Economy Growing, But … Says Beige Book

The Federal Reserve's Beige Book might be anecdotal in nature, but it's high-quality anecdotes.

The Federal Reserve’s Beige Book might be anecdotal in nature, but it’s high-quality anecdotes. The full formal title of the document, which comes out eight times a year, points to its nature: “Summary of Commentary on Current Economic Conditions by Federal Reserve District.” To compile the Beige Book, the central bank talks to “key business contacts, economists, market experts, and other sources” outside the Federal Reserve System, and stresses that it isn’t “a commentary on the views of Federal Reserve officials.” The most recent Beige Book came out on Wednesday, and the takeaway is that the economy’s still growing, but slower than it has been — which is pretty much a confirmation of other conventional wisdom. Real estate’s doing fairly well, but there are some soft spots.

In the current economy, the Fed’s favorite adverbs are “modestly” and “moderately.” Labor markets, the book noted, remained stable or continued to improve modestly. Layoffs related to the decline in energyprices were reported in multiple districts (among the 12 Federal Reserve Districts). But there was a silver lining, at least for the nagging problem of wage stagnation — and the economy isn’t going to grow robustly unless that’s cured. The book also reported that buisnesses are reporting difficulty in finding skilled workers. Sources in a number of districts noted modest upward pressure on wages and overall prices as a result, which is better than no upward pressure.

Commercial real estate activity remained “stable to expanding” in a lot of places, according to the Beige Book. Boston, New York, Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco all saw strong gains in industrial and office building construction — meaning the districts, which usually encompass a lot more territory that the city they’re named after. Some of the ancedotes are about particular cities, however. For instance, demand for commercial properties in the city of Boston continues to be fuelled by foreign institutional investors, many of whom are increasing their allocations to real estate. A lot of places also reported strong multifamily construction, and there were scattered reports of higher leasing in the industrial and retail sectors, too, along with easier access to credit compared to prior years.

Most districts reported a tight supply of residential real estate at most price points, and some said there’s an absence of first-time homebuyers — not necessarily a good thing in the long run, since you need first-time buyers to graduate to more expensive houses to keep markets healthy. Still, contacts across the country uniformly reported optimistism and many expect a greater-than-normal upswing in home sales with the coming of spring. The multifamily sector remains strong, with flat to declining vacancy rates reported in many places. In the multifamily development space, it’s a little hard in a number of markets (e.g. San Francisco) to find skilled construction labor, which is driving up wages in that sector.