This just in: Despite the huge drop in oil prices, the Federal Reserve sees little to no slowdown in America’s energy boom. It also sees continued strength elsewhere in the economy.
Eight times per year the Fed releases its “Beige Book,” a report summarizing economic activity in each of the 12 Federal Reserve districts. The most recent installment was released on Wednesday and offers us a glimpse of the economy from the eyes of the 12 Federal Reserve banks, some of the most connected institutions in our economy.
Before diving into comments from the individual districts, here are some highlights from the Beige Book regarding the U.S. economy as a whole:
- Economic activity continues to expand in October and November.
- Employment gains were widespread across districts.
- Demand for non-financial services generally increased. … Energy and mining activity was higher on net.
Included in the Beige Book is a summary of comments from the Fed’s “business contacts” in each of the 12 districts. Here are some highlights from they had to say:
District 2: New York
Growth in the Second District’s economy has picked up to a moderate pace since the previous report…Banks report increased demand for commercial mortgages…and continued declines in delinquency rates.
District 4: Cleveland
The Fourth District’s economy expanded at a modest pace…while shale gas activity remains at a high level. Although there is some financial belt-tightening by exploration and production companies, drilling programs should continue…even though…projections for oil and gas prices are at low levels.
District 6: Atlanta
Reports from the Sixth District business contacts remained largely positive. Most contacts are optimistic about the near-term outlook…expecting growth to be the same or higher. The recent drop in oil prices led regional exploration and production firms to evaluate operational flexibility, cost-management strategies, and extraction technologies, although steady production is anticipated in both deepwater and onshore drilling.
District 7: Chicago
Growth in economic activity in the Seventh District remained moderate…Contacts expressed optimism for the coming year but noted concerns about weakening foreign activity and the possibility of another severe winter.
District 9: Minneapolis
[Oil and gas] production remained at record levels. Despite recent declines in oil prices, officials in North Dakota expect oil production to continue increasing over the next two years.
District 10: Kansas City
Despite the current downward trend in oil prices, District energy-sector activity remained steady. Active oil and gas rigs rose. Respondents remained optimistic about future drilling but were closely monitoring the price of oil, which was close to many firms’ breakeven price.
District 11: Dallas
Demand for oilfield services continued to grow in the Eleventh District. Outlooks for next year, though still positive, were less positive than in the prior report, and contacts said that budgets were being revised and capital expenditures are expected to decline in response to lower oil prices.
The Bottom Line
The take-home message for investors from this Beige Book report is that America’s energy boom continues.
Yes, the price of oil is near the break-even point for some oil and gas drillers. Yes, this could result in a meaningful reduction in new drilling and exploration activity or – worse – an actual slowdown in extraction at existing wells. But what this Fed report says is that America’s energy boom remains on track, despite the temporary setback.
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