The Federal Reserve Bank in Washington DC

WASHINGTON, DC--As far as Beige Books go, the latest from the Federal Reserve doesn't stray too far from form. These surveys of the US economy tend to highlight developments or events about which it is “upbeat” , interspersed with mentions of other trends about which it is concerned or otherwise monitoring.

So it goes with this one as well.

And arguably, the Fed could simply add the report the non-stop stream of data about the US economy. But another school of thought believes that the Fed might seize upon some of the weaknesses in the report as signs that the economy is in no way ready for an increase in the federal funds rate, especially following the UK's vote to exit the EU and the Fed's growing concerns about the US labor market.

Indeed, if the Fed were looking for data to validate its new stance, there is material to be mined in the latest Beige Book.

“A generally positive assessment of the US economy -- as the Beige Book typically is -- this afternoon's report did, however, identify a number of areas of concern: “modest” wage growth and a “deteriorating” outlook for manufacturing activity, as well as signs of “softening” activity on the consumer side with “slow” or waning loan demand,” says Stifel Chief Economist Lindsey M. Piegza.

Commercial Real Estate Reports are Positive

There is some of the same give-and-take for commercial real estate, albeit with fewer areas of concern. The Beige Book said that:

Commercial sales and leasing activity remained stable or improved in almost all Districts. Absorption rate and rent increases were documented in Atlanta and Kansas City. Improving industrial real estate markets were noted in New York, Richmond, and Dallas. Several contacts in Richmond also reported robust retail leasing activity. Office market conditions were mixed among reporting Districts. Commercial construction activity grew modestly from the previous reporting period. Construction activity picked up in New York, and Cleveland continued to report project pipelines are strong. Reports on multifamily construction were mixed in Richmond, Atlanta, and Dallas. New York noted that multifamily construction has tapered off through most of the District.

It did note that global economic concerns were an issue in some of the Districts.

A Boston contact expects the Brexit vote to exert downward pressure on economic activity in the US and the region, but notes that the vote should also boost foreign investment in Boston's commercial real estate market. Elsewhere in the District contacts are cautiously optimistic for commercial real estate but see risks as tilted to the downside based on global economic and political uncertainty.

Waiting for Realized Improvements

But a strong (or in Fed-speak 'generally positive') commercial real estate market is unlikely to sway the Central Bank from its intended path when other sectors and indicators are not as robust as had been hoped.

Remember, Piegza says, “the December 2015 liftoff was in anticipation of further improvement which has since failed to materialize. This time around, the Fed will likely err on the side of caution, waiting for realized improvement as opposed to simply forecasting better times ahead.”

To be sure, there is plenty of reason to err on the side of caution, Piegza says.

The Fed appears to be increasingly aware of the barriers to growth and development facing the domestic economy, she said. “Add in political uncertainty and market volatility amid today's low rate, flat yield curve environment, and the Committee has no reason, let alone sense of immediacy to adjust policy in the near-term.”

Is It Really That Bad?

But a case can be made that the Fed, if indeed it does seize on these pockets of weakness, might be overly and unduly conservative.

“The Beige Book report for July, which summarizes comments received from businesses and other contacts outside the Federal Reserve, suggested that economic growth during the most recent period was 'modest,'” Savills Studley's Chief Economist Heidi Learner wrote in a client note.

“However, unlike prior months, no District described growth as slowing or flat,” she said.

Instant Insights /

If You Carefully Squint, You'll See the New Beige Book Reinforces the Fed's Dovish View

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