Positive Beige Book uplifts mood, markets

Economic conditions have seen modest further improvement in recent weeks, according to the Federal Reserve’s Beige Book report released Wednesday afternoon, although the central bank noted that economic activity remains at a low level.

The Beige Book report, a compilation of anecdotal evidence on economic conditions from each of the 12 Fed districts, said that ten districts reported increased activity or improvement in conditions, while the remaining two reported mixed conditions.

This marks an improvement from the Beige Book report released in early December, which showed that eight districts experienced increased activity or improving conditions compared to four districts that reported little change and/or mixed conditions.

While the report said that most districts reported a slight increase in consumer spending during the recent 2009 holiday season, spending remained far below 2007 levels.

The Fed noted, “Consumers were variously described as cautious, price sensitive, and focused on necessities, but sometimes willing to spend on discretionary purchases.”

Retail inventory levels remained very lean in nearly all districts, the report said, with some Chicago retailers even running out of high-demand items during the holiday season.

The Beige Book also noted that non-financial services activity generally indicated an upward trend, although some area reports were mixed. In the five districts that reported on transportation services, volumes were up slightly or mixed.

Manufacturing activity also increased or held steady in most of the Fed districts, with the New York Fed reporting a general pickup in activity, broad optimism, and some increase in employment.

The districts reporting on manufacturers’ expectations for the near term all revealed optimism, although only Boston and Philadelphia reported that firms were planning to increase capital spending.

While the report also showed that home sales increased in most Fed districts, the Fed also noted that loan demand continued to decline or remained weak in most districts.

On the employment front, the Fed said labor market conditions remained soft in most districts. Nonetheless, New York reported a modest pickup in hiring and St. Louis said several service-sector firms recently announced plans to hire new workers.

The Beige Book concluded by saying that price pressures remained subdued in nearly all of the Federal Reserve districts, although increases in metals prices were noted in some districts.