Wednesday, September 4, 2013

Fed Beige Book- Moderate Growth on Housing and Autos

As Bloomberg reports......

Americans spending more on cars and housing helped the economy maintain a “modest to moderate” pace of expansion from early July through late August, even as borrowing costs increased, the Federal Reserve said today.

Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods,” the Fed said. “Residential real estate activity increased moderately in most districts, and demand for nonresidential real estate gained overall.”

Today’s Beige Book showed an impact from higher interest rates, with conditions in housing and bank lending slowing from the previous report.

“Lending activity weakened a bit, and several districts reported less-favorable conditions than in the preceding reporting period,” the report said. The Atlanta, Chicago, St. Louis and San Francisco districts reported that lending slowed, while Kansas City said lending declined. The Chicago district reported that “recent interest-rate increases likely were depressing commercial investment.”

Today’s report indicated that residential real estate “increased moderately” compared with the previous report, which cited a “moderate to strong pace” of expansion. Sales and prices continued to increase, and many districts said that “limited inventories of desirable properties contributed to upward price pressures.”

That is all well a good, but with year-over-year GDP growth remaining at stall speed while the preponderance of gains come from interest rate and investor demand driven growth, what happens when the Fed pulls back on the monetary spigots? Anyone who claims a slowdown in the monetary stimulus will be a non-event has no insight into history. Remember, that Greenspan's reduction of just $40 billion in safety-net reserves floated ahead of Y2K helped fuel the NASDAQ market crash of 2000. And this was a period where the economy far less dependent and hooked on monetary stimulus.

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