Volume 13, Issue 9 - November/December2012


Look to the Book
Beige Book Bears Good News
by Michael Collins

The Federal Reserve publishes its Beige Book report eight times per year as a means of conveying the economic trends in each of the 12 Federal Reserve districts across the United States. This report contains a trove of information about the direction of regional economic activity across a wide variety of key factors. The majority of the news contained in the most recent report was very positive. Consumer spending, which benefits the door and window industry in the form of remodeling spending, was flat to up across all districts.

All in the Family
With regard to housing, the majority of districts had good news to report. Existing home sales strengthened since the last Beige Book in all 12 districts. Home prices are seen as stable or increasing across the districts. The Boston, Atlanta, Minneapolis, Dallas and San Francisco districts reported that home inventories are decreasing sufficiently to create upward pressure on home prices. The same effect was reported, with more modest upward home price pressure, in the New York, Richmond, Chicago and Kansas City districts. Builders report that traffic of prospective homebuyers through model homes and sales offices has improved significantly since last year.

Residential construction numbers, which are coming up from lows not seen in many decades, are generally increasing across all of the districts. In particular, multi-family construction, which has saved numerous door and window companies in the past several years, remains strong. The districts in Boston, New York, Atlanta, Chicago, and Dallas reported particularly robust multi-family construction. The residential rental market remains strong across all districts. A strong residential rental market, one in which residential rents are increasing, helps spur new and existing home sales.

Commercially Speaking
Turning to the commercial market, the construction of office space is softening in the Northeast districts, including Boston, New York and Philadelphia. Increasing vacancies in a number of cities are holding down rents and having a dampening effect on new construction. Most of the other districts reported stable or mixed office construction. In the New York district, in particular, it was noted that there is a substantial amount of office inventory coming online there in 2013, which will serve as a drag on additional construction. In some districts, the supply of very attractive commercial properties on the market was seen to have dropped. This would indicate that real estate owners are declining to sell because there is nowhere else more attractive for them to invest their capital.

Credit standards have not changed much since the last report and a few districts reported an easing of standards for commercial loans. Demand for loans has been steady or stronger in the majority of districts, while competition among lenders is seen as stiff around the nation, which benefits borrowers. While this appetite to make loans may not apply equally to the building products industry as to other industries, a growing number of lenders are willing to make loans again to building products companies. The reentry of these lenders is helped by the fact that loan quality is generally improving and loan delinquencies are stable to declining around the country.

The employment figures are among the most watched economic news releases each month. Employment was largely unchanged since the last report. There is a sense that many employers were holding their breath, on hiring and other decisions, until they learned the outcome of the presidential elections. Manufacturing conditions were mixed but generally improving across all the districts since the last Beige Book report. Overall, the most recent report helped confirm the solidification of the ongoing recovery in the market.

Michael Collins is an investment banker and a partner of Building Industry Advisors. He specializes in mergers and acquisitions in the door and window industry


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