Federal Report Says Recovery is Nearing

The "Beige Book" report issued by the Federal Reserve Board in the middle of January provided some evidence that the U.S. economy was in the process of bottoming out during the early days of this year. That was certainly welcome news, given concerns last fall that the current recession would be long and deep.

Still, there wasn't anything in the latest Fed report that would lead us to expect any surge in economic activity in the near future. At best, conditions should very gradually improve over the course of 2002 as businesses restock depleted inventories and investment patterns stabilize. In summary, the latest report showed that economic activity remained generally and pervasively weak from late November through mid-January.

But there were scattered reports of encouraging improvement, at least for selected sectors of the economy. Housing markets, for example, continued to hold up surprisingly well in all Fed districts, although there were pockets of weakness, particularly for higher-priced homes. Although manufacturing activity was weak in nearly all districts, there were some signs of progress in automotive production following the 0% sales incentives offered over the final months of 2001. Further, retail sales of most other consumer goods, with the exception of apparel items, were surprisingly strong during the holiday season.