Economy Watch: Beige Book Reports Uneven Growth

The Federal Reserve's March Beige Book reveals overall economic expansion across the country, but the growth is uneven.

Ahead of the report on the U.S. employment market in February later this week, the Federal Reserve released the latest Beige Book on Wednesday, more formally the Summary on Current Economic Conditions by Federal Reserve District. On the whole, the Fed’s anecdotal evidence pointed to economic expansion in most, but not all places. “Across the nation, business contacts were generally optimistic about future economic growth.”

Yet growth is uneven, and that includes commercial real estate. According to the book, non-residential real estate sales and leasing growth varied from “flat to strong.” For instance, respondents in the Cleveland district reported growth in demand for healthcare and education properties, but not so much office space. Commercial lease rates are still rising in places like the San Francisco district. Though Boston respondents expected the market to perform well in 2016, contacts in Cleveland and Kansas City expressed concerns that higher interest rates may slow activity (each of these examples refer to areas larger than the cities for which the districts are named).

Likewise, CRE construction varied considerably from market to market. The New York district reported that availability rates and asking rents held steady for office space, but that new office construction had weakened further. Commercial construction continued to expand at a robust pace in Minneapolis, but industrial construction slowed in the Chicago district.

Residential real estate sales were up since the last report across all districts, except for New York and Kansas City, where sales were somewhat weaker in part due to normal seasonal patterns. The Boston, Cleveland, St. Louis and San Francisco districts reported strong growth in sales, and respondents in Boston and Cleveland cited relatively mild winter weather as a positive contribution to growth. Residential construction generally strengthened since the previous survey period, with only Philadelphia and Kansas City reporting declines, the Beige Book said.