The Slow and Beige Rise of the US Economy

The US economy continues to make a slow recovery. The blizzards and unusually low temperatures that hit several regions in February hurt several areas, the Federal Reserve said in a Beige Book report last week.

Nine of the Fed's 12 regional banks reported that economic activity had improved in February. Two districts reported a more mixed performance and one district, Richmond, was snowed under, Reuters reports.

The Beige Book report prepared at the Federal Reserve Bank of Kansas City mentioned strengthening of economic activity, slowed down by snowfalls in the beginning of February in some regions. The report is based on the information collected on or before February 22, 2010.

In February the US economy shed fewer jobs than in January, but companies are still not eager to hire, the report states. The better picture of unemployment situation will be clearer on Friday, when the Labor Department issues a report about the number of jobs not including the agriculture.

Consumer spending improved slightly in many Districts since the last survey, but severe snowstorms limited activity in some Districts. Manufacturing activity strengthened in most regions, particularly in the high-tech equipment, automobile, and metal industries.

Residential real estate market improved in a number of Districts, although several Districts noted that activity softened or remained weak partly due to extreme winter weather. Most Districts characterized commercial real estate as weak or having declined further.

Harsh weather continued to negatively affect agricultural activity, although energy activity continued to strengthen, particularly drilling for natural gas.

Real estate market showed mixed performance. Construction workers and buyers of residential real estate are still trying to gain using state support system. The report says that growth in residential real estate is due to the tax credits for first time home buyers. Many brokers are concerned that in April the growth will subside.

Commercial real estate market continues to decline, even compared to January.

Loan demand also remained weak, and lending standards were still tight across the country.

Alexander Potavin, chief analyst of Itinvest, told Bigness.ru that investors were somewhat disappointed with the results of the report. Mikhail Molodov, senior trader of Maxwell Capital, told Bigness.ru how the interest rate will be raised. He thinks that the latest reports regarding the US economy are controversial:

“Real estate market is still weak, and the recovery is not stable. We also know about the skeletons in the closets of banks and financial companies. It is likely that they may fall out this year, which will negatively affect not only the US economy but the world economy in general. The Federal Reserve knows it and today considers only unemployment, inflation and consumer reports. Since these indicators are very weak, the regulator most likely will not risk raising the interest rate in the near future. The only thing the Federal Reserve can do is to tighten monetary policy for banks. In February of 2010 the Federal Reserve has already raised the interest rate by 0.25%. We may hear about the raise of the key rate only in the second quarter,” he said.

The Federal Reserve has been maintaining the discount rate at the record low level (0-0.25%) since 2008.

Ekaterina Yevstigneeva.