The Federal Reserve Board has released its latest “Beige Book,” a general overview of economic conditions in each of the 12 Fed Districts. Of the 12 Districts, 8 reported modest improvement in economic conditions, while the remaining 4 Districts reported no change or mixed results. At the very least, the Beige Books shows that we are coming out of the recession. However, like other indicators have suggested, we are coming out very slowly.
Consumer Spending
The reports shows that consumer spending picked up slightly, including a rise in used car sales. However, the Beige Book notes, “Most Districts indicated that non-auto retailers were holding lean inventories going into the holiday season.” That indicator confirms data from the ISM Manufacturing Survey, in which respondents noted that their customer’s inventories were awfully low. Again, this information points to a painfully slow economic recovery in which producers are very cautious about building inventory because they are worried about a lack of consumer demand. While consumer spending is on the rise, it is still much lower than pre-crisis levels and is likely to remain suppressed due to high debt-levels, falling home prices and high unemployment, among other factors.
Housing
Speaking of home prices, the Beige Book reported, “Residential real estate conditions were somewhat improved from very low levels, on balance, led by the lower end of the market. Most Districts reported some pickup in home sales, though prices were generally said to be flat or declining modestly; residential construction was characterized as weak, but some Districts did note some pickup in activity.” This also confirms data we have seen from sources like the S&P Case-Shiller Home Price Index. The housing market appears to be bottoming, but there is no sign yet of sustainable growth in sales or a firming of prices. The homebuyer tax credit extension should help to sustain the market into next spring, but we need more data to determine whether the worst has passed. A lack of job creation will not help the situation, so that is something to watch as well.
Employment
On the employment front, the report said, “Labor market conditions remained weak since the last report, with further layoffs, sluggish hiring, and high levels of unemployment in most Districts. However, contacts in the Atlanta, Cleveland, and Richmond Districts reported that the pace of job cuts generally slowed in their regions, and most contacts in the Dallas District reported stable employment levels. Despite generally weak employment conditions, some signs of improvement were noted. For example, contacts in Boston reported that they were beginning to hire and reverse pay cuts or freezes that were implemented earlier in the year, and contacts in the St. Louis District reported that the service sector had started to expand recently. Expectations for the holiday season were mixed across Districts, with contacts in the New York and Dallas Districts reporting lighter-than-normal seasonal hiring and/or increases in the hours of existing employees, as opposed to hiring temporary workers, to meet the seasonal demand. On the other hand, most retailers in the Richmond District have hired the usual number of seasonal workers this year.” The Beige Book also reported no upward movement in wages. This gives further credence to the “U-shaped” recovery in which the economy improves, but only in baby steps over a long period of time.
Agriculture
The last portion of the report I would like to highlight is an area that I believe will offer one of the best investing opportunities in a market that is likely to have muted returns for some time: agriculture. The Beige Book reported, “Excessively wet conditions during October and early November were reported in a number of Districts. As a result, the fall harvest was delayed in many parts of the Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts. Flooding from Tropical Storm Ida and a November “nor’easter” damaged crops and delayed planting throughout the Richmond District, and Virginia health officials closed fishing in all Chesapeake Bay tributaries and temporarily banned the harvesting of shellfish due to potential storm water contamination. By contrast, rainfall in the Dallas District helped alleviate drought conditions experienced in many parts of the region. Contacts in the Chicago, Minneapolis, and Kansas City Districts noted that corn and soybean prices rallied over the past month, although a wide variation in margins was expected for crop farms due to differences in input costs. Losses for livestock operations occurred in the Chicago and Kansas City Districts.” Although corn has rallied recently, it price has been hammered over the past year and remains severely depressed. Even the most bearish analysts on agriculture agree that these prices cannot remain so low.
To view the full Beige Book, please click on the following link to the Fed’s Web site: Beige Book.
Gregg D. Killoren
victoria1014
