March Beige Book Offers Gray Image of US Economy

U.S. economic activity expanded at least slightly in 7 Federal Reserve districts according to the latest version of the Beige Book released Wednesday afternoon. Two Fed districts characterized growth as mixed, another two said activity was flat, and just one, Kansas City, reported a modest decline. Overall, economic activity could be described as muted, at best.

Consumer spending on new vehicles generally improved but the improvements varied from strong sales in some districts (Richmond, Chicago, San Francisco) to lower sales in others (Kansas City, St. Louis Dallas).

Labor market growth continued in a majority of the 12 Federal Reserve districts and wages saw slight to strong growth in most districts. Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and San Francisco reported positive wage growth among high-skilled workers, while Cleveland, Richmond, Atlanta, Chicago, and Kansas City reported wage growth among low-skill and entry-level positions.

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Some other interesting notes from the report include this appraisal of the financial developments in the New York District:

Small- to medium-sized banks in the District report weakening demand for consumer loans and residential mortgages but rising demand from commercial borrowers. Bankers report that credit standards remained unchanged across all loan categories. Bankers reported narrowing spreads of loan rates over cost of funds across all loan categories. The decrease in spreads was most prevalent for commercial mortgages. Respondents also reported no change in the average deposit rate. Finally, banks report lower delinquency rates on commercial mortgages but higher delinquencies on consumer.

The Minneapolis district reported that the slowdown in the energy and mining sectors goes on:

The number of active drilling rigs as of early February in the District fell to its lowest level since 2009. In North Dakota, state agencies were ordered to slash their budgets by 4 percent due to the reduction in oil tax revenue. Output at Minnesota iron ore mines was expected to decrease substantially in 2016, after falling by 35 percent in 2015. Montana coal mines saw shipments fall last year and were expecting to ship less coal in the coming year due to weak international demand.

The Dallas Fed underscored the troubles in the energy sector:

Demand for oilfield services remained depressed as drilling continued to decline. Capacity utilization of equipment was reported to be below 50 percent. An oil producer said they lowered their number of active rigs in the oilfield and were considering deeper cuts to 2016 capital expenditures than they projected late last fall.  At recent pricing and demand, the financial positions of many firms continued to deteriorate, particularly smaller firms. Outlooks remained somber for 2016, with worry that mid-2016 will bring more defaults, bankruptcies, and mergers and acquisitions.

All in all, no big surprises either positive or negative. But no one expected any big surprises since most of the data has already been revealed. The major indexes got a tiny bounce following the release.