“Beige Book” Shows Recovery is Mixed

The pace of economic activity has slowed or held steady in parts of the country, revealing  choppy path back to health.  A new survey released by the Federal Reserve yesterday tracked 12 regions, including Richmond, where activity has either slowed or leveled off.  Charles Fishburne talks with the Fed’s Ann Macheras, Vice President in Charge of the Regional Research Group about what business people are telling them.

Overall, in the Fifth District, how would you describe economic activity?

Macheras:  Well, economic activity is improving, but, at a slow pace and the results are kind of mixed.  But, there are sectors of the economy where most of the people that we talk to would say that things are getting a little bit better.

I noticed that manufacturing is a bright spot.  How so?

Macheras:  Right.  Well, manufacturing is a bright spot.  You've had, definitely a balance towards the positive overall for that manufacturing index.  What we hear from them is that their customers have been replenishing their inventories; that manufacturers themselves have been catching up.  They've had to hire some new employees or increasing their use of temporary employees.

You did note that manufacturers applying the housing industry had stalled.

Macheras:  Yes.  We have been hearing that.  You know it seemed that towards the end of last year, the beginning of the year, housing was doing a little better, then it seemed to soften a little bit.  We also had the effect of the tax credit for  first-time home buyers that expired; and so, you know we saw maybe an acceleration of some activity in the housing market and, then, kind of a trailing off.

Well, let's talk about real estate.  You noted that houses in the upper middle price range were moving.

Macheras:  Right, that's what we've heard from some of our contacts.

And houses below 150 thousand.  Now, why is that?

Macheras:  Well, I think that would the range where you would have most of the first-time home buyers, you know, whether they were able to get the tax credit or not.  They might have been just motivated by what they were seeing.

There was a big red flag in the base book about commercial vacancy rates in both Richmond and Baltimore.

Macheras:  Yes, the commercial vacancy rates have, across the different property types, whether you're looking at retail, industrial.  We've seen those vacancy rates remain pretty elevated and what we've also been hearing, and related to that, is that rental rates have also been low.  So, people are kind of holding back.  Well, certainly any construction of commercial real estate has been very much stalled.  That market has been really hit pretty hard and most people don't expect that to turn around, certainly not for many months to come.

You sort of touched on it earlier, but, is it a danger sign that we've now had two quarters in a row with slower than average growth?

Macheras:  I wouldn't say it's a danger sign.  I think that economists make their forecasts on growth.  They revise those forecasts as new data enters the picture and, so the revisions in forecasts for this year have been edged downward.  But, it's still the same basic picture of just a slow recovery.

Some economists are thinking that, perhaps we're getting closer to the time that the Fed needs to raise the interest rate.  Do you have any feel for that?

Macheras:  Well, because we have the Federal Open Market Committee meeting coming up, I probably shouldn't be commenting on that.  So, I think I'll hold off on that comment.

So, bottom line you're telling me it's basically a choppy recovery and things could be worse, but they could be better.

Macheras:  That's what worries people.  That's what gets people talking about a double dip, which is not something that I think will happen.  But, I think that just the fact that the pace is slow makes people fear that, not only might it stall altogether, but that we might move backwards.

We've been talking with Ann Macheras, Vice-President in charge of the Regional Research Group about not what the numbers say, but what the people is business say about the economy and how it effects them. 

Macheras:  You know, you can't just read the numbers and rely on that 100%.  You have to get some confirmation from talking to real people.  And, that's what the Beige Book is all about.