COMMENTARY | COLUMNISTS | GEORGE CHAMBERLIN

Fed's Beige Book, USD index predict moderate, continued growth

Trying to anticipate the course of the local, state and national economies has never been easy, and it seems more difficult now than in the past.

The Federal Reserve this week released the latest version of the so-called Beige Book, an overview of the 12 Fed districts across the United States. The report said that here in the 12th District, which covers the Western states, economic activity “continued to grow at a moderate pace.”

In particular, the report addressed the district’s loan demand, saying, “Although businesses remained very cautious in their capital spending plans, demand edged up a bit further for new commercial and industrial loans. Furthermore, reports from most sectors suggested that capital spending is likely to increase modestly in the second half of the year compared with the first. Demand for consumer credit appeared largely unchanged.”

This reading pairs up nicely with the most recent report from the University of San Diego’s Index of Leading Economic Indicators for San Diego County. The index has advanced in seven of the past nine months.

“Positive was a pickup in the strength and breadth of the advance, with many components up, and up significantly," said USD professor Alan Gin, who compiles the local index. "This suggests continued growth in the local economy through the end of 2012, with the pace picking up toward the end of the year.”

Of course, the people with the most control over the economy are Fed Chairman Ben Bernanke and the presidents of the 12 regional banks. Bernanke went to Capitol Hill on Thursday to address the members of the Joint Economic Committee.

“Economic growth appears poised to continue at a modest pace over coming quarters, supported in part by accommodative monetary policy," Bernanke said. "In particular, increases in household spending have been relatively well-sustained. Income growth has remained quite modest, but the recent declines in energy prices should provide some offsetting lift to real purchasing power.”

However, Bernanke was quick to point out that there are still some serious drags to the domestic economy, especially in the housing market, where “many prospective homebuyers cannot obtain mortgages, as lending standards have tightened and the creditworthiness of many potential borrowers has been impaired.”

He did acknowledge there has been a pickup in sales and construction, as well as stability of home prices in some areas.

Closer to home, John Williams, president of the Federal Reserve Bank of San Francisco, also commented on the housing market in a speech this week to community leaders in Seattle.

“We’re seeing glimmerings of good news on the housing front," Williams said. "To be sure, we’ve been fooled by false dawns in housing before. Nonetheless, a number of indicators suggest that we’ve started to claw our way off the bottom. And there are signs that inventories of unsold homes are coming down.”

He also addressed the dual mandate Congress assigned the Federal Reserve when it was created: maximum employment and price stability. To that end, Williams strongly supported the current policy of low interest rates.

“As I’ve tried to make clear, these are highly uncertain times, and our crystal balls are much cloudier than usual," he said. "At the Fed, we must be vigilant and ready to adjust monetary policy as circumstances warrant.”

But with a presidential election six months away, it is unlikely the Fed will make any major steps after the June 19-20 meeting of the Federal Open Market Committee, making the meeting critical in setting the economic course for the rest of 2012 and beyond.

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