Although it was careful to point out the weak patches, in its latest Beige Book the Federal Reserve said the economy was showing signs of recovery.
"A majority of Federal Reserve districts report some signs of improvement in economic conditions in January and early February," said the Fed in its latest anecdotal survey of regional economic activity. Of the Fed's 12 district banks, only the Dallas Fed saw continued weakness.
The report, using data collected by the Fed's district banks, comes out eight times a year and is a key resource at the Fed's policy-setting meetings. Signs of an economic rebound, of course, have undergirded stocks' recent advance.
Showing Some Signs
Many retailers saw business improve over the January and February, according to the report. Manufacturing remained weak but was "showing some signs of improvement." Service industries saw some spots of brightness. Commercial real estate remained weak, but that was offset by strength in residential markets.
The deterioration in employment appears to be abating, boding well for consumer spending and the recovery's staying power. Although the labor markets remain slack, the Fed said its contacts at temporary employment agencies "suggest employment is bottoming out." The Fed has long held the view that watching what's going on at the temp agencies offers a good lead into where employment is headed.
"It supports the view of an economy that is experiencing healing, but at the same time there are still pockets of weakness," says Bill Sullivan, senior economist at Morgan Stanley, of the report. "This fits in with the notion that the economy does have some restraints on it."
In other words, it fits in with the Fed's view of things. Before Congress last week, Fed Chairman Greenspan said the economy did appear to be on the rebound. But he warned that an "array of influences unique to this business cycle, however, seems likely to moderate the speed of the anticipated recovery." That testimony suggested that the Fed will not be as quick to move rates higher as markets expected.
Beiger Shade of Pale?
But like Greenspan's speech, the Beige Book might have been different had it been put together after some of the recent economic data.
The Beige Book was based on information collected before Feb. 26 -- that is, before the strong January durable goods report, before fourth-quarter gross domestic product got revised upward, and before the February purchasing managers' indexes showed big gains. The anecdotal data on the economy might not have been any different, but the way the Fed looked at them would have been.
"The tone would have been more optimistic," says Salomon Smith Barney economist Chris Wiegand, "if the data that's hit the tape over the last week had already been out."
Justin Lahart
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