Almost Half of Fed Districts Report Moderation in Pace of Economy's Decline According to Beige Book

The Fed’s beige book gave a half-hearted thumbs up to sentiment that there are signs of stabilization in the economy albeit at very low levels. However there was only a smattering of positive comments with most of the area contacts still highlighting sluggish activity, tight credit conditions and falling employment.

The first paragraph of this month's Beige Book presented a marginally more upbeat assessment with "five of twelve Districts" indicating that the pace of decline moderated and that "several saw signs that activities in some sectors was stabilizing". Still the overriding theme of the report was that the area economies continued to be weak based on data collected on or before April 6 .

The District reports indicated that consumer activity "remained generally weak"; manufacturing "continued to experience declines in a wide range of industries"; residential real estate " remained depressed overall " and commercial real estate "weakened further". However most of these comments were qualified by statements indicating that the pace of decline had moderated or that there were indications that conditions were stabilizing. Only the commercial real estate market did not show signs of stabilization or improvement.

On credit conditions, the Districts reported that credit remains tight and demand for loans weak. The discussion indicated some pickup in residential real estate loans but commercial real estate and other loans softened. Concern about credit risk and rising delinquencies were reported.

Downward pressure on prices were reported with most commodity prices falling (except oil) and weakening demand leading to retail discounting and service fee cuts. On the labour market the districts reported "widespread" weakness.

Like many other reports lately, the Beige Book presents a glimmer of hope that the worst of the US recession has passed. To be sure, there are areas of the economy that remain under severe downward pressure but this is balanced with indications that the strains in other areas are starting to ease a bit. However importantly the outlook for labour markets was still characterized as "generally bleak" meaning that a recovery is still some way off. Today's Beige Book corroborates recent data reports which hint that the housing market recession and consumer retrenchment may be entering their final stages which likely means steady-as-she-goes for Fed policy when the FOMC gets together later this month.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.