In the latest Beige Book report today, it believed that the US economy is growing, but at a decelerating pace. The Beige Book is a report on the US economy compiled eight times a year by the US Fed and is based on information from companies in the 12 Fed districts. The overall message of the report was ‘modest growth’ in the US, but five of the 12 districts reported deceleration in growth. These five districts were in eastern US and include New York, Philadelphia, Richmond, Atlanta, and Chicago. The report is based on interviews with companies from mid July till end August period. The report will serve as a guide for the policy level meeting to be held on September 21.

The report highlights that home sales struggled to keep pace after the removal of tax credits in June resulting in a slowdown in construction activity. This also led to a slightly slower demand for loans to purchase homes. Besides home sales, demand for commercial and retail real estate also remained subdued. Thus, it can be clearly deduced that government’s tax credits to support home sales had for a period propped home sales. However, this is not really a sustainable way to generate demand and the government’s stimulus in this regard seems not to have generated anything but temporary results.

Consumer credit also seemed to be on the wane, with consumers cutting their debt exposures. Consumers were seen reducing their credit card bills and were perhaps preparing for a tougher tomorrow. As evidence, consumer credit declined by $ 3.6 billion in July. However, the report suggests that consumer spending continued to increase, though marked by caution.

As per the report, manufacturing activity also continued to expand though at a pace slower than a year ago suggesting that, while the manufacturing sector continued to grow, a slowdown in its pace was evident. This is line with the overall take of the report, which suggests that the US economy is growing, but at a decelerating pace. Demand for agricultural products remained firm, with shortages developing overseas. Exports were also seen supporting manufacturing activity.

The above suggests that internal demand in the US continues to be subdued due to existing economic conditions, but demand from overseas is helping stabilize industry and agriculture to some extent. This actually suggests that external demand can help the US kick start business. But, quite clearly, for exports to be promoted, the US would need to follow a weak dollar policy. A depreciated dollar would make US produce cheaper and increase exports. This could gradually put the US economy in a firm positive growth cycle. However, it is uncertain if the US can openly follow a weak dollar policy as the US still considers itself the world’s economic superpower.

Notwithstanding the Beige Book report, the US economy is still growing and struggling to keep itself afloat. Hopefully, the slow patch that it is encountering at present is just a passing phase and it should take an accelerating pace of growth soon.



Source by Cedric Welsch