Beige Book Shows Growth... Barely

The Beige Book reports that national economic activity likely improved during the survey period - including the last two weeks of July and the entire month of August - but that the pace of recovery has slowed markedly from the first half of the year.

7 of 12 districts reported that conditions improved 'modestly' or 'on-net', while conditions in the other 5 districts were 'mixed' or outright 'deteriorated.' This marks a downgrade from the July release, which pointed to improvement in 10 of the 12 districts.

The manufacturing, agricultural and resource sectors exhibited the clearest signs of growth over the period. However, manufacturing expansion seems to have slowed from previous periods.

Other areas - including consumer spending, and non-financial professional services - appeared to see improvement on-balance but reports of activity were 'mixed.'

Real-estate struggled. Housing was notably weak following the expiration of the tax credit, and commercial real estate remains a problem area. These two factors continue to weigh heavily on construction.

It appears demand for loans is roughly flat and 'lending standards were largely unchanged.'

Key Implications

The qualitative assessment of the economy outlined in the September Beige Book is consistent with the signals emanating from harder data releases, and confirms that while the pace of recovery has slowed it remains intact. To the extent that the surveys reflect economic conditions during August, we can expect another month of unimpressive data from the U.S. economy. That being said, there appears to be enough momentum in this report to support a net improvement in economic conditions between July and August, and this should quell some concerns that the economy is headed for a double dip.

There remain promising signs that conditions in key areas of the economy are improving - gradually. Credit supply and demand were broadly unchanged, but this reflects a stabilizing in conditions. Manufacturing activity is still expanding, continuing to act as a source of growth. Consumer spending continues to grow, at a tepid pace. We believe that these trends will continue into the future and provide the backdrop for sustained positive, albeit below trend, economic growth.