Fed sees signs of economic improvement

From the financial times:

The pace of economic decline has moderated or stabilised in most parts of the US, the Federal Reserve said on Wednesday, with manufacturing, residential property and even employment showing some signs of improvement.

According to the Beige Book, which offers a picture of the economy based on anecdotal evidence provided to the US central bank, overall economic activity has stabilised at a low level since its last report in early June when most regions reported that conditions were weak or worsening. The report adds to mounting evidence that the worst recession in the past 50 years is easing.

The more optimistic tone was a welcome shift from reports earlier in the year signalling that the economy was in freefall. Many obstacles remain, however, and the Beige Book warned that commercial property, consumer spending and the labour market were still severely weakened.

Retail sales remained sluggish in most of the Fed’s 12 districts, with consumers focused on cheaper necessities while luxury goods “languish”. Car sales were mixed early this summer, with purchases of new cars stalling while five regions reported growing strength in sales of less expensive used cars.

Manufacturing activity remained “subdued” but improved from earlier in the year, as some districts reported that companies were replenishing inventories after months of clearing stocks to cope with the collapse of consumer demand.

The Beige Book painted a divergent picture of the property market, with residential property showing signs of bottoming out while commercial property continues to be a threat to recovery hopes. This comes after the Case-Shiller index showed on Tuesday that US home prices unexpectedly climbed by 0.5 per cent from April to May, but were off by 17.1 per cent year-on-year. The monthly rise was the first since prices peaked in July 2006.

The first-time home buyer tax credit is succeeding at stimulating sales in the low end of the housing market. Many districts, including Minneapolis and San Francisco, reported an improvement in the stricken sector.

Commercial property, however, has become a glaring trouble spot as tight credit and weak demand have crushed sales volume, sending vacancies soaring and rents falling.

Unemployment, which has reached a 26-year high of 9.5 per cent, is an ongoing worry, but there were some glimmers of hope in the Fed’s report. Seven districts said that businesses had begun to take advantage of the job cuts by partaking in “selective hiring” of top talent that other companies have shed. But the labour market is still “slack” and many businesses continue to cut workers, freeze pay or institute furloughs.

Posted via web from Jim Nichols