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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Clint E. who wrote (22739)	8/12/1999 12:02:00 AM
From: Clint E.	Respond to of 69335

A good site to read about economic reports: dismal.com Beige Book dismal.com Released: 08/11/99 Next Release: 09/22/99 Analysis by: Steve Cochrane Summary Dismal Delivery Interested in this release? Be notified when it's updated with our free Dismal Delivery. The Federal Reserve's Beige Book continues to be upbeat. The basic message is that all regional economies are performing well and labor shortages exist nearly everywhere. Consumer price inflation is moderate, but there is some wage inflation in construction and high-tech industries. The Beige Book contains little that will dissuade the Federal Open Market Committe from raising interest rates later this month. While the report states several times that there is little current price or wage inflation, it repeatedly describes current labor and material shortages that could cause price increases in the near term. The Beige Book provides little evidence that the performance of the economy is slowing. The only industries mentioned with diminished output include textiles and metals in the Mid- and South-Atlantic regions, and civilian aircraft in the Pacific Northwest. Offsetting these weaknesses, however, is some pickup in exports to Asia from Texas and the West. Analysis The August 11 Beige Book continues the upbeat theme that emerged in last June's report. The general theme is that manufacturing is generally expanding once again, real estate markets remain strong nearly everywhere, loan demand is steady or rising in most districts, and consumer spending is strong. Some acceleration of price inflation is mentioned related to home construction, but there is no broad-based pickup in consumer price inflation. Numerous conditions, however, are mentioned that could lead to a future uptick in inflation. These include widespread labor shortages, shortages in a number of construction materials and skilled construction labor, and land shortages in a several districts. The FOMC will be looking at these indicators of potential future inflation rather than at current measures. Consumer spending is characterized as strong, but the pace of growth has eased. Low clearance inventories and lean stocks are mentioned as the probable cause, not any weakening of the economy. In a change from reports earlier this year, the Beige Book reports expanding manufacturing nearly everywhere except within the districts of Atlanta, Chicago and Kansas City. Weaknesses mentioned are the metals industries in the West, Midwest and Mid-Atlantic (due to weak global prices and stiff import competition), textiles in the Mid-Atlantic and Southeast (also due to import competition), machine tools in New England and the West (due to still-weak exports), farm equipment in the Midwest (due to low farm incomes this year) and commercial aircraft in St. Louis and Seattle (due to production cutbacks and productivity gains at Boeing). Improvements in Asian export trade were reported in the West and the Southwest, but nowhere else. So while there is some improvement, the greatest gains from renewed Asian trade are still to come. Real Estate is the most broadly impacted from shortages. These shortages are both in the supply of labor and supplies. The recent runup in mortgage rates, however, may begin to cool off housing markets so that these shortages do not become long term or chronic. Thirty-year mortgage rates recently rose to over 8%. Effects have of this have already been seen in a decline in residential mortgages and refinance activity reported in today's Beige Book. Demand for commercial and industrial loans as well as other personal loans continues to be strong, however, which bodes well for business investment and personal consumption. Furthermore, credit quality has improved since the last Beige Book report. There is little change in lending standards, although the New York and Cleveland Districts report some tightening. At least through the first week of August, severe damage from the drought is limited to the Mid-Atlantic and South Atlantic regions where corn and soybean crops are withering. Crops in the Midwest, however, are generally in good condition. The Midwest's weather has been hot, but they have received rain. The Beige Book was very clear in stating that labor markets are tight, labor shortages abound, and employers must be creative to attract and keep both low level and highly skilled workers. Yet it was also emphatic in stating that wage growth remains subdued, with little evidence of any broad-based acceleration in wages. As mentioned above, however, the FOMC will be looking for signs of impending inflation, rather than those which have already occurred. There is plenty of evidence in this report that current conditions could begin to generate more widespread inflation in the coming months.