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Fed's Beige Book: Economy Expansion 'Modest To Moderate'
WASHINGTON (3/7/13)--Economic activity in the U.S. generally expanded "at a modest to moderate pace" in 10 of the 12 Federal Reserve Districts, said the Fed's Beige Book, a summary of current economic conditions in each district Wednesday.

Two districts--Boston and Chicago--reported slower expansion.

Consumer spending expanded in most districts, with mixed or lower activity among non-auto retailers. "Many district contacts commented on the expired payroll tax holiday and the Affordable Care Act as having restrained growth," said the report. "Many districts noted rising gasoline prices and fiscal policy as having a negative effects on consumer sales," it said. Weather was a factor in Boston, New York and Minneapolis districts.

Those reporting on auto sales noted "solid or strong increases in sales" with "mixed activity" in St. Louis and "a seasonal slowdown" in Dallas.  Mild weather and pent up demand were credited as factors in some districts.

Residential real estate activity strengthened in most districts,  but the pace varied. Some said home sales growth was strong, with the Richmond District indicating low interest rates as motivating home buyers. Philadelphia reported more confidence among potential buyers. Home prices edged higher in most districts, due to lower inventories.  Commercial real estate loans were mixed or slightly improved in most districts.

In the banking and finance areas, "loan demand was steady or increased across all the districts that reported," said the Fed.  "Residential real estate loan demand was strong in the Philadelphia, Cleveland, Richmond, Atlanta and Chicago districts, mainly driven by refinances due to continued low interest rates."  Also noted: strong demand for commercial real estate loans in Cleveland, Richmond and Kansas City. Auto lending rose in Cleveland and Atlanta; energy-related loan demand increased in Philadelphia and Dallas.

Asset quality improved at financial institutions in Philadelphia, Kansas City and San Francisco districts. Philadelphia, Richmond, Atlanta and San Francisco lenders reported high competition for qualified borrowers.  Some said borrowing standards were looser. Atlanta reported more loan capacity but stayed cautious with loan activity.

Cleveland banks considered cost-cutting measures, including layoffs, due to shrinking net margins, said the Fed. New York indicated a decrease in loan spreads for all loan categories, particularly residential mortgages. Chicago said "very few mortgage originations were being kept on their balance sheets and that interest rate swaps were being utilized to hedge against a potential rise in interest rates."

Financial institutions were "generally optimistic about future activity in the Philadelphia and Dallas districts for the near term, but Atlanta bankers expected activity to ease toward the middle of the year."

Manufacturing conditions improved in nearly all districts, but increases were "generally modest," said the Beige Book.  It also noted improved labor conditions, with restrained hiring in some districts. Unknown effects of the Affordable Care Act were cited as reasons for planned layoffs or not hiring.

For the full report, use the link.

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