Beige Book Not Cheerful on Recovery

July's Beige Book--Summary of Commentary on Current Economic Conditions by Federal Reserve District, to give its more formal name--characterized the current economy in a less-than-stellar way on Wednesday. "Reports... suggest that economic activity continued to be weak going into the summer, but... the pace of decline has moderated since the last report or that activity has begun to stabilize."

July 29, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons jaaron

July’s Beige Book–Summary of Commentary on Current Economic Conditions by Federal Reserve District, to give its more formal name–characterized the current economy in a less-than-stellar way on Wednesday. “Reports… suggest that economic activity continued to be weak going into the summer, but… the pace of decline has moderated since the last report or that activity has begun to stabilize.”

That kind of language is all too reminiscent of this time last year, when getting weaker not as fast as last month (or last quarter, or last year) was about all the good news the economy had. Similarly, real estate was mostly weak, according to the Beige Book. Residential was soft in most districts but there were signs of improvement. Commercial, on the other hand, weakened in two-thirds of the districts and was simply slow in the others.

It’s more of the same for CRE, in other words. “Office vacancy rates continued to climb in the Atlanta, Boston, Kansas City, Minneapolis, Philadelphia, Richmond, and San Francisco Districts, as well as in Manhattan, resulting in sizable leasing concessions and/or declines in asking rents,” noted the report. “Significant weakness in the retail leasing sector was reported for the Boston, Minneapolis, and New York Districts, and industrial vacancy increased in the Atlanta, Dallas, Minneapolis, and St. Louis Districts.”

Double Dip? Freddie Mac Economist Doubts It

Does the weakening this summer point to part two of the Great Recession? Speaking on Wednesday morning at the Lending the Way Housing and Economic Outlook, Frank E. Nothaft, chief economist of Freddie Mac, said no. “It might not feel like a recovery yet, but it’s under way,” he asserted at the event, which was held in suburban Chicago by Fifth Third Mortgage Co., a subsidiary of Fifth Third Bank, and attended by CPE.

Nothaft posited that the odds of a double-dip recession are only about 20 percent at this juncture. But it’s going to be a slow recovery even so, with unemployment–the key component in making things as miserable as they are in the current economy–only creeping down in the next two years. He agreed with estimates that put unemployment between 7 percent and 8 percent by the end of 2012.

Housing will see a slow recovery, too, after a big bump in the road this year because of the expiration of the homebuyer tax credit, which Nothaft nevertheless saw a necessary stimulus for the market. “Home sales will be better a year from now,” he predicted.

Saved From the Depression 2.0? Maybe.

TARP in its many forms, stress tests, aggressive maneuvers by the Federal Reserve, the stimulus bill and all the other elements of the massive bailout in the wake of the Panic of 2008–did they prevent a second Great Depression? Politicos in the Bush and then the Obama administrations found it in their interest to say so, but not everyone was, or is, persuaded.

Alan S. Blinder, a economics professor at Princeton University, and Mark Zandi, chief economist at Moody’s Analytics, asserted in a paper published on Wednesday that without government intervention in its various forms, the 2010 gross domestic product would be down 6.5 percent, and 16.5 million jobs would have been lost by now, rather than 8 million, all of which sounds very Depression-like.

Blinder and Zandi cite complicated econometric models for their conclusions, which other economists will now review and argue about. Other papers will probably be generated asserting opposite conclusions about the bailout. Ultimately, history will have to render a verdict about the efficacy of the bailouts, and then historians will argue about it too.

Wall Street, perhaps unnerved by the Beige Book or the weak durable goods report, dropped on Wednesday. The Dow Jones Industrial Average lost 39.81 points, or 0.38 percent, while the S&P 500 was down 0.69 percent and the Nasdaq declined 1.04 percent.