Fed Beige Book Says Economy `Weakened' Since February

Discussion in 'Wall St. News' started by S2007S, Apr 16, 2008.

  1. S2007S



    Many bulls here would seem to totally disagree with that statement after a 250+ point rally today....

    Fed Beige Book Says Economy `Weakened' Since February (Update2)

    By Craig Torres

    April 16 (Bloomberg) -- The Federal Reserve said economic growth has slowed in nine of its 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending.

    ``Economic conditions have weakened since the last report,'' the central bank said in its regional business survey, known as the Beige Book for the color of its cover. ``Nine Districts noted slowing in the pace of economic activity, while the remaining'' three ``described activity as mixed or steady.''

    The anecdotal reports are part of a package of analysis and data that will be used by Fed policy makers as they decide on interest rates at their two-day meeting April 29-30. Today's release underscores a weakening economy, though with manufacturing benefiting from record exports.

    ``What this report says is that the recession really hasn't begun to roll yet,'' said former Fed governor Lyle Gramley, now a senior economic advisor at the Stanford Group in Washington. ``This is an economy that is started over the edge, but it is not plunging at this point.''

    Consumer spending ``weakened in most'' districts, the report said. Retailers outside the auto industry ``reported that sales were sluggish or declining in 10 districts.''

    Aggressive Cuts

    Fed officials have cut the benchmark interest rate 2 percentage points this year, to 2.25 percent, the fastest reductions in two decades. Futures traders project another quarter-point cut at this month's meeting, according to futures prices.

    Growth slowed to a 0.6 annual pace from October to December, down from a 4.9 percent pace the previous three months, weakened by the worst housing contraction in a quarter century.

    ``Growth in consumption and business-investment spending has slowed markedly after years of robust performance, and, as a result, the economy has all but stalled and could even contract over the first half of the year,'' San Francisco Fed Bank President Janet Yellen said in a speech in Alameda, California today. ``Downside risks to growth are significant.''

    Private employers cut payrolls for four consecutive months through March. The unemployment rate stands at 5.1 percent. Fed Chairman Ben S. Bernanke said that U.S. gross domestic product may ``contract slightly'' in the first half of the year, in testimony April 2 to Congress.

    Faltering Job Market

    ``Labor markets were mostly described as weakening since the last report, though a few Districts reported ongoing shortages of skilled workers and some districts noted wage pressures,'' the Beige Book said. The last report covered a period through Feb. 25.

    The Beige Book said ``housing markets and home construction remained sluggish throughout most of the nation.'' Housing starts in the U.S. dropped in March to a 17-year low, a report today showed. Residential construction is ``generally anemic,'' the Fed's report said.

    U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year, Irvine, California-based RealtyTrac Inc., a seller of default data, said yesterday.

    JPMorgan Chase & Co. said today it set aside $1.1 billion in the first three months of 2008 for future home-equity defaults, after boosting those provisions by $395 million in the first quarter.

    Dimon Warning

    Chief Executive Officer Jamie Dimon said he expects home prices to drop as much as 9 percent this year. ``Real estate is getting worse,'' Dimon said in a conference call today with investors after the bank, the third largest in the U.S., reported first-quarter earnings. ``Home prices we still expect to go down.''

    Banks reported tighter lending standards, and ``credit quality was reported to have deteriorated, on balance, since the last report,'' the Beige Book said.

    The survey said business contacts in all districts ``continued to report increases in input costs and output prices.'' The consumer price index rose 4 percent in the 12- month period ending March, the Commerce Department said today. Minus food and energy, prices rose 2.4 percent.

    ``Most manufacturers have or are planning to increase prices in response to rising input costs, while the response of service firms has been more mixed, in part due to differences in competitive pressures,'' the Beige Book said.

    Margin Pressure

    The report said input costs have risen faster than retail prices, ``putting pressure on margins for many firms.''

    Manufacturing was ``varied, with several districts ``noting that activity was mixed or had held steady,'' the Fed said. ``Demand was reported as strong for aerospace, aircraft, and defense goods, as well as for steel and food.''

    Industrial production increased 0.3 percent last month, following a 0.7 percent drop in February, the Fed said today in a separate report.

    ``Many districts cited strong exports generally,'' the Beige Book said. Still, excess capacity led to production declines in the technology industry in the Dallas district. ``Uncertainty about economic conditions is leading to a varied, but generally subdued, outlook for manufacturers.''

    The Beige Book's regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 U.S. states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff.
  2. Wow, you sure are good with "cut and paste".
    How much does Baron pay you?