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Beige Book Shows Expanding Economy at End of 2012

Economic activity ""expanded"" in the closing weeks of 2012, the Federal Reserve said in its periodic ""Beige Book"":http://federalreserve.gov/monetarypolicy/beigebook/files/Beigebook_20130116.pdf released Wednesday, reflecting a slow but steadily declining unemployment rate and low rates of inflation--conditions the Fed said would have to be met before it raises interest rates.

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""Since the previous Beige Book [November 28, 2012], activity in the New York and Philadelphia Districts rebounded from the immediate impacts of Hurricane Sandy,"" the report said. ""Growth in the Boston, Richmond, and Atlanta Districts appears to have increased slightly, while the St. Louis District reports some slowing.""

And, according to the Beige Book, districts reported stronger consumer spending--about 70 percent of the nation's GDP--with holiday sales ""modestly higher"" than in 2011. At the same time, the report said business contacts were ""citing concerns that consumers will spend cautiously due to ongoing fiscal uncertainty.""

According to the report, ""real estate activity has expanded or held steady in 11 Districts for existing home sales and leasing; eight Districts for residential construction; 11 Districts for nonresidential sales and leasing; and nine Districts for nonresidential construction.""

Overall loan demand, the Beige Book said, ""was steady in five Districts, rose in four, and fell in one."" At the same time, ""credit standards were largely unchanged, except in two Districts where there were some signs of loosening"" and six Districts reported improving credit quality and/or falling delinquency rates.""

The anecdotal Beige Book is issued by the Fed eight times a year, about two weeks before a meeting of the Federal Reserve's policy-setting Board of Governors. The FOMC is next scheduled to meet January 29-30. Though a closely watched release, it is rarely, if ever, cited in the minutes of the meets of Board of Governors.

The Beige Book said, ""residential real estate activity expanded in all Districts that reported"" and ""growth rates were described as moderate or strong in nine Districts.""

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The report said contacts in Boston ""attributed their strong sales growth to low interest rates, affordable prices, and rising rents."" The five Districts that reported on housing inventories, the report said, ""all reported falling levels"" and ""new residential construction (including repairs) expanded in all but one District of those Districts that reported.""

Hurricane Sandy, which struck at the end of October, ""disrupted construction activity initially in New York, but this has since led to increased work for subcontractors on repairs and reconstruction,"" according to the report.

Loan demand, the Beige Book said, ""was largely unchanged"" in five districts: Philadelphia, Cleveland, Richmond, Kansas City, and San Francisco, ""with most of these Districts reporting a continuation of slight to moderate growth in total volume.""

Residential mortgage demand, the report said, ""improved in Cleveland, Atlanta, Chicago, Kansas City, Dallas, and San Francisco,"" while ""commercial real estate lending was cited as a particular bright spot by New York, Cleveland, Kansas City, and Dallas.""

Banks in New York, Philadelphia, Cleveland, Chicago, Kansas City, and San Francisco, the Beige Book said, ""reported improvements in asset quality, while the report added, ""lenders were described as competing aggressively for highly qualified borrowers in Philadelphia, Richmond, Atlanta, and San Francisco.""

In Atlanta, the Beige Book said, ""this stiff competition may be leading to loosening credit standards, as there was some indication that banks were more willing to increase their tolerance for risk"" while ""Chicago banks also reported some loosening of standards."" Lending standards ""remained largely unchanged in New York, Cleveland, and Kansas City,"" the report added.

The report from the Dallas district noted the price of West Texas Intermediate fuel oil had risen to over $90 a barrel, often a precursor to rising gasoline prices.

Preparation of the Beige Book rotates among the 12 Federal Reserve banks with the identity of the bank preparing the report cloaked in secrecy until the report is released. Wednesday's report was compiled by the Federal Reserve Bank of Philadelphia, which last prepared the report in July 2011 when it struck a moderate tone.

""Reports from the twelve Federal Reserve Districts indicated that economic activity continued to grow; however, the pace has moderated in many Districts,"" according to the July 2011 Beige Book.

_Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:40 a.m. and again at 9:40 Eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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