapshot of business conditions in each of the Fed’s 12 regional bank districts. Although the findings are anecdotal and can be somewhat obscure, it has become an important part of the information discussed by the Federal Open Market Committee -- the Fed’s policy-setting body.
The Beige Book is updated two weeks before each FOMC meeting in Washington. That makes it relatively current compared with many other economic indicators, which can lag a month or more behind the period they report on.
The Fed’s Beige Book, prepared for the Oct. 29-30 FOMC meeting, shows that the U.S. economy grew at a “modest to moderate” pace in September and the beginning of October. However, many regions also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.
Here’s a rundown of some nuggets from Wednesday’s Beige Book. The report can be used to get a feel for the direction of the U.S. economy. Directly quoted from the report:
1. Auto sales were strong in most districts.
Auto sales continued to be strong, particularly in New York, where they were said to be increasingly robust.
Auto dealers in Philadelphia reported that August was a "killer" month. However, year-over-year comparisons were boosted by stealing an extra Saturday from September compared with last year. September sales were reported as still very strong, although the lost weekend may account for a little dip from August's pace. In addition, sales slowed for some dealers as they grew low on inventory. Dealers continued to report good prospects for future sales.
In contrast, Chicago, Kansas City and Dallas indicated slower growth in auto sales in September.
2. Retailers optimistic about holiday season.
Growth in retail sales was steady in most of the Fed districts, but picked up some in Cleveland and Richmond and slowed in Chicago, Kansas City and Dallas.
Contacts in Chicago and Atlanta noted that back-to-school spending was lower than a year ago. However, retailers generally remained optimistic about the holiday shopping season, with contacts in Philadelphia and Chicago expecting this year's holiday sales to be about equal to last year's despite the traditional holiday period being six days shorter this year.
In addition, Dallas noted strength in retail imports in advance of the holiday season, with growth stronger than a year ago.
3. Many districts pointed to high levels of travel and tourist activity.
Activity in the travel and tourism sector also expanded in most areas, with the reports from the Atlanta, Boston and New York Districts being particularly upbeat.
Dallas indicated that airline passenger demand slowed seasonally, but was slightly stronger than year-ago levels. Tourism contacts in the Boston District were concerned about the potential impact of a protracted federal government shutdown; and Richmond noted that the shutdown had led to the closing of some tourist attractions, although hotel contacts indicated that these closures did not result in guest cancellations.
In addition, Kansas City noted lower tourism activity due in part to the severe effects of recent flooding in Colorado.
4. Manufacturing activity expanded modestly.
Overall, manufacturing activity expanded modestly in September, but with some notable exceptions among the Districts. Cleveland, St. Louis and Minneapolis experienced faster growth, while New York, Richmond and Chicago saw growth weaken.
While there was little immediate disruption from the federal government shutdown, contacts were worried about the potential impact if the closing became prolonged.
5. Activity in residential real estate markets continued to improve.
Construction and real estate activity continued to improve in September. Residential construction increased moderately on balance, growing at a stronger pace in the Minneapolis and Dallas Districts but only slightly in Richmond and Philadelphia. Multifamily construction remained stronger than single-family construction in a number of Districts.
Residential real estate activity continued to improve at a moderate pace in most Districts, as home sales and prices continued to rise and inventories remained low. Home sales in the New York and Dallas Districts were strong, with the exception of the Jersey Shore, which is still recovering from Hurricane Sandy. The Philadelphia, Atlanta, and Chicago Districts experienced a more modest improvement in home sales. A number of Districts reported concerns from homebuilders and realtors over rising mortgage rates.
However, contacts in the Dallas District indicated that rising interest rates were not hurting affordability, and contacts in the Boston District suggested some boost to activity by homebuyers entering the market in anticipation of future increases in rates.
6. Lending activity little changed.
Financial conditions were little changed on balance from the prior reporting period. Overall loan growth remained modest in most Districts.
Consumer loan demand weakened slightly. Reports on mortgage lending were mixed. Several Districts noted a decrease in mortgage lending, citing higher mortgage rates and reduced refinancing activity. However, mortgage originations continued to rise in Philadelphia, Richmond and Dallas, and rising home prices led to an increase in home equity lending in Philadelphia, Chicago and San Francisco.
Chicago, Cleveland and Atlanta noted an increase in auto lending, while credit card volumes decreased slightly in Philadelphia.
Business loan demand edged higher, with several Districts noting a pick-up in both commercial and industrial and commercial real estate lending.
The Philadelphia, Cleveland, Richmond, Chicago and Dallas Districts reported intense competition on pricing and terms for commercial and industrial loans. In addition, contacts in Philadelphia and Chicago expressed concern about an easing of credit standards on these loans.
Overall, however, lending standards were largely unchanged and credit quality continued to improve moderately.
8. Employment still moderate.
Employment growth remained modest in September. Several Districts reported that contacts were cautious to expand payrolls, citing uncertainty surrounding the implementation of the Affordable Care Act and fiscal policy more generally.
Cleveland and Dallas noted that retail hiring was primarily limited to staffing of new stores in their Districts, while contacts in Philadelphia, Cleveland and Chicago reported that hiring for the holiday season would be about the same as last year.
In manufacturing, Boston indicated that hiring primarily was for replacement or to fill key needs, New York noted slower job growth, and Chicago reported that manufacturers were cutting back on overtime. Dallas cited scattered reports of hiring in high-tech, fabricated metals and food manufacturing.
Furthermore, demand for skilled labor remained high in many Districts. Examples included technology, health care and engineering occupations in Richmond, economic and health consulting in Boston, legal and compliance positions in the financial services industry in New York, and accountants and financial analysts in the Dallas District.