US recession nearing end as economy shows slower decline – Fed

The Federal Reserve said most of its 12 regional banks detected a slower pace of economic decline in June and July, further signs the worst U.S. downturn in at least five decades is closer to an end.

“Economic activity continued to be weak” in June and July, the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. San Francisco, the district with the biggest economy, and three others “pointed to signs of stabilization,” while Chicago and St. Louis showed a “moderating” pace of decline.

The report backs up comments by Chairman Ben S. Bernanke, who told Congress last week the economy’s contraction “appears to have slowed significantly,” with demand and production showing “tentative signs of stabilization.” Other Fed policy makers said this week they expect a slow recovery to begin during the second half of this year.

The Beige Book provided few signs of outright growth. Retail demand was “sluggish” in most areas, with “mixed” auto sales. Non-financial services were “largely negative” with “a few bright spots,” and manufacturing was “subdued” yet “slightly more positive” than in the previous report, the Fed said.

Lending in most regions “was stable or weakened further” in most loan categories, and banks tightened credit standards in seven districts, the report said.

‘Less Upbeat’

“We are very close to the bottom,” said Lyle Gramley, senior economic adviser with New York-based Soleil Securities Corp. and a former central bank governor. “The Beige Book is a little less upbeat than the numbers that have been coming in.”

Gramley cited today’s report of orders for U.S. durable goods, excluding automobiles and aircraft, which unexpectedly rose in June. Excluding transportation equipment, demand for goods meant to last several years climbed 1.1 percent, the most in four months, the Commerce Department said today in Washington.

“The Fed is nowhere near in a position of changing its posture of monetary policy,” Gramley said.

The Fed report reflects information collected through July 20 and summarized by staffers at the Boston Fed. The Federal Open Market Committee next meets in Washington Aug. 11-12. At their last meeting in June, officials refrained from adding to their $1.75 trillion program to buy housing debt and Treasuries, saying they were “uncertain” of the impact of such a move.

GDP Shrank

Government figures on July 31 may show that U.S. gross domestic product shrank at a 1.5 percent annual pace in the second quarter, less than the 5.5 percent contraction in the previous three months, according to the median of 77 estimates in a Bloomberg News survey.

The previous Beige Book, released June 10, said “economic conditions remained weak or deteriorated further” from mid- April through May, while five districts “noted that the downward trend is showing signs of moderating.”

U.S. employers eliminated 467,000 jobs in June, bringing the total to 6.5 million since the recession began in December 2007, the most of any downturn since the Great Depression.

“All districts indicated that labor markets remain slack, with most sectors either reducing jobs or holding them steady and aggregate employment continuing to decline,” the Fed said today. That weakness “has virtually eliminated upward wage pressure,” the report said.

At the same time, the Fed said seven districts “noted selective hiring,” such as by some companies looking to snap up “experienced talent.”

Main Rate

Inflation, using the government’s personal consumption expenditures price index, slowed to a 0.1 percent annual pace in May from 2.6 percent in September 2007, when Bernanke and his colleagues began a series of 10 reductions in the main rate.

“Districts reported varied — but generally modest — price changes across sectors and products, with competitive pressures damping increases,” the Fed said.

Housing markets “stayed soft” in most areas, “although many noted some signs of improvement,” the report said. Lower- priced and entry-level homes “continued to perform relatively well” in part because of a first-time homebuyer tax credit.

A gauge of U.S. house prices posted its first monthly gain in three years, while purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, reports this week showed.

Commercial real estate has fared worse, with two-thirds of districts showing markets “weakened further” and others being “slow,” the Fed said. The outlook was “mixed,” and “tight credit” constrained construction, the report said.

About $2.2 trillion of U.S. commercial properties bought or refinanced since 2004 are now worth less than the original price, raising the threat of more foreclosures, according to Real Capital Analytics, a New York-based research firm.

Source: Bloomberg

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