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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (37802)	6/13/2001 3:54:56 PM
From: Sully-	Read Replies (2) \| Respond to of 65232

From: stephen wall Wednesday, Jun 13, 2001 3:21 PM Beige Book Updated: 6/13/01 2:42 PM EST Released: 6/13/2001 Coverage: n/a Next Release: 8/8/2001 Analysis by: Steve Cochrane First Take The Fed’s Beige Book is the most dismal in recent memory. Comments regarding nearly every aspect of the economy indicate either weakening conditions or conditions no better than in early spring. The only bright note is strength in energy exploration, which benefits the few energy-producing regions of the country. Reports from various sources to the regional Fed banks indicated weak conditions for retail sales, tourism, manufacturing, construction and agriculture. There is little hint of a turnaround in any of the regions outside of the oil and gas producing area of the Gulf Coast and parts of the Mountain West. The Numbers Consumer spending is lackluster nearly everywhere. Only the Cleveland and Atlanta Districts reported any growth at all. This is consistent with today’s weak retail sales report for May (Beige Book comments were based on information gathered before June 4) and also with last week’s weak chain store sales report. Auto sales and tourism spending were highlighted as particularly weak. Manufacturing activity in all regions is reported to be decelerating or declining. A glimmer of hope, however, was mentioned by the Chicago and St. Louis Districts regarding the Midwest. The Chicago District says their contacts report that the worst of high inventory levels is over. St. Louis reports there are some planned expansions in output for high-tech, tobacco and chemical industries. Nearly all Fed Districts report deterioration in commercial real estate markets. One interesting exception is the San Francisco District, which reports that markets are sound, but with signs of weakening. The San Francisco Bay Area and Seattle are highlighted as the weakest commercial real estate markets. Oil and natural gas drilling supports areas dependent upon such natural resource production. Specifically, the Kansas City District reports an eleven-year high for the number of active drill rigs. Labor markets are easing, although some shortages in specific industries such as nursing and construction workers persists. Wage pressure is easing. Particular note is made of dramatic softening of demand for tech workers in Boston, and wage pressure is much reduced in San Francisco. Non-energy price increases are subdued nationwide. Of note, however, is that all Fed Districts, not just in the West, report higher energy prices. Behind the Numbers This report indicates weakness across the board. It is consistent with other reports on declining manufacturing activity, weak job markets with net losses in employment, declining capital investment, and weakening consumer and business sentiment. The consistently weak reports across all of the twelve Fed Districts are unprecedented in their reports of the past half decade. If the tone of this report clearly reflects economic conditions on the ground, the second quarter may well end up with no growth in GDP, or perhaps even a moderate decline. In searching for any sign of a turnaround, there are two broad comments. The first relates to strength in the energy producing regions. But this has nothing to do with a broad economic improvement and more to do with high energy prices. In fact, high energy prices and strong growth in the energy producing regions are often consistent with recession conditions elsewhere in the economy. The gains in energy production are a positive sign only in that they may indicate greater supply of natural gas next year, and thus some easing of prices. This could help lead to lower electricity prices next year since nearly all new power plants are fueled by natural gas. The second indication is that the manufacturing economy in the Midwest may have passed its worst point. The auto industry reports that excess inventories have been worked off and the steel industry reports that it probably bottomed-out in the fourth quarter. Conditions remain weak, prices are low, but there is some improvement. The St. Louis District reports that firms in the high-tech, tobacco and chemicals industries plan to open new plants in Kentucky and Tennessee by next year, offsetting losses in furniture, aluminum and auto parts. There is a strong indication from this report that second quarter economic performance will be the weakest that we have seen in some time, perhaps since the second quarter of 1995. dismal.com Ö¿Ö