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Fed Releases Latest Beige Book

January 17, 2013

Existing home sales expanded or held steady in eleven districts while loan demand was mixed in Federal Reserve districts reporting to the central bank for its periodic roundup of economic activity, according to the Fed's latestBeige Book.

The Fed puts out the report eight times a year, with each of the 12 Fed banks gathering anecdotal information on current economic conditions in its district through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. The large report, commonly known as the Beige Book, contains summaries of each district's economies as well as certain industries, such as banking and finance.

The latest Beige Book covered a period from the middle of November into early January. It said loan demand was largely unchanged in the Philadelphia, Cleveland, Richmond, Kansas City, and San Francisco districts, with most of those regions reporting a continuation of slight to moderate growth in total volume. The New York, Atlanta, Chicago, and Dallas districts, however, reported stronger demand than previously reported. The St. Louis district reported a slight decline. There was no mention of overall loan demand in the Minneapolis and Richmond districts.

Real Estate and Construction

Existing residential real estate activity expanded in all districts that reported. Growth rates were described as moderate or strong in nine districts. Contacts in the Boston District attributed their strong sales growth to low interest rates, affordable prices and rising rents. All districts reporting on price levels saw increases, with New York and Chicago reporting only very minor increases. The five districts that reported on housing inventories all reported falling levels. New residential construction (including repairs) expanded in all but one of the districts that reported. Contacts in the Kansas City District reported that increased lumber and drywall costs limited construction, causing a slight decline this period. Hurricane Sandy disrupted construction activity initially in New York, but this has since led to increased work for subcontractors on repairs and reconstruction.

Though a little weaker than residential real estate, reports on sales and leasing of nonresidential real estate are still mostly positive—described as modest on average. The Boston District reported a drop in leasing beyond normal seasonal trends; contacts cited fiscal cliff uncertainty as a factor. Minneapolis and Kansas City reported increased demand and tightening commercial real estate markets. Philadelphia, St. Louis and Dallas all reported more modest increases in nonresidential real estate activity. The Boston District reported that demand for commercial real estate loans appears to be softening and that the pipeline for new construction projects has diminished significantly since the last report. Dallas reported that construction was expected to pick up in the commercial real estate sector in 2013.

Banking and Finance

Overall, loan demand was largely unchanged in the Philadelphia, Cleveland, Richmond, Kansas City and San Francisco districts. Most of these areas reported a continuation of slight to moderate growth in total volume. The New York, Atlanta, Chicago and Dallas districts reported stronger demand than previously, while the St. Louis District reported a slight decline. Some increased lending in Philadelphia, Chicago and Dallas was driven by businesses taking out loans for special year-end purposes such as tax planning and dividend payments. Demand for residential mortgages improved in Cleveland, Atlanta, Chicago, Kansas City, Dallas and San Francisco. Commercial real estate lending was cited as a particular bright spot by New York, Cleveland, Kansas City and Dallas. However, lenders in San Francisco remained reluctant to lend to real estate investors outside of the multifamily residential sector.

Banks in the New York, Philadelphia, Cleveland, Chicago, Kansas City and San Francisco districts reported improvements in asset quality. Lenders were described as competing aggressively for highly qualified borrowers in Philadelphia, Richmond, Atlanta and San Francisco. In Atlanta, this stiff competition may lead to loosening credit standards, as there was some indication that banks were more willing to increase their tolerance for risk. Chicago banks also reported some loosening of standards. On the other hand, lending standards remained largely unchanged in New York, Cleveland, and Kansas City.

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