Fed’s Beige Book Says Economic Conditions Improving

In its latest beige book report, published two weeks before officials meet to set monetary policy, the Federal Reserve said the country’s general economic conditions continued to improve in late October and early November with little upward pressure on wages and finished goods, but a weak labor market and deteriorating commercial real estate sector remain dark spots in the U.S. moderate recovery.

“Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Eight Districts indicated some pickup in activity or improvement in conditions, while the remaining four–Philadelphia, Cleveland, Richmond, and Atlanta–reported that conditions were little changed and/or mixed.

On real estate:
Home sales and construction activity improved across much of the nation, though prices were generally said to be flat or still declining somewhat. A majority of Districts reported that the lower-priced segment of the housing market has outperformed the high end. Increases in sales activity were reported in the Boston, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts, whereas sales were described as steady or mixed in the New York and Philadelphia Districts. Multifamily housing markets deteriorated further in the New York and Chicago Districts. More broadly, a number of eastern Districts reported continued declines in home prices–specifically, Boston, New York, Philadelphia, and Richmond. In contrast, prices were said to have firmed somewhat in the Dallas and San Francisco Districts and stabilized in the Chicago and Kansas City Districts. Most reports maintained that the lower end of the market has outperformed the higher end: New York, Philadelphia, Richmond, Atlanta, Minneapolis, and Kansas City all noted relative weakness at the high end of the market, with relative strength at the lower end; in most cases, this strength was largely attributed to the homebuyer tax credit (which was recently reinstated and expanded to include existing owners).

Despite the firming in sales, the level of new residential construction activity was generally characterized as weak, though recent trends have been mixed–Atlanta, Kansas City, and Dallas noted some pickup in home construction, whereas the Chicago and St. Louis Districts reported declines. Residential construction was described as flat or stabilizing by Cleveland, Minneapolis, and San Francisco.

Commercial real estate conditions were widely characterized as weak and, in many cases, deteriorating further. Market conditions were reported to have weakened in virtually all Districts, with rising vacancy rates, downward pressure on rents, and little, if any, new development. Expectations for 2010 were also quite low. Boston characterized the commercial real estate outlook as “bleak,” Dallas noted that construction was at “historically low levels,” and Kansas City described the sector as “distressed.” Still, some Districts noted scattered signs of encouragement: Cleveland and Chicago referenced public-works projects as a source of increased business, Richmond noted signs of increased leasing activity from the health and education sectors, Atlanta indicated a modest pickup in new development projects, Minneapolis noted some recently started hotel and retail development, and San Francisco cited slight improvement in availability of financing for new development.

On Employment:
Labor market conditions remained weak since the last report, with further layoffs, sluggish hiring, and high levels of unemployment in most Districts. However, contacts in the Atlanta, Cleveland, and Richmond Districts reported that the pace of job cuts generally slowed in their regions, and most contacts in the Dallas District reported stable employment levels. Despite generally weak employment conditions, some signs of improvement were noted.”

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