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Fed survey: housing, manufacturing drive recovery

October 22, 2009|Neil Irwin | Irwin writes for the Washington Post.

The economy is showing "modest improvements," a report from the Federal Reserve said Wednesday.

The latest beige book, a compilation of anecdotal reports from businesses around the country, offers a portrait of an economy in transition in recent weeks, moving from recession into a period of tentative and uncertain expansion.

Accounts from across the Federal Reserve system "indicated either stabilization or modest improvements in many sectors since the last report," the beige book said, "albeit often from depressed levels."

It added that while reported gains in economic activity generally outnumbered declines, virtually every reference to improvement was qualified as either "small or scattered."

The strongest economic gains were in residential real estate and manufacturing, the report said, which is consistent with other evidence. Those sectors were so thoroughly hammered by the recession that it didn't take much to create gains. More houses have been sold in recent months, and factories have increased production, even as millions of homes sit empty and factories continue to produce well below their potential.

And even with those improvements, it is not clear whether the momentum can be sustained. For example, manufacturers contacted by the regional Fed banks in Boston, Philadelphia, Cleveland and Kansas City said that they "expected only slight gains and modest economic growth during the next six months. Therefore, capital spending plans remained subdued and centered mostly on new product development and cost reduction."

The most consistently weak sector, meanwhile, was commercial real estate, which is groaning under the weight of business closures and little ability to obtain loans.

And, consistent with recent data about the moribund job market, "labor markets were typically characterized as weak or mixed, but with occasional pockets of improvement," the report said.

The beige book is prepared before every Fed policymaking meeting and is meant to help the central bank's top officials decide on the nation's monetary policy.

Staffers at the 12 regional Fed banks call business contacts around their districts and in a wide range of industries, and compile a summary of business conditions based on those interviews.

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