The latest Fed Beige book reported a modest diminution in the rate of contraction in economic activity generally, say the analysts at Global Insight.

In addition, the Fed reported a few pockets of improvement, including a bounce back in orders for high tech equipment, as well as improved housing market demand and related mortgage activity. Weakness, however, was more pronounced in aircraft and commercial real estate, and labor market conditions remained extremely weak, with downward pressure on wages and benefits. Demand for commercial and industrial loans was weak, indicating general pull backs in capital expenditures, notwithstanding a reported pick up in high-tech demand.

Overall, the good news from the latest Beige book is that there are a few flickers of improving conditions in selected industries and markets. This is definitely an improvement from the previous Beige book, where conditions were universally weak.

The Beige book certainly is consistent with reports of higher home sales and mortgage financing activity that we have seen in recent weeks. However, the positive bounce in high-tech orders seems out of line with other reports on activity in the technology industry, and therefore bears watching to see if indeed this industry is bottoming, or whether this reported bounce is idiosyncratic.

The Beige book is consistent with a moderation in the rate of contraction of activity in the second quarter, but does not provide any evidence of a more tangible line of sight to a recovery. Moreover, downward pressure on wages and prices anecdotally appears to be intensifying, despite benign reports on core inflation.

We should not read too much into the flickers of improvement reported here -- the Fed needs to continue to move forward full throttle across the gamut of monetary and on balance sheet programs that have been put in place to combat a severe recession.

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