Fed report on economy shows signs of slowdown
The Federal Reserve’s latest report on regional economic activity shows the U.S. recovery continued in June and early July, but that signs of a slowdown were evident.
That’s all some risk-averse investors had to hear to justify moving back into Treasury bonds: Yields were down across the board on Wednesday after inching higher over the last week. The stock market pulled back.
The 10-year T-note yield slipped to 2.99% by about 12:15 p.m. PDT from 3.04% on Tuesday. Sentiment toward bonds also was helped by strong demand at the Treasury’s auction of new five-year notes and by a mixed report on June orders for big-ticket manufactured goods.
Meanwhile, the Dow Jones industrial average was off 46 points, or 0.4%, to 10,490, after trading higher early in the session. The broader market was weaker.
The Fed’s "beige book" report said two of the central bank’s 12 districts -- Atlanta and Chicago -- reported that “the pace of economic activity had slowed recently,” while the Cleveland and Kansas City districts said that “activity generally held steady.”
The other eight districts (including San Francisco, which covers California and other Western states) reported “improvements in economic activity” from the spring, the Fed said, while adding that “a number of them noted that the increases were modest.”
By contrast, the beige book report issued on June 9, covering April and May, said that economic activity had risen in all 12 Fed districts.
The new Fed report is consistent with other data pointing to slower growth this summer -- but not a collapse of activity.
"Manufacturing activity continued to expand in most districts, although several districts reported that activity had slowed or leveled off during the reporting period," the Fed said. "Districts also noted improved conditions in the services sector."
Consumer spending, the driving force of economic growth, was a mixed picture in June and early July, the Fed said.
“Reports on retail sales during the early summer months were generally positive, although in most districts the increases were modest,” the report said. “Several districts noted that necessities continued to be strong sellers, while big-ticket items moved more slowly. However, most districts that reported on auto sales noted declines in recent weeks.”
The San Francisco Fed district reported that retail sales were “characterized as largely flat for grocers, as well as furniture and household appliance retailers.”
A bright spot in the West: “Conditions in the district's travel and tourism sector continued to improve,” the report said. “Business travel and convention activity picked up further, and visitor volumes and hotel occupancy rates rose in several of the district's major markets, particularly Hawaii.”
-- Tom Petruno
Photo: The Fed's headquarters in Washington. Credit: Andrew Harrer / Bloomberg News