Beige Book notes ongoing, modest economic growth; several districts report modest loan growth

Modest growth in loan volumes in several of the Federal Reserve’s 12 districts was one of the findings of the Fed’s latest Beige Book, an informal snapshot of economic conditions based on input acquired as of Aug. 23 and released Wednesday.

The report says that “on balance,” input from the Fed districts indicated modest economic growth through the end of August. It also points to continued near-term optimism among most businesses despite ongoing concerns about tariffs and uncertainty regarding trade policy. The report cited mixed results on consumer spending (though auto sales grew modestly); and still-constrained home sales due primarily to low inventory levels and continued flat growth in new-home construction. “Commercial real estate construction and sales activity were steady, while the pace of leasing increased slightly over the prior period,” the report says.

Employment and prices grew at a modest pace overall, though various districts said manufacturing employment was “flat to down,” wage growth remained “modest to moderate,” and upward pressure continued on pay for entry-level and low-skill workers (among others). Reports on the price impacts of tariffs were mixed.

As for banking and financial services, here are excerpts from 10 district reports:

New York: Bankers reported higher demand for consumer loans, residential mortgages, and commercial mortgages, all of which had declined in the previous reporting period. Refinancing activity rose. Credit standards for consumer loans, residential mortgages, and commercial and industrial (C&I) loans were unchanged, but tightening standards were reported for commercial mortgages. Bankers reported narrowing loan spreads across all categories. Finally, delinquency rates were reported to be stable across all categories.

Philadelphia: Financial firms reported continued moderate growth in both overall loan volumes (excluding credit cards) and credit card lending on a year-over-year basis. During the current period (reported without seasonal adjustments), volumes appeared to grow robustly in home mortgages and auto lending. Commercial and industrial loans grew moderately, as did other consumer loans (not elsewhere classified). Home equity lines declined modestly. Banking contacts continued to note increased uncertainty, but while some contacts reported that businesses were hanging on the sidelines or hitting pause, other contacts have not seen customers holding off on making investments. Contacts generally remained optimistic for the remainder of 2019, although somewhat less so than in the prior period.

Cleveland: Bankers reported that loan demand declined slightly. In general, demand from commercial clients softened. Consumer lending held firm, as lower interest rates bolstered demand for mortgages and auto loans. Bankers would like to decrease deposit rates to offset declining lending rates, but many reported that competition for deposits remained too intense to reduce these rates. Overall, core deposits increased on balance.

Richmond: Overall, loan demand rose modestly in recent weeks. Residential mortgage demand was generally described as stable to increasing modestly. Additionally, a few lenders noted an increase in residential refinance loans. On the commercial side, real estate loan demand strengthened modestly. Business loan demand improved slightly and automotive lending was reportedly flat compared to the previous report. Deposits grew modestly and credit quality remained stable at strong levels.

Atlanta: Conditions at financial institutions were stable. Total loan growth was steady although consumer loan growth continued to decline. Competition for deposits continued to put pressure on net interest margins along with lower loan yields. Nonperforming assets remained near historic lows.

Chicago: Financial conditions were little changed on balance over the reporting period. Financial market participants attributed lower equity and higher bond prices to greater uncertainty about the future state of the economy. Business loan demand rose modestly, with reports of increased equipment purchases and M&A activity but lower commercial real estate activity. Loan quality remained solid across most sectors. Contacts said that lending standards were little changed, but noted that strong competition was creating pressure to loosen them. Consumer loan demand increased slightly, with little change in loan quality or standards. There were reports of a small increase in mortgage refinancing due to lower interest rates.

St. Louis: Overall loan demand in the District has weakened slightly since our previous report. Demand for mortgages slightly increased relative to one year ago, while demand for auto loans and commercial and industrial loans fell modestly. Bankers expect little to no change to overall loan demand in the fourth quarter. Credit standards tightened slightly compared with year-ago levels. Delinquencies fell slightly on a year-over-year basis and are expected to continue declining into the fourth quarter.

Kansas City: Bankers reported a modest increase in overall loan demand, with somewhat mixed reports across categories. Respondents indicated a strong increase in the demand for residential real estate loans and a modest increase in demand for consumer installment loans. Demand for commercial real estate loans held steady, while demand for commercial and industrial loans and agricultural loans declined. Bankers indicated a modest improvement in loan quality compared to a year ago and expected a slight improvement in loan quality over the next six months. Credit standards remained largely unchanged in all major loan categories, and deposit levels decreased slightly.

Dallas: Loan volumes rose at a slower pace compared with the previous reporting period, with growth mixed across categories. Commercial and residential real estate lending expanded at a similar pace, but commercial and industrial loan volumes dipped and consumer loans were flat over the reporting period. Credit standards continued to tighten modestly. The cost of funds ticked up, and net interest margins fell further. Outlooks were less optimistic, as expectations of lower loan demand, trade policy uncertainty, and financial market volatility weighed on sentiment.

San Francisco: Lending activity grew further over the reporting period. Contacts across the District noted healthy demand for loans, supported by low interest rates and robust commercial construction activity. Low mortgage rates spurred refinancing activity, though a few lenders expressed concerns over increasing downward pressures on net interest margins. Loan quality and capital levels remained solid, though a contact in California observed some loosening of lending standards. Competition remained tight but was somewhat less brisk for loans relative to deposits in the current reporting period.

Federal Reserve Beige Book