Fed regional report shows signs of hope for
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By Kevin G. Hall, McClatchy Newspapers Kevin G. Hall, Mcclatchy Newspapers – Wed Apr 15, 6:31 pm ET
WASHINGTON — In another small but important sign of improvement in the battered U.S.
economy, almost half of the Federal Reserve's 12 districts reported Wednesday that economic
deterioration had moderated in their zones and may be bottoming out.
The nation remains locked in the worst economic tailspin since the Great Depression, so any
piece of good news is welcome. However, the report continued to underscore the downturn in
manufacturing, more job losses ahead and a grim business climate, especially for commercial
real estate. Overall economic activity contracted or remained weak in all districts.
"However, five of the twelve districts noted a moderation in the pace of decline, and several saw
signs that activity in some sectors was stabilizing at a low level," the Fed's "Beige Book" summary
Wall Street welcomed the news, with the Dow Jones Industrial Average finishing up 109.44 points
to close at 8029.62. The S&P 500 closed up 10.56 points to 852.06 and the Nasdaq rose 1.08
points to 1626.80.
The recent stock rally over the past six weeks has also suggested that perhaps the economic
downturn is close to bottoming out, since stocks historically have anticipated economic rebounds
about six months into the future. That would put a recovery within sight by autumn.
President Barack Obama warned Tuesday against too much optimism, particularly on the jobs
front, and urged Americans to be patient. Later Tuesday, Fed Chairman Ben Bernanke used an
address at Morehouse College in Atlanta to voice cautious optimism.
"The current crisis has been one of the most difficult financial and economic episodes in modern
history. Recently we have seen tentative signs that the sharp decline in economic activity may be
slowing, for example, in data on home sales, homebuilding, and consumer spending, including
sales of new motor vehicles," Bernanke said. "A leveling out of economic activity is the first step
Bernanke's speech foreshadowed the Beige Book's conclusion. The summary of views from the
12 Fed districts, published eight times a year, reported some good signals amid a large number
that remain under severe stress.
"Home prices and construction were still falling in most areas, but better-than-expected buyer
traffic led to a scattered pickup in sales in a number of districts," the Fed report said, highlighting
the positives before spelling out a litany of negatives.
"Nonresidential real estate conditions continued to deteriorate. Difficulty obtaining commercial
real estate financing was constraining construction and investment activity. Spending on business
travel declined as corporations cut back. Reports on tourism were mixed. Bankers reported tight
credit conditions, rising delinquencies, and some deterioration of loan quality."
The Treasury Department offered a similar mixed bag Wednesday in its monthly survey of
lending by the 21 biggest recipients of bank bailout money.
"February data point to a bright spot in the housing lending, but illustrate the continued negative
impact of the economic downturn and financial crisis on credit markets and on the demand for
loans by consumers and businesses," the Treasury report said, noting that lending levels were
flat but would've been worse if not for government support.
Big risks still lurk for the economy. By month's end, Chrysler must either merge with Fiat or go
bust. General Motors is widely expected to enter a prepackaged bankruptcy by June 1 .
Within the next few weeks, the Treasury Department is expected to communicate the results of
stress tests on the nation's 19 largest banks. The agency must walk a fine line, trying to boost
perceptions of health for some of these banks while not triggering investor and depositor rejection
of the weaker ones.
Still, the smattering of positive signs leads some economists to suggest that a pickup in economic
activity may be imminent. Historically low mortgage rates are attracting a wave of refinancing,
spreading new cash across the economy. Exports are doing better than expected, given the
global nature of the economic downturn.
"Overall, the good news from the latest Beige Book is that there are a few flickers of improving
conditions in selected industries and markets. This is definitely an improvement from the previous
Beige Book, where conditions were universally weak," wrote Brian Bethune , the chief U.S.
financial economist for forecaster IHS Global Insight, in a note to investors Wednesday.
Harvard University economist Martin Feldstein was less impressed.
"I see very few positives. Things are falling, they're falling a little more slowly, but that doesn't
mean they are going to start turning up anytime soon," he said on CNBC Wednesday after the
Beige Book's release. "So I think the people who are forecasting an upturn in September, I don't
see that as the start of a really permanent, sustainable expansion."
The government's massive stimulus spending and efforts by the Federal Reserve to bolster banks
should generate some positive signs within months, he said, but he added that those are one-
time jolts that will wear off.
"I think it's more of a hope than a forecast that we will start seeing a sustained recovery in 2010,"
said Feldstein, who for many years headed the National Bureau of Economic Research , which
officially defines when recessions begin and end.