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Fed Beige Book Reports Modest Economic Growth
Monday, October 21, 2013 9:35 AM

The Federal Reserve notes in their latest “beige book” report, the economy expanded moderately in September and early October amidst weak job growth and business uncertainty. The report, named for the historical color of its cover, drew greater scrutiny this month because of the lack of other economic reports being released due to the recent government shutdown.

The Fed portrayed the economic expansion as “modest to moderate” with most of the Fed districts reporting steady growth even though the pace has slowed in the Philadelphia, Richmond, Chicago and Kansas City districts. Housing and auto sectors continue to recover as consumer spending and manufacturing picked up modestly. The report also cites a slight pickup in business investment.

But job growth “remained modest in September.” In Cleveland and Dallas, retail hiring was largely limited to new stores while job growth slowed in New York. Although the Labor Department did not release its October employment report, the Fed’s report appears to be consistent with a report on private payrolls released by ADP, which showed businesses added a disappointing 166,000 jobs last month.

The report also reflects a modest increase in consumer spending across most areas with auto sales especially strong in New York. Retail sales were “steady” with Cleveland and Richmond reporting accelerated sales but Chicago, Kansas City and Dallas reporting slowdowns.

According to Brian Turner, director and chief strategist for Catalyst Strategic Solutions, the report does nothing but acknowledge what credit unions have known for a while – the pace of economic recovery remains fragile and scattered.

“The sizeable growth in vehicle loans experienced by the credit union industry during the first quarter apparently caused demand during the second and third quarter of 2013 to dry up,” notes Turner. “Consumer spending also has slowed – causing the accelerated pace of consumer credit growth to slow.”

According to the Federal Reserve report, consumer credit has increased at a 4.7 percent annualized pace with revolving credit declining 4.6 percent and non-revolving credit increasing 8.5 percent.

“But for the credit union industry, the Fed report shows consumer credit increased 10.0 percent with revolving credit increasing 8.5 percent and non-revolving credit increasing 10.2 percent,” adds Turner. “The industry’s overall consumer credit market share was unchanged from July to August at 8.6 percent but it has increased from year-end’s 8.3 percent.”

The latest projection shows economic growth to average between 2.5 percent and 2.8 percent in 2014.

“This would portend slight improvement in consumer spending (two-thirds of the nation’s GDP), which in turn suggests moderate growth in loan demand next year,” continues Turner. “For that to happen, growth is going to have to come from consumer loans as it is expected that the pace of mortgage lending will slow next year.”

The latest forecast from the Mortgage Bankers Association estimates that total originations will decline about 32 percent in 2014 with purchase applications outnumbering refinancing applications more than three-to-one. This would drop the share of refinancing applications to 36 percent of total originations.