Beige Book Reports Continuing Economic Sluggishness By Annys Shin Washington Post Staff Writer Wednesday, June 10, 2009; 2:43 PM
The economy continues to slog its way through the recession, held back by tight credit conditions and weak demand, according to the Federal Reserve's "beige book" survey.
Five of the 12 Federal Reserve banks reported that the decline in economic activity moderated between mid-April and the end of May, according to the survey, which the central bank released today. Businesses in several districts also told Fed officials that their outlook had grown more positive. However, they said they still don't expect to see economic activity pick up until next year.
The survey, based on phone interviews with businesses around the country, largely reflects a growing consensus among economists and policymakers that the economic free-fall that followed the collapse of Lehman Brothers in September is winding down. The survey was similar to the previous report, released in April, and offered little indication of what Fed policymakers will do when they meet again in two weeks.
In recent months, the Fed has left rates close to zero and bought billions of dollars in government debt and mortgage-related securities in an effort to keep consumer borrowing costs down. But fears among investors that government spending to combat the recession could lead to inflation has recently driven up the premium they are willing to pay on long-term Treasury bonds. That, in turn, has driven up mortgage rates, raising questions about whether Fed leaders will choose to step up its purchases at their next meeting.
The beige book revealed an economy that, while improving in some areas, was still beset on many fronts. Manufacturing activity declined or remained at a low level across most of the Fed's districts. Demand for nonfinancial services contracted. Retail spending remained soft. New car purchases remained depressed. Travel and tourism activity also declined.
A number of districts reported an uptick in home sales. Many said new home construction appeared to have stabilized at very low levels.
The decline in commercial real estate, which is just beginning, drove up vacancy rates for commercial properties in many parts of the country. Developers also reported having an increasingly hard time finding financing for new projects.
Energy activity continued to weaken across most districts, and demand for natural resources remained depressed. Planting and growing conditions varied across districts as did agricultural input costs.
Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling. Some analysts have said falling wages could lead to a deflationary spiral, but such fears have largely subsided among economists inside and outside the Fed.
Beige Book: Weaker economy for Ohio A six-week snapshot of economic activity in Ohio and nearby areas indicates conditions have somewhat weakened since the last report, according to the Federal Reserve’s Cleveland district bank.
The Cleveland Fed in its “beige book” analysis of Ohio, eastern Kentucky and western Pennsylvania, reported signs of further deterioration since mid-April. That’s the story for much of the rest of the nation, with all 12 of the district banks indicating economic conditions stayed weak or got worse through May.
Details from Fed contacts by industry:
• Manufacturing – With production down slightly through this year but off sharply compared with 2008, most Fed contacts aren’t expecting conditions to bottom out until at least the third quarter. Steel processors, however, are seeing a sharp decline begin to level off, but no turnaround is expected this year. Most respondents said they’ve cut payroll costs by layoffs, wage cuts and a reduction in hours.
• Real estate – The Fed noted an increase in optimism among respondents, though conditions remain rough compared with last year. Residential builders expect activity to remain relatively unchanged in the next few months, though some are hopeful an uptick could take place before the end of the year. Both residential and commercial builders noted troubles securing financing, which has led to construction delays or shutdowns on the commercial end.
• Consumer spending – The Fed reported relatively stable sales for retailers in the last six-week period, with most not expecting major changes through September. New-vehicle sales, contacts said, dropped during the period amid an ongoing crisis in the industry, though used car lots saw a “modest improvement.”
• Banking – The Fed tracked mixed demand for commercial and industrial loans, though refinancing applications on the residential side remain “very strong.” Core deposits jumped sharply during the six weeks even as competition declined, the Fed said. As for tighter lending standards, they’re “firmly in place” with no expectations for easing up.
• Energy – Coal companies have reported production declines as demand from utilities has declined because of excess inventory. At the same time, prices for coal dropped sharply, while gas and oil prices were steady or on the rise.
• Transportation – Freight companies reported low volumes but told the Fed they’re seeing this year’s decline moderate. Most Fed contacts expect conditions to hold steady through September.
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