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The Latest or ig i nat ion ANALYTICS Beige Book Shows Influence of Fiscal Cliff S e c on da r y M a r k e t a na ly t ic s se r v ic i ng Though the Fed's periodic reports are typically politically neutral, the budget battle on Capitol Hill was evident in recent findings. T he Federal Reserve painted a picture of a split economy with concerns about the fiscal cliff in its periodic Beige Book. The economy, according to the Beige Book, expanded "at a measured pace" in seven of the 12 federal reserve districts: Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco. There was also "a somewhat stronger increase in activity" in Minneapolis and St. Louis. However, Boston and New York showed slower growth and weaker conditions attributable to Hurricane Sandy, and Philadelphia reported "general weakness that was exacerbated" by the storm. According to the Beige Book, business leaders and others "expressed concern and uncertainty about the federal budget, especially the fiscal cliff." The reference to the tug of war between the White House and Congress in the Beige Book was unusual for the Fed, which usually tries to avoid political fights. The anecdotal Beige Book is issued by the Fed eight times a year, two weeks before a meeting of the Federal Reserve's policysetting Board of Governors. Though a closely watched release, it is rare if ever cited in the minutes of the Board of Governors. The Beige Book reports were far from negative five years after the onset of the Great Recession, but not entirely positive either. Consumer spending, the report said, "grew at a moderate pace in most districts, while manufacturing weakened." Seven of the 12 districts found "either slowing or outright contraction in manufacturing, and two others gave mixed reports." Drought conditions persisted in several states, according to the report, and energy sector extraction "expanded on balance in San Francisco and activity remained at high levels in the Minneapolis and Dallas districts." The reported noted "fewer active oil rigs in Kansas City, Dallas, and San Francisco," which could lead to higher prices for petroleum and petroleum products in the months ahead. 60 | The M Report Kansas City "characterized residential real estate activity as brisk." The Beige Book noted similar reports from Dallas and San Francisco. However, the report said, "sales growth generally slowed for both the condominium and single-family home markets" in Boston. Construction and commercial real estate activity, the report said, "generally improved across districts" since the last report in October. Loan demand, according to the Beige Book, "generally was either mixed or slightly stronger across" the country. The Beige Book also reported the following: • New York said demand for consumer and especially commercial and industrial loans weakened, but commercial and residential mortgage demand was steady. • Richmond reported a small commercial banker was encountering a slight improvement in overall loan demand but added that consumer loans were unchanged from "meager" levels and small business loans were virtually nonexistent. • Chicago noted small business loan demand experienced modest growth, but a decrease in credit demand occurred among middlemarket customers. • St. Louis said overall lending activity was essentially unchanged since the last report. • San Francisco cited weak-to-moderate business loan demand but said consumer lending expanded further with the help of auto loans and home mortgage refinancing. • The remaining districts reported moderate increases in total loan demand with Philadelphia reporting "widespread bank and ATM closings due to Hurricane Sandy." Markets for single-family homes "continued to improve across most districts with the exception of Boston and Philadelphia," the report said. The New York residential real estate market, the report said, was "mixed but generally firm prior to the storm" with selling prices "steady or rising." New York, along with Boston, Richmond, Atlanta, Kansas City, and Dallas, saw "declining or tight inventories." Richmond saw "more residential work in the high-end home category for the first time in three years," the report said. Investors were reported as "more active" in Florida than in other parts of the Atlanta district (which includes Florida). Residential activity increased "at a slow but steady pace in October and early November" in Chicago. St. Louis reported "residential real estate market conditions continued to improve." Segments of construction and real estate were "growing at a double-digit clip" in Minneapolis, and Credit standards and quality, according to the Beige Book, "were somewhat improved" since the last report. Chicago, St. Louis, and Kansas City said credit standards on most types of loans were unchanged, and Dallas cited a loosening of credit standards, which contributed to very competitive loan pricing. Preparation of the Beige Book rotates among the 12 federal reserve banks, with the identity of the bank preparing the report cloaked in secrecy until the report is released. The report was prepped by the Federal Reserve Bank of Richmond, which last prepared it in April 2011, when it offered a generally optimistic view, saying that "overall economic activity increased somewhat since the last report across all Federal Reserve districts except St. Louis, which reported 'softened' economic conditions."