The Federal Reserve just released its August Beige Book, which summarizes economic activity in the central bank’s twelve districts. The summary was positive, if somewhat underwhelming. The Beige Book plays an important role in the Fed’s discussions on monetary policy, including with respect to interest rates. Positive reports from the Beige Book support higher interest rates, while negative reports support lower interest rates.
Because low interest rates are a primary driver of mergers and acquisitions in senior housing, the doves at the Fed are likely to use the August Beige Book to support keeping interest rates low for now. Continued low rates should lead to more M&A activity in the senior housing sector during the third quarter. While interest rates remain low, senior housing providers and investors seeking capital to refinance debt or acquire additional senior housing assets should contact Cambridge Realty Capital to learn more about the various financing options it offers for a range of senior housing transactions.
Details from the Beige Book
According to the Beige Book, the economy grew slightly in most Districts: the Atlanta, Philadelphia, St. Louis, and Kansas City regions all reported modest growth, while New York, Cleveland, Chicago, Dallas, Minneapolis, and San Francisco reported moderate growth. With respect to most Districts, some growth resulted from slight to moderate increases in consumer spending. Yet consumer spending appeared to wane in Cleveland and Richmond, while consumer confidence was decidedly mixed in New York.
In addition to ebbing consumer spending in Cleveland, Richmond, and New York, some real estate and construction information submitted by the Districts is also troubling. While no District reported a decline in overall nonresidential real estate activity, only a slight majority reported growth in the sector, with St. Louis and New York describing activity as mixed.
In a positive sign for the economy, the Districts reported improved banking activity as loan volumes picked up, particularly in San Francisco and Chicago. In another good sign, demand for business credit also grew in most Districts, with commercial and industrial lending picking up in Cleveland, New York, Chicago, Richmond, Dallas, and St. Louis. Commercial real estate lending picked up in New York, Cleveland, Chicago, Richmond, and San Francisco.
With respect to those categories with the largest impact on inflation, most Districts reported little change in employee wages and prices for raw materials. This is important because slow wage and price growth help keep inflation in check, and negate the argument put forth by hawkish Federal Reserve officials that the Fed should raise interest rates to combat the threat of inflation.
After the Commerce Department reported four percent economic growth during the second quarter, some economists speculated that the Federal Reserve would move up its timetable for increasing interest rates. The recent disappointing jobs report and the latest Beige Book will likely dampen such talk, and most economists still expect the Federal Reserve to raise interest rates sometime during the middle of next year. Before that happens, senior housing participants seeking financing for various transactions should contact Cambridge Realty Capital to learn more about the many different financing options it offers.