Fed Beige Book Summary: Significant Economic Pickup Not Expected Before Early 2010

The Fed’s release of its Beige Book on Wednesday, suggested that national economic conditions from the twelve Federal Reserve Districts deteriorated further during the reporting period of January through late February.

- The book noted that even though consumer spending remained sluggish on net, overall retail spending was described as “mixed” in the Boston and Richmond Districts, “nearly steady” in Philadelphia, and slightly improved in Cleveland and Dallas. New York meanwhile, reported a reduced rate of decline compared with the “steep” pace in December. But San Francisco characterized retail sales as “anemic” and pointed to double-digit sales declines on a YoY basis for many retail outlets.

- Travel and tourist activity also experienced weakness as this category continued to fall in most areas. Households scaled back significantly their vacation travel and corporate travel spending.

- Nonfinancial Services indicated significant drops in activity accompanied by widespread job cuts.

- Manufacturing activity fell on net in all twelve Districts. Cleveland reported a drop in overall factory output of about 25% YoY. For most Districts, the drop in activity was especially pronounced for makers of capital goods and construction-related equipment and materials.

- Residential real estate markets, as expected, remained sluggish at best, in most areas, with only tentative signs of stabilization reported. By contrast, Cleveland, Richmond, Dallas, and San Francisco each reported a rising or better-than-expected sales pace for existing or new homes in some areas.

House prices continued to decline reportedly at double-digit paces in some areas, with little or no signs of a deceleration evident.

- Lending activity fell further on net, with mixed results across Districts and loan categories as a result of the availability of credit generally remaining tight. Despite stringent standards, Atlanta and Chicago, noted the book, had funds that were available for well-qualified applicants, and Dallas cited contacts who reported that capital has become more readily available.

- Credit quality fell for all loan categories. New York reported that the deterioration in quality was most pronounced for consumer loans, while Chicago emphasized deterioration in the quality of business loans as a result of rising bankruptcies.

- Price and Wages category: Upward price pressures continued to ease across a broad spectrum of final goods and services and were very limited during the reporting period, as a result of lower energy and commodity prices.

Looking ahead, the Beige Book concludes that contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late fiscal 2009 or early 2010.

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