Washington Post Staff Writer
Wednesday, July 29, 2009; 3:42 PM
The economy's downward slide is slowing with more regions of the country showing signs of stabilization in recent weeks, according to a Federal Reserve report released Wednesday.
The Fed's Beige Book, a compilation of anecdotes collected from businesses across the country, offered new evidence that the worst recession of the post-World War II era is bottoming out. The report covers the six weeks after the release of the last report on June 10 and is prepared two weeks before the Federal Open Market Committee, the Fed's policy setting arm meets. The next meeting is scheduled to begin Aug. 11
The most recent installment of the Beige Book offered a mixed picture with reports from the 12 Federal Reserve Districts suggesting overall that the economy deteriorated in April and May. In June and July, by contrast, residential real estate markets in many areas improved modestly, fueling hopes the three-year old housing slump may be coming to an end. A report out earlier this week showed home prices in 20 metropolitan areas rose during the three months ending in May, the first such increase since 2006.
There were also signs that the severe downturn in manufacturing was easing. Fed Districts in the industrial Midwest reported that either manufacturing was picking up or its decline was slowing. This improved outlook came despite the troubles of the Big Three U.S. auto makers. General Motors and Chrysler each closed plants in June as part of their restructuring efforts.
Prices were largely stable, suggesting the threat of inflation remained in check. Inflation is increasingly a concern among economists and investors who worry the Fed's injection of hundreds of billions of dollars into the financial system may eventually drive up prices. A jump in inflation could eventually lead the Fed to tighten interest rates.
Upward pressure on wages, another potential contributor to inflation, was also weak with most district reporting "extremely soft" labor markets and the tendency among employers to reduce or freeze compensation in addition to job cuts.
The economy has so far shed more than 6 million jobs since the recession began in December 2007. As of June, the unemployment rate stood at 9.5 percent. Fed leaders have forecast unemployment to surpass 10 percent by year's end.
Job loss or the threat of it, combined with falling home prices, have made consumers curb spending. Most of the Federal Reserve districts reported sluggish retail sales including fewer purchases of big-ticket items. Auto sales were mixed and travel and tourism were down in a majority of the districts.
Separately, new data out Wednesday showed that orders for durable goods--appliances, construction equipment and other goods made to last at least three years--fell more than expected in June, driven mainly by a drop in demand for airplanes and autos. But there were also inklings of a slow recovery.
Orders excluding aircraft rose by a surprising 1.1 percent, the second straight monthly increase and a far larger one than in May. Orders for non-defense capital goods excluding aircraft, a closely watched barometer of business investment, also rose for the second consecutive month.
"Even taking into account the dip in June, durable goods orders are firmly in positive territory . . . which suggests a welcome momentum shift," Wells Fargo economist Tim Quinlan wrote in a note to clients.
Economists have been watching durable goods orders for signs of a rebound in manufacturing, which has shed 1.9 million jobs since the recession began in December 2007.
Analysts had been expecting durable goods orders for June to fall a bit due to the closure of auto plants earlier in the month. Orders were also pulled down by a drop in demand for commercial aircraft, which fell 39 percent after rising 60 percent in May.
But inventories of manufactured durable goods decreased in June by 0.9 percent, the sixth straight monthly decline. For production to pick up, the overhang of inventories should shrink.
Meanwhile, other data out Wednesday showed that Washington-area unemployment increased to 6.6 percent in July, up from 6.2 percent in May and 3.8 percent in June 2008. Washington has the second-lowest unemployment rate for a U.S. metropolitan area with more than 1 million people.