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Beige Book: Economic Growth Slows

The U.S. economy continued to grow in July and August, at a slower pace than previous months, according to the latest Federal Reserve Board Beige Book. 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.

The reports from Boston and Cleveland also pointed to positive developments or net improvements compared with the previous reporting period. However, the remaining Districts of New York, Philadelphia, Richmond, Atlanta, and Chicago all highlighted mixed conditions or deceleration in overall economic activity.

Manufacturing activity expanded further, although the pace of growth appeared to be slower than earlier in the year. Most Districts reported further gains in production activity and sales across a broad spectrum of manufacturing industries. Recent weakness was most notable for construction-related products, according to reports from Cleveland, Richmond, Chicago, Dallas, and San Francisco.

Reports on capacity utilization were mixed. Manufacturers of high-tech products have been operating near maximum capacity of late, although this partly reflects a substantial decline in industry-wide capacity over the past three years, as noted by Dallas. More generally, the majority of Cleveland's manufacturing contacts reported that capacity utilization remained below pre-recession levels. Capital spending plans for manufacturers and firms in other industries generally indicate little change or modest increases in coming months, based on reports from the Boston, Philadelphia, Cleveland, Chicago, Kansas City, and San Francisco Districts.

Upward price pressures were very limited during the reporting period, with the exception of selected food commodities and industrial materials. Philadelphia reported increases in the prices of primary metals and wood products, Minneapolis pointed to higher prices for copper and lead, and Dallas and San Francisco reported higher prices for grain and selected other agricultural commodities.

Atlanta reported that commodity and transportation-related prices rose, but their contacts indicated plans to absorb the increases into their margins rather than passing them on to consumers. Chicago, Kansas City, and San Francisco also noted limited pass-through of cost pressures to downstream prices.

Home sales slowed further following an initial drop after the expiration of the homebuyer tax credit at the end of June, prompting a slowdown in construction activity as well. Demand for commercial real estate remained quite weak but showed signs of stabilization in some areas. Reports from financial institutions pointed to generally stable or slightly lower loan demand and noted some modest improvements in credit quality.

Consumer spending appeared to increase on balance despite continued consumer caution that limited nonessential purchases, while activity in the travel and tourism sector picked up relative to seasonal norms. Activity was largely stable or up slightly for professional and other nonfinancial services. Agricultural producers and extractors of natural resources reported continued gains in demand and sales.

View the full Beige Book report here.

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