Surprisingly, the latest Beige Book was a little more optimistic than recent government and private sector reports, although it was still somewhat subdued. Autos and housing were the notable positives.
The Beige Book characterized the economy as expanding at a "modest to moderate pace."
"Retail sales increased slightly in all reporting Districts except Boston and Cleveland, where sales were categorized as flat, and New York, where sales softened. Of the Districts that saw an increase in activity, most noted strength in auto sales. In particular, auto dealers noted that demand for fuel-efficient vehicles continued to support sales. Tourism activity remained strong."
"All District housing market reports were largely positive as sales and construction levels increased and home inventories declined. Rental markets continued to strengthen."
However, the manufacturing sector got a downgrade as manufacturing activity continued to expand slowly in most Districts.
On the financial front, loan demand grew modestly but at least was positive.
Inflation pressures were seen as easing overall due to declining energy costs. Wage pressures remained modest, except for highly skilled workers in information technology, health care, transportation, and manufacturing. However, it was noted that corn prices have been pushed up by drought conditions in some Districts.
Overall, the Beige Book is mostly consistent with the story that the recovery has slowed. However, it is a little more positive about housing (though many are agreeing on that point) and on retail sales in addition to autos. The somewhat more optimistic view on the retail sector is divergent from official data and warrants further attention.
The bottom line is that the economy is still too sluggish and the lack of broad inflation gives the Fed room for additional easing. However, the key question for additional easing at the July 31-August 1 FOMC will be the cost/benefit analysis of the FOMC members. And the benefits are declining while the costs are rising.