Fed's Beige Book Shows Suffocating Economy

The Federal Reserve Banks released their "beige book" this afternoon.  The book contains not only raw data examined by each of the Federal Reserve Districts, but commentary on the conditions of the economy.  The beige book is released 8 times each year, and contains assessments from each of the 12 reserve districts as well as a national summary.  The latest book can be found on the Federal Reserve website here.

This month, the report leads with the following paragraphs:

Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies “remained weak.” The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.

Consumer spending remained sluggish on net, although many Districts noted some improvement in January and February compared with a dismal holiday spending season. Travel and tourist activity fell noticeably in key destinations, as did activity for a wide range of nonfinancial services, with substantial job cuts note in many instances. Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall. Conditions weakened somewhat for agricultural producers and substantially for extractors of natural resources, with reduced global demand cited as an underlying determinant in both cases. Markets for residential real estate remained largely stagnant, with only minimal and scattered signs of stabilization emerging in some areas, while demand for commercial real estate weakened significantly. Reports from banks and other financial institutions indicated further drops in business loan demand, a slight deterioration in credit quality for businesses and households, and continued tight credit availability.

Clearly there is no good news on the economic front.  Consumer spending remained weak, as did travel and tourism as households scaled back.  Healthcare, legal, accounting and other business consulting services were curtailed during the period.  Shipping and transportation continued to fall.  Manufacturing met with a very sharp decline except for biotech in New England (of course, if Obama's budget priorities get passed, bio and pharma will decline as well).  Real Estate is still abysmal, with declining demand across the board - residential, commerical, industrial and retail all showing no signs of improvement.  Lending also fell on lower demand, but commerical lending from community banks was still available, at least in the Boston district.  In addition, while food prices rose slightly, overall there was no upward pressure on prices or wages.