The Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the “Beige Book” is released eight times per year and as is referred to in its title summarizes anecdotal economic information from each of its twelve districts. It is then prepared by one of the Federal Reserve Districts on a rotating basis. Why is it important to you, the reader? Because, after a deep recession like the one we have just all experienced, how the economy goes, so goes our investment portfolios. What follows are some highlights of this five page report.
Regarding Consumer Spending and Tourism, the beige book noted that “consumer spending increased during the reporting period with relative strength in sales of home furnishings and electronic goods as well as sales of seasonal apparel. The report further details improving vehicle sales due to favorable pricing and credit terms as well as improving conditions in the tourism industry.
Taking a look at Nonfinancial Services, of no surprise was the observation that “professional media services firms in San Francisco characterized sales as flat at low levels” which, in our opinion, provides an accurate description of the mood of business, which is cautious at best. Furthermore, and once again of no surprise, “law firms in Minneapolis specializing in debt collections and bankruptcy saw strong demand, while a Richmond property manager noted a large number of repossessions.”
On the Manufacturing front, the report noted increasing activity “across most of the country” especially in electronic, computers and high technology goods.
Importantly, “bank lending activity was mixed by category in most Districts” as weak loan demand coupled with tighter credit standards along with mixed credit quality dampened lending. It is not surprising that this is the case. Recessions historically lead to tighter lending standards amidst declining credit quality due to rising Unemployment. This should ease as the economy continues to improve.
“Residential Real Estate activity increased, albeit from low levels, in most Districts” with most Districts noting “sluggish sales for high-end home” but with stable home prices. Regarding commercial real estate,” the Beige Book described activity as “slow across the nation” with “Manhattan Class A office rents were down 20 percent to 25 percent year over year.”
Finally, regarding Employment, Wages and Prices, the Fed stated that “while overall labor markets remained weak, some hiring activity was evident, particularly for temporary staff….Wage pressures were characterized as minimal or contained” with modest wage increases at or about the inflation rate being implemented in some districts. Retail price increases remain contained.
THE BOTTOM LINE – This is a hole which the American Economy is in the process of digging itself out from. It appears to be progressing in an uneven fashion. In our opinion it will take some time with a key component being lending activity. Until this increases notably, the economy will move forward unevenly.
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Commentary for April 30, 2010
Friday, April 30th, 2010As the rhetoric surrounding Financial Regulation continues to heat up as well as the firestorm regarding Goldman Sachs, investors are using this as an opportunity to sell rather than buy. We believe that this pullback, should it continue, much like the pullback prior to the passing of health care reform, will represent a buying opportunity. That said, look for stocks with good fundamentals, a strong forward outlook and dominant positions with proprietary products. Let the prices come down to your level. Don’t chase here. No need to after the big run-up.
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