Below is the summary of the Beige Book released by the Federal Reserve prepared at the Federal Reserve Bank of Dallas and based on information collected on or before October 5, 2007:
Anecdotal reports from the Federal Reserve Banks suggest economic activity continued to expand in all Districts in September and early October but the pace of growth decelerated since August. Growth was similar to that observed in the last Beige Book in seven Districts--Atlanta, Boston, Chicago, Minneapolis, New York, Philadelphia and St. Louis. The economy grew at a slower rate in five Districts--Cleveland, Dallas, Kansas City, Richmond and San Francisco. The expansion was variously characterized as "moderate," "modest" and "mixed."
Consumer spending expanded, but reports were uneven and suggest growth was slower in September and early October than in August. The manufacturing and service sectors continued to expand, but growth weakened--mostly for products and services related to home construction and real estate transactions. Several manufacturing and service firms reported that weaker domestic demand was offset by strong sales to global markets.
Residential real estate markets continued to weaken, and most Districts reported additional declines in home sales, prices and construction. Financial institutions reported an increase in delinquencies and slight deterioration in credit quality. Lenders in many Districts tightened credit standards, particularly for real estate. The majority of reports indicated an increase in business lending but a decline or slower growth in consumer lending.
Activity in the energy industry is still robust but growth has slowed. Favorable agricultural conditions are contributing to a bumper crop throughout much of the country, but drought continues to hamper production in the southeast.
Contacts in a number of industries indicated a higher-than-usual degree of uncertainty about the outlook for economic activity. Many real estate contacts expect housing markets to remain subdued for several months. At firms without direct ties to real estate and construction, contacts are still wary that credit tightening and slowing construction might slow activity in their industry, but there is cautious optimism because few see much evidence of such spillovers at this time.
Job growth eased in some regions, but labor shortages were reported for many occupations in most Districts and are said to be restraining economic activity in some instances. Wages rose moderately except for workers in short supply, where sharp increases were reported for some positions. Upward pressure on input costs are reported in most Districts, but competitive pressures are restraining the ability to pass higher input costs to selling prices in many instances.
Consumer Spending and Tourism
Retail sales increased, but reports were uneven and suggest growth has softened. Sales were weak at department and discount stores and for furniture and other home durables. Purchases of electronics and luxury items remained solid. Unseasonably mild weather dampened apparel sales in some regions.
There appeared to be a high level of uncertainty about the outlook for retail sales, and a few Districts report that retailers have reduced inventories. Vehicle sales were weaker, but reports indicated that sales of fuel-efficient and used cars remained strong. Tourist activity was generally solid.
Factory activity continued to expand, but reports suggested that growth has been dampened by declining output of products used in home construction. A few Districts noted that export demand for other products helped sustain growth. District reports indicated strong growth of sales for paper, steel, machine tools, agricultural machinery, energy equipment, electrical equipment, defense and aerospace, chemicals and health-related equipment.
The outlook for factory activity is uneven. Boston District contacts noted continued weakness in housing and possible negative spillovers from tight credit but point to export growth and new product development as sources of strength. Manufacturers in the Cleveland District anticipate production remaining at current levels or decreasing slightly. Factories in the Kansas City District cut inventory levels and expect further reductions. Automakers in the Chicago District anticipate weakness in auto sales, but the St. Louis District reports major hiring to support the opening of new facilities for motor vehicle parts manufacturing.