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Beige Book: Economy Expanded ‘Modestly’ in September

The nation's economy ""generally expanded modestly"" from mid-August until the end of September, the Federal Reserve said in its periodic ""Beige Book report"":http://federalreserve.gov/monetarypolicy/beigebook/files/Beigebook_20121010.pdf issued Wednesday.

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The report, the last Beige Book to be issued prior to Election Day, painted a mixed regional picture, with a ""leveling off"" of economic activity in New York and a ""slowing in the pace of growth"" in Kansas City. Meanwhile, the remaining 10 federal reserve districts reported that ""growth continued at a modest pace.""

The Beige Book is prepared by the Federal Reserve eight times a year, issued about two weeks before each meeting of the Federal Open Market Committee. The FOMC is scheduled to meet next on October 23. The Beige Book, which is compiled on the basis of anecdotal rather than statistical evidence, is closely watched on its release, though not usually cited in the minutes of the Federal Open Market Committee meeting for which it is prepared.

Consumer spending, which represents about 70 percent of the economy, ""was generally reported to be flat to up slightly since the last report,"" according to the book.

Residential real estate proved to be a bright spot amid an otherwise pedestrian report. The book noted ""all twelve Districts reported that existing home sales strengthened, in some cases substantially,"" since the last report.

""Most districts reported strengthening in existing home sales, while prices were described as steady to increasing, with declining inventories noted in the Boston, Atlanta, Minneapolis, Dallas, and San Francisco districts,"" the report went on to say.

The report said ""selling prices were steady or rising"" Boston, Atlanta, Minneapolis, Dallas and San Francisco ""noted declining or tight inventories"" putting upward pressure on prices, tracking both the Federal Housing Finance Agency and Case Shiller Home Price Index reports.

""Modest price increases were reported in the New York, Richmond, Chicago, and Kansas City Districts. New York and Richmond reported relatively strong demand at the high and low ends of the market,"" according to the Beige Book, ""whereas Philadelphia and Kansas City noted relative strength for mid-range homes.""

""New home construction and sales,"" the report said, ""were more mixed but still mostly improved"" with the report noting ""increased construction and/or new home sales"" in the Atlanta, Chicago, St. Louis, Kansas City, Dallas and San Francisco Districts. Multi-family construction, in particular, was described as robust in the Boston, New York, Atlanta, Chicago, and Dallas Districts.

Residential rental markets ""continued to be characterized as strong, even in the New York and Atlanta Districts where rents increased somewhat less strongly than in recent months,"" the report said.

Commercial real estate markets were described as mixed. ""Office markets, the Beige Book said, ""showed signs of softening in the northeastern Districts-Boston, New York and Philadelphia."" New York, the report noted, has ""substantial new supply coming on the market in early 2013."" Atlanta, Minneapolis and San Francisco noted ""some improvement,"" the Beige Book reported, while ""most other Districts reported stable or mixed market conditions.""

Overall loan demand increased slightly since the last report, the Beige Book said. ""New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, and San Francisco reported stronger loan demand on balance, while Kansas City and Dallas reported flat demand and Chicago reported somewhat weaker demand.""

Most Districts, the book said, ""reported an increase in mortgage lending, especially for refinancing purposes.""

Demand for consumer credit, particularly for auto loans, was reported as ""strong in the Cleveland, Atlanta, St. Louis, Dallas, and San Francisco Districts, while consumer loan demand was more limited in New York, Richmond, Chicago, and Kansas City.""

Credit standards, the report said, ""were little changed since the last report. However, New York noted some tightening for consumer loans and residential mortgages, while Richmond and Chicago reported some easing for commercial and industrial loans.""

Loans were described as ""difficult to obtain for many small businesses in the Cleveland, Richmond, and Chicago Districts,"" though ""Philadelphia, Cleveland, Dallas, and San Francisco Districts reported stiff competition among lenders."" Loan quality, the Beige Book said, ""improved in Philadelphia, Kansas City, and Dallas,"" and ""delinquency rates generally held steady or declined in the New York, Cleveland, and Dallas Districts.""

The Beige Book was prepared before the Employment Situation report-which showed an improvement in the national unemployment rate in September-and found employment conditions were ""little changed since the last report.""

The New York and Chicago Districts, the report said, ""noted weaker labor market conditions, and conditions were described as mixed in Richmond"" while companies ""in the St. Louis District reported an increase in hiring plans.""

""Several Districts, the report said, ""continued to report that employers were having difficulty filling highly skilled positions,"" and ""in response, a few Districts noted that firms were starting to increase training programs to meet their staffing needs.""

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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