The widely anticipated Federal Reserve Board's Beige Book compilation was issued within the past hour, and that summation of economic activity across this nation indicated that growth had continued at a gradual pace during July and early August. It should be noted that the basic findings in the Beige Book were completed on August 20th. This economic report is used by the central bank as background information for its next FOMC meeting, which is scheduled for September 12th and 13th. This summation also comes two days before Fed Chairman Ben S. Bernanke is due to address the economic state of affairs at a symposium in Jackson Hole, Wyoming.
One encouraging note in the report is that the Fed indicated that retail activity had increased since the previous Beige Book. And since the consumer accounts for some two-thirds of aggregate business activity, this latest improvement, however mild, is most encouraging. This report also comes out less than six hours after the Commerce Department had reported that the nation's gross domestic product (GDP) had been revised upward for the second quarter from an initial estimate of 1.5% growth to a mildly more reassuring rate of 1.7%.
We sense that this report, while certainly not uplifting in any sense of the word, may be sufficient, coupled with the better GDP issuance and the overall increasingly benign succession of recent economic releases, to dissuade the central bank from taking further steps to stimulate the economy, via a possible third round of quantitative easing, or additional bond purchases. We feel that the odds of such further accommodation are, at best, 50-50 at this juncture.
Even so, the Beige Book, compiled during the first half of the third quarter, suggested that the speed of the recovery was falling short of what was needed to spur faster hiring. The next release of non-farm payroll data will be a week from this Friday. At the start of the current month, the government had reported that payrolls rose by 163,000 in July. We think a similar increase may be occurring this month.
The report also intoned that manufacturing was softening, or at least slowing the rate of growth across much of the country. The Beige Book survey seemed to blame this less-than-idyllic state of affairs on the weakening in demand overseas. As we write this, the recession in Europe seems to be spreading by the day.
On a more encouraging note, real estate activity was generally said to be improving. Indeed, all 12 Fed Districts reported an increase in home sales, homebuilding activity, and home prices. Housing, heretofore the weak link in the recovery's chain, now appears to be one of the more inclusive areas of strength--if still modestly so.
Overall, the report does not change much--especially in regard to the prospect for further monetary easing. Perhaps Chairman Bernanke will shed some more light on this subject in two days--or possibly we will need to await the upcoming FOMC meeting in mid-September to learn more.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.