January Beige Book... Don't Ask, Don't Tell

Economists, investors, traders, and speculators have looked for each clue as to just when the FOMC is going to end this zero-rate policy on interest rates.  Usually, it is a peer through the minutes of the FOMC meeting, and today it is a look at the Federal Reserve’s Beige Book.  The Beige Book data from today does note that economic conditions continued to improve at the end of 2009, but the counter-force is that the employment situation and real estate market are both acting to keep the economic recovery muted.  This is the data that is used partly for the coming FOMC meeting at the end of the month, and if nothing new changes the bias then there is going to be no more resolve to figuring out the real timing of the Fed-Exit strategy.

This is despite the notion that 10 of the 12 Fed Districts showed increase economic activity or at least improving conditions.  The two mixed districts were Philly and Richmond.  The holiday spending was up slightly in 2009 versus 2008, although well below 2007.  This was no significant spending shift.  The Beige Book does note that it was the stimulus package that helped consumer spending to recover during the second half of the year.

Nonfinancial services activity generally improved in Districts that reported on this sector. Of five Districts reporting transportation services, volumes were slightly up or mixed.  Manufacturing activity has increased or held steady since the last Beige Book, but the manufacturing outlook was optimistic yet spending plans remain cautious.  In short, low growth.

Loan demand continued to decline or remained weak in most, and a number of districts reported that credit quality continued to deteriorate.  This may be a concern for all the credit hawks looking at banking data ahead of bank earnings: Financial institutions in the New York District reported ongoing increases in delinquencies for all types of loans.   Home prices have improved in most districts, but this specified “especially for lower-priced homes.”

It just depends upon your expectations here for a comparison of 2010 to 2009 or to earlier in 2008.  Labor conditions remained weak despite some improvements, and wages improvements have not been universal.  Gee, with 10% unemployment does it seem likely hat companies will suddenly have to pay more for wages?

On the prices on a wholesale and consumer level, the increases in metals were the standout.  The rest of the price pressure is thought of as low.

This gives no significant hope of either fast recovery nor of a rapid rise in rates.  It sure seems as though the FOMC is going to be able to keep this near-zero rate policy on for longer than what we and many others feel it should.

The cut-off date for today’s data was January 4.  You can see the full data at the Federal Reserve site.

JON C. OGG