Within the past hour, the U.S. Federal Reserve has released its Beige Book summation of economic activity across the United States, and that compilation reported that growth generally was proceeding at a moderate pace, as we make our way through the early stages of the second quarter.
Underpinning this recovery, according to the account generated by data from the 12 regional Fed banks, was a strengthening in the construction market and generally rising real estate prices. That is a marked turnaround from earlier in the four-year-old business recovery. During the upturn's formative stages, by comparison, the housing sector had been a notable drag on things. But that has changed over the past year, and recently issued data on housing starts affirms this, as March data from that arena showed that such building efforts had surpassed the one million annual rate level for the first time in a number of years.
Of note, the report was slightly more upbeat, in the aggregate, than previous Beige Books, with the regional banks in Dallas and New York noting a slight acceleration in the pace of the expansion. Five other banks said that the upturn is moving along at a moderate pace, while five other Districts suggested that the rate of growth was now in the modest camp.
The Beige Book's reporting period extended from late February to early April. Meanwhile, the report also intoned that "aside from reports of increases in home prices and residential construction materials, price pressures remained mostly subdued across Districts." That benign inflation situation should continue to give the Fed the latitude its needs to fully address any needs to stimulate the economy in the months ahead.
The report also noted that among individual sectors, factory activity was up in most Districts, especially in those areas closely tied to the construction markets and the auto industry. This analysis would seem consistent with a survey on manufacturing activity issued earlier this month. The Fed also maintained that consumer spending was up modestly, with higher gasoline prices and the end of the payroll tax holiday on social security taxes proving a headwind in some Districts. The better spending results were at some variance with a report on retail sales for March issued late last week by the U.S. Commerce Department, which showed that such outlays had backtracked somewhat last month.
At the same time, the central bank noted that loan demand was steady to up slightly in most Districts, while employment trends were mostly unchanged, or up nominally.
All in all, this was a somewhat better report than many had been expecting, but is clearly not a game changer. It also is consistent with our view that U.S. gross domestic product growth had perked up nicely in the first quarter, gaining perhaps 2.5%-3.0%. On the other hand, recent metrics suggest that there will be some easing off in growth in the current three months.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.