Fed Biege Book: Economy Weak Across the Board

The Fed's Beige Book is a compilation of extensive anecdotal evidence on the economy collected and reported by all Fed Districts. It is somewhat backward looking and it is dangerous to simply extrapolate the future from the current data. However, it does tell us where the economy has been. The most recent issue was released today. Here are highlights from today's release (My emphasis):

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...

Upward price pressures continued to ease across a broad spectrum of final goods and services. This was largely associated with lower prices for energy and assorted raw materials compared with earlier periods, but also with weak final demand more generally, which spurred price discounting for items other than energy and food. With rising layoffs and hiring freezes, unemployment has risen in all areas, reducing or eliminating upward wage pressures. A number of reports pointed to outright reductions in hourly compensation costs, through wage reductions and reduction or elimination of some employment benefits...

..compared with the preceding reporting period that included the holiday season, retail spending was described as "mixed" in the Boston and Richmond Districts, "nearly steady" in Philadelphia, and slightly improved in Cleveland and Dallas, while New York reported a reduced rate of decline compared with the "steep" pace in December.

..Sales of luxury goods such as jewelry, electronic equipment, and other big ticket items were reported to be especially slow in the Philadelphia, Richmond, and Chicago Districts. Demand for furniture, appliances, and other durable household items remained quite depressed, according to Kansas City and San Francisco. Sales of new automobiles and light trucks remained exceptionally sluggish, with Philadelphia, Richmond, and Kansas City reporting further declines from an already slow pace of sales.

...Reports of gains in retail spending were largely limited to grocery stores and pharmacies...

... Demand for staffing services weakened considerably. Boston reported that outcomes for providers of temporary staffing services were "dismal," with revenue declines in the range of 20 to 50 percent compared with twelve months earlier. Chicago and Dallas also reported sizable declines in activity by staffing firms, and New York noted that activity by a major employment agency has "virtually ground to a halt."...

Manufacturing activity fell on net in all Districts, with very sharp declines recorded for some sectors and only partial offsets provided by the few bright spots...For most Districts, the drop in activity was especially pronounced for makers of capital goods and construction-related equipment and materials, such as primary metals, wood products, and electrical equipment, along with consumer durables such as autos and furniture...

Manufacturing of biotechnology products and pharmaceuticals was one bright spot, with Boston reporting sales gains at a double-digit pace for biopharmaceutical firms, Richmond noting continued hiring of temporary staff among life sciences and pharmaceutical companies, and Chicago reporting continued strong demand for pharmaceuticals...Food processers and manufacturers of selected chemicals also saw further increases in demand during the reporting period, according to Philadelphia and San Francisco...

The availability of credit generally remained tight. Lenders continued to impose strict standards for all types of loans, with scattered reports of further tightening and particular scrutiny focused on construction projects and commercial real estate transactions. Despite stringent standards, Atlanta and Chicago noted that funds were available for well-qualified applicants, and Dallas cited contacts who reported that capital has become more readily available...

Selected food products were a notable exception to downward price pressures, with Philadelphia reporting that some food processors raised their product prices.