Magazine article American Banker

Fed's Beige-Book Survey Finds Modest Gains in Loan Demand

Magazine article American Banker

Fed's Beige-Book Survey Finds Modest Gains in Loan Demand

Article excerpt

WASHINGTON - Another closely watched indicator is confirming that the economy is showing real signs of strength.

The Federal Reserve's "Beige Book." which was released on Wednesday, reports that respondents in most of the central bank's 12 districts were "generally more optimistic" than they were when the last survey was done seven weeks ago.

The Federal Open Market committee meets Dec. 21 and will use the Beige Book in setting monetary policy.

Mid-Country Growth Reported

Overall loan demand improved modestly in most districts, with all reporting stronger demand in at least one sector, the report says.

The middle of the country is growing more quickly than either coast, the Fed said.

Businessmen surveyed by the Federal Reserve Bank of Chicago were the most upbeat. Sentiments were mixed in Boston, New York and San Francisco.

Consumer Spending Strong

Lending by commercial banks is increasing, driven mainly by growing consumer demand, the Fed say,s. Consumer spending, especially for automobiles and other durable goods, is strong.

Retailers surveyed by the Fed say that the holiday shopping season got off to a healthy start over Thanksgiving with sales exceeding expectations.

Residential real estate is a source of strength in most of the Fed's districts while commercial real estate is improving.

The manufacturing sector improved, too, according to the Beige Book. Nonetheless, the Fed sees little new hiring.

Wage increases and prices were generally stable, although Atlanta, Richmond and Kansas City said prices of lumber and other building materials went up.

Many economists believe that prices a still holding steady, despite a warning Tuesday by Fed Vice Chairman David Mullins who noted "early warning signs" of rising inflation.

Some Overreaction Seen

Several banking economists contacted Wednesday accused the Fed of overreacting to the good news,

"To tell you the truth, I don't know what he [Mullins] is talking about," said Sung Won Sohn, Chief economist at Norwest Corp. …

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