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Beige Book: Recovery Slowly Spreading

January 14, 2010 | "Barron’s Econoday"

Yesterday's Beige Book report from the Fed found the recovery slowly spreading, noting "while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report." This reflects incremental improvement from language in the last report that said "economic conditions have generally improved modestly since the last report." The Beige Book is a compilation of anecdotal reports from District Fed Banks based on information collected on or before January 4, 2010 in preparation for the upcoming FOMC meeting on January 26-27.

Regarding retail sales, reports indicated that the 2009 holiday season "was slightly greater than in 2008, but still far below 2007 levels." Manufacturing is up in half of the twelve Fed Districts, mixed in three, and weak in three. However, in general, manufacturers are more optimistic about growth prospects in coming months. Home sales are up in most regions with gains largely in low end sales. Nonresidential real estate conditions remained soft in nearly all Districts.

A key area of concern is finance as loan demand continued to decline or remained weak in most Districts. A number of Districts reported that credit quality continued to deteriorate with commercial loan delinquencies a rising concern.

Labor market conditions remained soft in most Federal Reserve Districts while wage pressures remained subdued in most Federal Reserve Districts. Price pressures remained subdued outside of some metals.

Overall, today's Beige Book shows the recovery continuing at a slow pace. But there are still risks-notably in credit markets, especially for commercial real estate lending with consumer debt still a concern. There is no reason to see the recovery picking up much steam in the near term. With inflation subdued, the Fed is likely to maintain its currently very loose stance. Equities edged down on the release but remained moderately positive.

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