Need To Know News

The Federal Reserve’s Beige Book indicates the economy slowed further based on reports during the first half of July. Five Districts reported weakening or softening in their overall economies, Chicago and Kansas City characterized growth as sluggish and moderating, St. Louis and San Francisco indicated little growth. Only Cleveland, Minneapolis and Dalls reported slight improvements.

Consumer spending was reported sluggish in nearly all Districts with tax rebate checks boosting sales for a limited range of goods, such as electronics.

Auto sales were uniformly weak with sales particularly poor for trucks and SUVs.

Manufacturing activity declined in many Districts with support mostly coming from export growth.

Services growth continued to be mixed although better than the goods sectors. The growth in health care services and IT industries offsetting some of the weakness in other areas.

Residential real estate markets were weak and declining across most of the Districts with sales weak, inventories increasing, and home prices falling.

Commercial real estate activity was described in much weaker terms than in recent reports. Office market conditions were weak in Richmond and bleak in Washington, DC while the Boston District reported sentiment in the sector as “decidely morose”. Retail space was described as overbuilt in Boston and Chicago and there was a steep decline in commercial construction around San Diego.

Loan activity was reportedly weak in most areas with business loans slightly better than consumer and residential real estate loans. Most Districts reported a further tightening of credit standards, especially for construction and real estate loans.

Several Districts reported deterioration in loan quality with increased delinquencies on consumer, real estate and construction loans. While Dallas was not seeing appreciably poorer loan quality, it was expecting deterioration in coming months.

Cleveland reported that smaller banks were seeing some improvements in their deposits as investors sought safety.

All Districts reported overall price pressures as elevated or increasing with the increases widespread across commodities but especially acute for petroleum-based products. Many Districts reported that manufacturers were planning on passing costs through where possible but with concerns about reduced sales.

Labor markets are seen as unchanged or weaker since the last survey period. Wage pressures were modest with the only exception being for highly specialized skilled workers.

The FED’s Beige Book is out tomorrow at 2:00pm EDT and given reports from regional Fed banks of late, expectations are not particularly high.

In last week’s FOMC minutes members noted that private payroll employment fell at a slower rate than earlier in the year, but also noted that industrial production contracted at a faster pace than in Q1. Members said real consumer spending had picked up “modestly” (stimulus checks commenced at the beginning of May) with exception of car-buying.

Despite the downbeat nature of the minutes, the board did move its 2008 GDP predictions higher. In April the FED predicted 0.2-1.2% growth in real GDP, but in the June minutes it upped the forecast to 1-1.6%.

PCE inflation was also upped from 3.1-3.4% to 3.8-4.2%, but the unemployment central tendency was left at 5.5-5.7%. The Philly Fed’s Plosser said today that he expects unemployment to decline to 5.25% by the end of 2009.

In short, FED governors and regional Fed presidents are expecting higher growth and inflation, and stable unemployment. Tomorrow’s regional report may reveal pockets of emerging strength or at least less downside.

Recall the 11 June Beige Book characterized the economy as “slower,” “soft,” “weak,” “sluggish,” and “nearly steady.” Not exactly inspiring stuff there.

The FED’s Beige Book for late April and May highlighted widespread slowdowns due to higher gas and food prices and continued implosion in the housing sector.

The Beige Book variously characterized regional economies as slower, softer, weaker, sluggish and nearly steady on the downside; the upside was characterized by 2 usages of “stable” and “unchanged.”

Consumer Spending was reported to slow since the last Beige Book due to rising food and energy prices in the Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, Dallas and San Francisco. Retail Inventory levels were reported higher in some districts, stable in few districts, and an issue of concern in 3 districts. Overall Auto and Truck sales were weaker except for Hybrid and other fuel-efficient vehicles.

St. Louis and Kansas City reported some demand in Services, notably air travel, but all other Districts reported weakness in Services.

Manufacturing was generally soft since the last report. 5 districts reported weaker activity, 3 noted no change and 4 Districts saw a slight increase. Demand was focused on steel, energy, farm equipment and Dallas saw strong demand for Transportation equipment. Unsurprisingly, 5 Districts reported strong activity in the Energy Sector. Dallas reported the strongest drilling level in 20 years.

Real Estate was seen as generally weak though there were “a few reports of some recent pickup in home sales due to increased affordability” — the report did not specify where said pick up occurred. Commercial Real Estate activity has softened in 5 Districts, increased in 1 and the remaining reported “mixed” activity in the Commercial Sector.

Construction activity was influenced by credit availability for residential and non-residential projects. Banks report fewer consumer loans, weak residential lending, C&I mostly unchanged or declining and all Districts reported tighter credit for Consumer, Residential and Commercial loans. Many Districts reported increased delinquencies and deteriorating credit quality.

Prices were reported higher. Input prices were reported generally higher, though manufacturers did report some success in passing through higher prices. Retailer reported mixed results in raising final goods prices. Most Districts reported moderate or limited wage growth.

Overall, the U.S. Economy is weaker, sluggish, softer….with no real evidence of steadying, let alone an upturn.

The Beige Book showed widespread downward pressure on the US economy with the only notable area of growth being tourism, a direct result of the weak dollar.

The dismal results are also unlikely to motivate the FED to cut 50pbs instead of 25bps (80% chance of 25bps currently) as it becomes increasingly clear the FED is pushing on string at current low levels. There is virtually no evidence that rate cuts of 300bps since last summer have had a positive impact on the economy or on credit markets.

Indeed, the FED might keep its powder dry going into the summer and focus instead on prompting banks to take their medicine so when the 300bps kicks in, the banks will have the wherewithal to jump on board.

The survey of FED Districts through April 7 found weakened economic conditions since the last report in Feb. Nine Districts noted a further slowing in the pace of activity and 3 described activity as mixed or steady.

In general, banks reported mixed activity with consumer loan demand weakening and a deterioration in credit quality.

Consumer spending softened across most of the country with some Districts reporting y-o-y declines. Auto sales were described as flat or declining. Retail inventories were generally on the rise.

Bright spots: Tourism and health care services. A few Districts also reported continued expansion in some business services.

Manufacturing activity was mixed, but manufacturers reported an overall subdued outlook due to uncertain economic conditions. Demand for aircraft and defense goods remained strong but vehicle production was declining in the Atlanta region. The demand for goods related to construction continued to decline and excess capacity led to production declines in some high-tech industries in the Dallas District.

Transportation activity was described as sluggish and weakening with some port cities noting fewer imports but more robust export activity.

Residential construction activity was still weak in all Districts. Home sales were generally reported to be declining although there were pockets of improvement in Richmond, Atlanta and Cleveland. Housing prices were under downward pressure in most areas — even New York City and the Pacific Northwest. Mortgage lending activity was at low levels but stabilizing in some Districts.

Commercial real estate activity was generally steady or softening with weaker rental conditions in 8 regions. Only St. Louis reported strong commercial construction activity. Some weakness was reported in prices and sales of commercial properties. There was a widespread tightening of standards for both residential and commercial real estate loans.

Input prices were generally rising faster than output prices and putting pressure on margins. The ability of companies to raise prices was mixed with manufacturers having somewhat better pricing power than services.

Employment levels were little changed with some weakening in the job market reported in 6 Districts. Firms in 3 Districts reported layoffs, reductions in work hours, or freezes in response to current or expected slowdowns in activity. There were still isolated reports of shortages of skilled workers in some areas, which caused some increased wage demands.

The FED’s Beige Book shows that in general growth has slowed between the beginning of the year and Feb. 25, the date the survey ended. The report was generally downbeat, mostly stemming from the subprime mess/credit availability problems. Some members indicated less demand overall but others had found ways to deal with lower demand and/or higher input prices.

In short, the report pointed to an extremely weak economy that is not in dire straits.

The FED reported that the majority of Districts characterized retail sales growth as weak or softening. Districts reporting on auto sales described them as slow or sluggish. Tourism was still a positive area but softened in some areas.

The other areas of non-financial services were mixed. Health care services continued to expand in several regions but St. Louis reported plans to lay off workers. Software and IT respondents in the Boston area reported modest growth, but several regions reported mixed demand for temporary labor.

Reports on manufacturing activity were subdued with several districts reporting production as sluggish or declining. Boston, Cleveland and Chicago indicated stable trends and St. Louis indicated some strengthening. Exports continued to increase but trucking and shipping respondents indicated that declining import volumes were more than offsetting increased growth in transportation demand for exports.

All districts that commented on the near-term outlook indicated caution or concern on the part of at least some segments of manufacturing. Several districts reported robust activity in the energy sector, although Dallas noted that drilling had flattened domestically.

Residential real estate activity continued to be weak across the board, and most Districts reported falling home prices. However, slowing real estate activity also spread to the office and retail markets in some districts. Several districts reported weaker sales in the nonresidential markets and cited tight credit conditions as a major factor. Tight credit standards were reported in several districts, and Kansas City, Chicago and Cleveland reported a worsening in loan quality.

Several Districts reported increased inflationary pressures, especially from energy costs and other inputs. Businesses had mixed success in raising their prices to offset the input price pressures. However, half of the manufacturers contacted in the Cleveland district had raised prices or added surcharges since the previous report. Wage pressures were modest with labor markets loosening somewhat as layoffs, hiring freezes and work hour reductions increased. A few areas did report a continued shortage of selected skilled workers.

The FED’s Beige Book – which analyzes current economic conditions in the Federal Reserve districts – will be released today at 2:00pm EST.

The previous Beige Book (Jan. 16) revealed sluggish or disappointing retail sales, in line with Dec. and Jan. Retail Sales data from Commerce. Manufacturing activity was mixed across the regions, showing weakness in housing-related sectors and autos but strength in export-related industries. The energy sector stayed strong, with higher rig counts and drilling activity increasing. Demand for transportation services weakened in some areas due to smaller freight volumes.

Tomorrow, look for rising energy, food, and raw materials costs to further pinch producers and consumers, especially in “non-necessity” sectors. All signs continue to point to tight – or tightening – lending conditions against slowing demand for business and mortgage loans.

Residential real estate and construction will continue to post declines, with uneven fallout across the country as overbuilt, high-flying markets fall further than their more stable counterparts. Home prices are also likely to be mixed, with some New England and northern California markets clinging to gains in the wake of plunges in the South and other regions.

Brighter spots are likely to be tourism, driven by the tanking dollar, as well as health care, hospitality, and professional services, which were stronger in the last report.

The FED’s Beige Book – which analyzes current economic conditions in the Federal Reserve districts – will be released tomorrow at 2:00pm EST.

The previous Beige Book (Jan. 16) revealed sluggish or disappointing retail sales, in line with Dec. and Jan. Retail Sales data from Commerce. Manufacturing activity was mixed across the regions, showing weakness in housing-related sectors and autos but strength in export-related industries. The energy sector stayed strong, with higher rig counts and drilling activity increasing. Demand for transportation services weakened in some areas due to smaller freight volumes.

Tomorrow, look for rising energy, food, and raw materials costs to further pinch producers and consumers, especially in “non-necessity” sectors. All signs continue to point to tight – or tightening – lending conditions against slowing demand for business and mortgage loans.

Residential real estate and construction will continue to post declines, with uneven fallout across the country as overbuilt, high-flying markets fall further than their more stable counterparts. Home prices are also likely to be mixed, with some New England and northern California markets clinging to gains in the wake of plunges in the South and other regions.

Brighter spots are likely to be tourism, driven by the tanking dollar, as well as health care, hospitality, and professional services, which were stronger in the last report.

The Federal Reserve’s “Beige Book” analysis of current economic conditions in the Federal Reserve districts provided little new information. The survey period, running from mid-November through December, does not provide any information on first quarter activity. In general, the anecdotal information suggested that growth continued but was slowing compared with the earlier survey period which ran from early October through mid-November.

Most districts reported that retail sales were sluggish or disappointing, in-line with the December retail sales report that was released earlier this week. Manufacturing activity was mixed with weakness in the housing-related industries and motor vehicles but stronger in industries that provide export products and those that compete with imports. The energy sector remained strong with rig counts and drilling activity increasing. Nonfinancial services remained generally positive with the exception of the demand for transportation services, which were weakening in some areas due to smaller freight volumes. Health care, hospitality and professional services continued to show good demand in most areas. Tourism, helped along by the declining dollar, was a bright spot in several district’s reports. Home construction continued to decline in most districts and home prices declined in several districts, though Dallas reported steady home prices and Boston and San Francisco said home prices were mixed. Reports on commercial real estate were mixed with several districts reporting steady to slowing leasing activity, although Cleveland, Dallas and San Francisco indicated some increases in activity. Boston and Chicago reported slowing commercial construction activity.
Most districts reported slowing business and consumer loan demand with mortgage lending contracting in all districts. Several districts reported declines in loan quality and increased delinquencies. Labor markets remained relatively tight overall, especially for skilled workers, but housing-related industries continued to trim payrolls. Wage pressures were modest except for a few skilled workers. Prices were rising in some industries as producers passed along higher energy costs.

Outlook for 2008 was termed cautious for retail, with auto dealers in particular expecting flat to lower sales than in 2007. All the districts expected the housing market to remain weak at least through the middle of 2008 and most areas were expecting some slowing in commercial real estate activity. However, new offshore platforms did indicate some increase in energy output in 2008.

The Federal Reserve’s Beige Book on current economic conditions showed a continuing expansion of the economy but at a slower pace than during the previous survey period. This survey period covered October through mid-November. Retail sales were generally soft, the report describes them as “downbeat”, with several districts reporting early holiday discounting. Reports on expectations for sales during the holiday season overall were slightly pessimistic with most retailers expecting modest increases, at best, when compared to last year. Several reports indicated that retail inventories were somewhat above desired levels. Transportation, especially, trucking and freight movement, showed some slowing. Manufacturing growth appear stable on balance with those sectors having strong export markets doing the best. Tourism, especially foreign tourist visiting the U.S., one of the largest U.S. exports of services, is doing well in most areas. Residential real estate remains quite depressed and the pace of new homebuilding is very low with builders continuing to shelve projects. No significant pickup in homebuilding is expected until well into next year at earliest. Commercial and public construction remained high in most regions although some regions were beginning to see some leveling off. Lending to business was generally high but at a slower rate of increase. Reports indicated a slight increase in delinquencies on commercial and industrial loans and slightly larger increases in commercial mortgages. Lending standards were tightening for commercial construction and real estate projects. Residential lending continued to slide with more stringent credit conditions tightening lending. Mortgage delinquencies increased significantly in many areas. Price increases were modest except for food and energy costs. Increases in energy prices were putting upward pressure on transportation costs. Wage increases continued to be modest with most people estimating increases of 3-4%. Labor markets did loosen in some areas but there were still selected skills in short demand. The Beige Book overall indicates a somewhat pessimistic outlook with the housing downturn and related events as well as tighter credit conditions leaving the impression of at least a softening economy. Given today’s market reaction to generally poor economic data, we can’t imagine the market suddenly turning south on this sodden report.