Highlights
The Beige Book prepared by regional Fed banks for the upcoming January 29-30 FOMC meeting indicated that the overall economy continued to grow "modestly" although results were mixed by Fed District. While this report is "bluer" than any recent reports, there is nothing in the report to suggest that the economy is currently in outright recession nor to suggest that the Fed must cut rates at a much more rapid pace. The report is based on information collected before January 7.

Of the twelve districts, "seven reported a slight increase in activity, two reported mixed conditions, and activity in three Districts was described as slowing." The Beige Book reported "subdued" holiday spending, suggesting some softening in the consumer sector. Auto sales were weakening. A bright spot in the retail sector, however, is that tourism and purchases of goods by foreigners has picked up. Numbers of tourists from Canada and Europe were especially strong.

It was no surprise that housing is still depressed but a number of districts reported a softening in commercial construction-a sector that has been supporting construction employment. Manufacturing activity was "varied." While housing and auto related manufacturing was soft, strength was reported for aircraft, information technology, defense, and energy-related manufacturers.

The impact of the continuing credit crunch is still being felt. Real estate lending and consumer loan volume were generally lower. Most Districts reported tighter credit standards.

A strong sector in the economy is nonfinancial services. Demand is particularly strong for health care, hospitality, legal, and insurance industries. Demand for engineers, especially in the petrochemical fields, is strong.

Inflation reports were mixed but mostly on the high side with food and energy costs being key concerns. Transportation costs have been more of a problem for many industries. More manufacturers are reporting increases in both prices paid and received. Price weakness, however, was reported in housing related materials. Labor markets generally were still seen as tight, especially for skilled workers. But employment costs were generally described as moderate except for the energy sector which cited significant wage pressure.

Overall, the economy is slowing much as Fed officials have been anticipating. While the consumer sector is soft and credit conditions have tightened, there is no discussion in the Beige Book even approaching recession discussion. Despite a clearly "bluer" tint to the latest Beige Book, inflation pressures remain a concern. The latest Beige Book supports the market's view that the Fed should cut interest rates by 50 basis points on January 30, but there is nothing in the tone in the Beige Book to suggest desperation. Barring substantial worsening in other economy data, the Fed will likely continue a measured pace for interest rate cuts.

2008 Release Schedule

Released On: 1/16 3/5 4/16 6/11 7/23 9/3 10/15 12/3 Released For: Dec Feb Mar May Jun Aug Sep Nov