Beige Book Leans Toward Steady Fed

The Federal Reserve just released the results of its so-called beige book, a canvassing of economic conditions it conducts two weeks prior to each FOMC meeting.

In the previously reported beige book released on Nov. 29, the Fed's main statement indicated that "Most Federal Reserve Districts reported continued moderate growth."

In today's beige book, which was prepared by the Federal Reserve Bank of Minneapolis for use at the Jan. 30-31 FOMC meeting, the Fed said that "Most reports from the Federal Reserve District Banks indicated that economic activity expanded at a modest pace since the last report." Hence, conditions haven't changed much, according to the Fed. Today's report is based on information obtained before Jan. 8.

Although conditions haven't changed much, what remains is still important. In particular, the Fed's continued emphasis on the tightness of the labor market provides a sufficient basis to believe that the Fed will not be interested in lowering interest rates anytime soon. In today's beige book, the Fed said that "District reports generally described labor market conditions as tightening and cited examples of some businesses having difficulty finding qualified workers."

It is also notable that the Fed found that manufacturing activity continued to expand in most districts. The findings fit with the recent uptick in the ISM index, which went back above 50 in December after having slipped below 50 in November for the first time since April 2003, as well as with today's data on industrial production, which showed a strong gain for December.

With respect to the housing sector, most of what the Fed found "continued softening," although there were some signs of stabilization, as should have been expected based on the recent uptick in mortgage applications. The Fed also noted that "commercial real estate markets continued to see strong activity in most districts."

ALL TONY CRESCENZI BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.

TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.