Federal Reserve's Beige Book Survey Finds Economic Weakness Easing in Some Regions

By Annys Shin
Washington Post Staff Writer
Thursday, June 11, 2009

The economy continues to slog its way through the recession, held back by tight credit conditions and weak demand, according to the Federal Reserve's "beige book" survey.

Five of the 12 Federal Reserve banks reported that the economic decline moderated between mid-April and the end of May, according to the survey, which the central bank released yesterday. Businesses in several districts also told Fed officials that their outlook had improved, though they still don't expect economic activity to pick up until next year.

The survey, based on phone interviews with businesses around the country, largely reflects a growing consensus among economists and policymakers that the economic free fall that followed the collapse of Lehman Brothers in September is winding down. The survey's results were similar to those in the previous report, released in April, and offered little indication of what Fed policymakers will do when they meet in two weeks.

In recent months, the Fed has left the interest rates it controls close to zero and bought billions of dollars in government debt and mortgage-related securities in an effort to keep consumer borrowing costs down. But fears among investors that government spending to combat the recession could lead to inflation has recently driven up the premium they are willing to pay on long-term Treasury bonds. That, in turn, has driven up mortgage rates, raising questions about whether Fed leaders will choose to step up the central bank's purchases at their next meeting.

The beige book revealed an economy that, while improving in some areas, was still beset on many fronts. Manufacturing activity declined or remained low across most of the Fed's districts. Demand for nonfinancial services contracted. Retail spending remained soft. New car purchases were still depressed. Travel and tourism activity also declined.

A number of districts reported an uptick in home sales. Many said new home construction appeared to have stabilized at very low levels.

The decline in commercial real estate, which is just beginning, drove up vacancy rates for commercial properties in many parts of the country. Developers also reported having an increasingly hard time finding financing for new projects.

Labor-market conditions continued to be weak across the country, with wages generally remaining flat or falling. Some analysts have said declining wages could lead to a deflationary spiral, but such fears have largely subsided among economists inside and outside the Fed.

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