The U.S. economic recovery marches on, the latest Fed Beige Book shows. Covering the month of December, all twelve Fed districts noted some level of expansion in activity, as the economy rode the holiday wave and increased consumption trends vis-?-vis 2010. Still, commercial and residential real estate remains weak, prompting a response by three Fed governors noting they were failing at pumping life into the beleaguered sector.
Stronger consumer spending was the biggest positive data point to come out of Wednesday’s report, “reflecting significant gains in holiday retail sales compared with last year’s season.” The Beige Book confirms other reports showing the U.S. economy is indeed expanding, namely the latest jobs report which registered a 200,000 increase in jobs in December.
Despite heavy criticism, Fed Chairman Ben Bernanke can once again point to concrete evidence that his attempts to support the economy have, to some extent, worked. Inflation, one of the most important data points, continued to ease as “prior increases in the costs of selected inputs have eased.”
While inflation proved to be transitory, the reading is ambiguous as it suggests disinflation which, in extreme cases, can become deflation. Bernanke has managed to conduct market expectations at his will, engaging in Operation Twist and managing to keep his silver bullet, quantitative easing, still in the barrel.
But it’s not time to cork champagne bottles just yet. Wednesday’s Beige Book clearly highlighted continued fragility in real estate markets, considered necessary for any sort of self-sustaining recovery. “Activity stayed sluggish in residential real estate markets, and conditions in commercial real estate markets remained somewhat soft overall,” read the report, which saw slight improvements in commercial markets in some districts.
