Expanding…kind of…
The Fed released its Summary of Commentary on Current Economic Conditions this afternoon. This is also known as the Beige Book, partly because it’s easier to say and partly because that is the actual color of the front cover on this report. This is a report that summarizes business activity in the various Federal Reserve Districts as measured by anecdotal evidence gathered by the various Fed Presidents.
Today’s Beige Book brings tidings of mediocrity. Reports from the 12 Fed districts indicate a slow motion expansion in September with many districts describing the pace of growth as “modest” or “slight” with mention of “weaker or less certain outlooks for business conditions”.
Historically the Fed hasn’t been known for its crystal clear communications. At times I think it might be more effective for them to play a game of charades where we try to figure out what type of economic data they are acting out. I want them to put someone on the committee like the old CEO of Toll Brothers (home builders) who said in a conference call a few years ago “this year is going to suck…all 12 months of the calendar year…there is no other way to put it.” THAT is the type of communication I appreciate…and I wish the Fed would be as clear.
I understand however that the Fed doesn’t care about my wants and needs….so we have the Beige Book. And today the Beige Book is telling us in modest tones that things aren’t great, but they aren’t terrible. I thought it might be informative to break the report out by sector with a brief summary of the activity in each. I know you all have been dying to learn what all of the sectors are in the report so this method will help scratch that itch as well. Here we go:
Consumer Spending and Tourism – Up slightly with most districts reporting an increase in auto sales. Greater availability of new models is now evident, and indicates an easing of the market disruptions wrought by the Japanese earthquake
Business Spending – Increased somewhat from the previous report
Nonfinancial Services – Mixed
Manufacturing & Transportation – Increased in most districts
Real Estate & Construction – Little changed in all 12 districts
Banking & Finance – Weakened some since last report
Ag & Natural Resources – Crop conditions at harvest were less favorable than a year ago
Employment, Wages, and Prices – Labor market conditions were little changed (interpret this as “unemployment ain’t going down anytime soon”)
Look at those descriptions….up slightly, increased somewhat, mixed, little changed, weakened some, less favorable...I’m starting to hear my old friend from Toll Brothers echoing in my mind.
Recent discussions with bankers
The overall tone of the conversations lately has been somewhat depressed. This is unusual…as tough as things have been for the last few years most people could still manage a laugh or two and shrug off the bad news. Lately the mood has become a shade darker. I had one friend tell me that he’d rather get my fishing reports than economic reports. I don’t know if he thinks I’m a good fisherman or a bad economist. The fishing reports are entertaining, and as much as I was tempted to take the boat to the lake I figured I’d go a different route.
Maybe what we need now is a reminder that things won’t always be bleak…that they haven’t always been terrible. Rather than go fishing (and it was very tempting) I decided to spend some time doing historical research on economics. How’s that for fun?
Where were you on June 16, 2004?
The first half of 2004 could serve as a benchmark for good economic times. Since most people recall time periods based on cultural references rather than based on cold economic data I thought I’d throw out a mix of pop-culture and historical references for 2004 so you could recall where you were at the time. After all…you never sit around with friends having a drink and telling old stories when someone asks “remember where we were that time when GDP hit 3.8%?” Thankfully it doesn’t work that way. So…here are some reminders….and feel free to shoot me an e-mail letting me know where you were in 2004. We could get some interesting responses to that one.
1/4/04 Brittany Spears gets married, and has annulment in under 55 hours.
2/1/04 Janet Jackson coins the term “wardrobe malfunction” at Super Bowl XXXVIII.
2/13/04 The Harvard-Smithsonian Center for Astrophysics discovers the universe's largest known diamond, white dwarf star BPM 37093.
2/14/04 Despite the discovery of an entire planet made of diamond, prices in earths diamond market are unaffected…I guess an increase in supply only affects prices if you can actually get your hands on it.
2/16/04 The Pittsburgh Penguins set an NHL record by losing their 12th consecutive home game.
3/1/04 Pavarotti announced his last opera performance.
3/2/04 George Michael announces that “Patience” will be his last commercial album…thankfully.
3/08/11 US hands power over the interim Iraqi Government.
4/1/04 Google introduces its Gmail product to the public (I just got a gmail account this month…I’m not what marketing guru’s would call an early-adopter or “trendsetter”).
5/6/04 the final episode of the TV show “Friends” is aired…and no I didn’t see it.
6/02/04 Ken Jennings begins his 74-game winning streak on the syndicated game show Jeopardy!
Where have all the good times gone?
Hopefully that headline got a little Van Halen started in your head and now as you listen to the tune in your mind I wanted to point out what the Beige Book looked like in June 2004…our bench mark for good times. Below are the Beige Book sector summaries from June 16, 2004.
Consumer Spending 6/16/2004 – Reports on overall retail sales in most Federal Reserve districts were generally positive. Sales were strong at discount and drug stores.
Manufacturing 6/16/04 – Overall manufacturing activity increased in all Federal Reserve districts. There was particularly strong growth in defense, semiconductor, food processing, paper, lumber and other building products, textiles, automotive parts, furniture, heavy and other industrial equipment, metal products, transportation equipment packaging, and recreational equipment.
(editor’s note…basically everything was strong)
Real Estate and Construction 6/16/04 – Residential Real Estate remained robust in most districts.
Banking and Finance 6/16/04 – In most Federal Reserve districts, lending activity increased.
Agriculture 6/16/04 – Conditions across the nation were generally favorable
Natural Resources Industries 6/16/04 – Activity in the mining and energy sectors remains strong.
Labor Markets, wages, and prices 6/16/04 – Most districts indicated strengthening of labor markets. Many districts experiences “increasing employment, plant expansions, and plant openings across many sectors.
I like these descriptions a lot more…increased in all districts, generally positive, robust, remains strong, strengthening…we’ll eventually see these return to the beige book.
What next?
The optimist in me says that the good times will return, the government will get out of our markets, the regulators will retreat to a more proper role, and banks will get back to making money and we’ll all be going to happy hour and talking about how dreadful it was “back when…”
The pessimist in me says we’re on the road to Greece…except we don’t have a Germany to bail us out.
Who is right? Time will tell…but whichever is right we need to keep our banks well positioned. Until then the plan needs to be “live to fight another day.” We don’t know if the good times are coming back in 2012 or 2016. This brings me to our current position…year end.
4Q 2011
It’s time for some year-end planning. The 4th Quarter of 2011 is underway and the Fed just recently told us that they are keeping Fed Funds rate at zero until the middle of 2013. I believe them.
I don’t agree with many of the things they have done…but they haven’t lied to me yet with regard to what they plan to do. If they’ve announced a plan of action at an FOMC meeting they have followed through on their word. That should serve as our baseline.
We will enter 2012 with Fed Funds at 0% and a commitment to keep them there through the middle of 2013.
Regulatory burdens will continue to be hefty. It’s important to know that you don’t have to shoulder that load alone. We have developed a lot of tools to help you satisfy recent regulatory requirements.
Need post purchase analysis on your muni portfolio? We can do it at no cost.
Need help tracking news and ratings on corporate bonds? We can do it at no cost.
Need to beef up Investment, Liquidity, Contingency Funding, or A/L policy? We have sample policies available at no cost.
Need help analyzing strategies to extend your FHLB advances to lower costs? We can do it at no cost.
Need help finding investment solutions that fit your needs? We can do it at no cost.
Need help on Asset/Liability modeling or calculating EVE? We can help.
Need help raising capital in a management friendly fashion? We can help.
The short story here is that as you begin your year-end planning process…you don’t have to go it alone. Time is expensive and we’ve created tools to help you save a bunch of it.
If you’re curious as to what else we might have to help you, consider registering for our website. This will allow you to search our arsenal of tools on your own time…you can register as many people from your bank as you’d like…there is no cost. And if you’re worried that someone will begin calling you and hassling you because you registered…put your mind at ease…I’m already doing that so it won’t be any worse than it is now!
The 4th quarter has begun and we are ready to help you tackle the issues ahead. Call me if you have any questions or if there is anything I can be doing for you.
Steve Scaramastro, SVP
800-311-0707
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