In its September report, the Fed said the economy shows "widespread signs of a deceleration compared with preceding periods." Nevertheless, the central bank added that "economic growth at a modest pace was the most common characterization of overall conditions, as provided by the five western Districts of St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco."
In addition, the "Boston and Cleveland districts also pointed to positive developments or net improvements compared with the previous reporting period," the Fed said. However, the remaining districts of New York, Philadelphia, Richmond, Atlanta and Chicago "all highlighted mixed conditions or deceleration in overall economic activity."
Lending Was Mostly Stable
Investors, at least initially, took the regional bank report in stride, as the Dow, up about 60 points to 10,400 before the report, was essentially unchanged in the initial minutes after its release.
On banking conditions, the Fed said "lending activity was stable to down slightly on net. Most districts reported little or no change from existing low levels of commercial and industrial lending, as businesses remained quite cautious about expansion plans." A few districts pointed to increases in nonbank financing, including rising availability of trade credit in Atlanta and further increases in venture capital funding in San Francisco.
Regarding inflation, the Fed said upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities, such as grains and some industrial raw materials. Wage pressures were also limited, although a few districts noted increased upward pressures in a narrow set of sectors with a shortage of skilled applicants.
On consumer spending, the Fed said "spending was mixed but suggested a slight increase on balance." "Districts reported that non-automotive retail sales rose compared with the previous reporting period or were above their levels from 12 months earlier."
Concerning manufacturing, which has so far led the U.S. recovery, the Fed said, "activity expanded further on balance, although the pace of growth appeared to be slower than earlier in the year." New York, Richmond, Atlanta and Chicago indicated that the overall pace of growth slowed, while Philadelphia, Cleveland and Kansas City reported that demand had declined compared with the previous reporting period.
About real estate, the Fed said, "Activity in residential real estate markets declined further. Most District reports highlighted evidence of very low or declining home sales, which many attributed to a sustained lull following the expiration of the home buyer tax credit at the end of June." The New York and Dallas districts noted especially weak conditions for lower-priced homes, while Philadelphia and Kansas City reported higher-priced homes as the primary weak spot. Demand for commercial, industrial and retail space generally remained depressed, the Fed said.
Bernanke: The Fed Still Has Ammunition
The Fed's latest Beige Book analysis occurs amid a U.S. economic recovery that Fed Chairman Ben Bernanke, in his recent Jackson Hole, Wyo.,speech said "will require appropriate and effective responses from economic policymakers across a wide spectrum, as well as from leaders in the private sector." He added that "Central bankers alone cannot solve the world's economic problems."
However, Bernanke reiterated that those arguing that the Fed is "out of ammunition" regarding both credit market stabilization and economic stimulus measures are wrong. "The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools," Bernanke said Jackson Hole. "Should further action prove necessary, policy options are available to provide additional stimulus."