Fed Report Sees Expansion Continuing, But Slower in Some Areas

June 10, 2011
The latest edition of the U.S. Federal Reserve Board's periodic Beige Book, out this week, seemed almost up-beat in its assessment of business conditions

The latest edition of the U.S. Federal Reserve Board's periodic Beige Book, out this week, seemed almost up-beat in its assessment of business conditions since the bank's previous report in April. The report wasn't quite as rosy as that previous edition, but still showed widespread signs of economic health.

The market sectors of most interest to the electrical industry showed continuing growth, though the pace of expansion has moderated in some areas. There's still no love for residential construction, and non-residential construction is faring only a little better in most markets, but manufacturing is continuing to rise and even hire.

The Beige Book, which gathers anecdotal reports on economic activity across the Fed's 12 districts, indicated that manufacturing continued to grow in most parts of the country. The Boston, Atlanta, St. Louis, Minneapolis and San Francisco districts reported that activity expanded and Dallas reported a pickup in demand. The Philadelphia, Richmond, Chicago and Kansas City districts reported that activity expanded but at a slower pace, while activity was reported as steady in the New York district and stable to growing in Cleveland.

“Growth was reported as strong for semiconductors in the San Francisco and Boston districts,” the report's summary said. “The Cleveland district reported that steel producers were seeing shipping volumes level off after a strong first quarter performance, and the Chicago district noted a decline in second quarter orders for industrial metals, although orders for the third quarter were coming in at a more positive pace. A contact in the Richmond district said that demand for industrial metals had leveled off. The Chicago district reported a decline in activity for construction materials and household goods. Production remained strong for makers of commercial aircraft and parts in the San Francisco district.”

Residential real estate sales markets showed continued weakness in most districts, though rental markets strengthened. Most districts indicate that home prices have declined since the last report — in fact, none of the districts reported an increase in home prices and several reported a large overhang of distressed properties. The only residential bright spot was improved prospects for development of multi-family rental properties in the New York, Cleveland, Atlanta, Chicago and San Francisco districts.

Commercial and industrial real estate markets have generally been steady since the last report, though there have been scattered signs of a pickup. Non-residential construction, widely reported to be at very low levels, rose modestly in the Boston, Chicago, Minneapolis and Dallas districts, while Chicago noted that public sector projects are becoming smaller. Cleveland saw a pickup in industrial and high-end commercial development but a pullback in healthcare-related projects. Richmond reported some pockets of strength in the retail construction market. More broadly, contacts in a number of districts expressed a general sense of optimism about the outlook for the second half of 2011.