Beige Book, Bernanke, And Our Wheezy Economy

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There was a bumper crop of information and comment on the economy today. Federal Reserve chairman Ben Bernanke testified before the House Budget Committee and the Fed also released its Beige Book, which contains reports from the  Federal Reserve’s district banks. On balance, the economy continues trudging through the great deleveraging, and while there are feeble signs that GDP is breathing on its own (that is, running on private demand rather than federal stimulus) the patient is far from healthy. While you will hear much commentary about the Beige Book over the next day, including the upbeat fact that all 12 districts reported economic growth,  I thought the opening lines of the Executive Summary were particularly important. To wit:

Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating.

That’s not what I call an upbeat assessment, which helps explain why the stock market is having such a hard time mustering any strength. Of course the out-look is much better than the look-back. Bernanke himself expressed optimism that the economy would have a good second half, and average 3.5% for the year and grow at a slightly quicker pace in 2011.  But that expectation may be rooted more in hope than in statistics.

One facet of the report that is especially telling is the behavior of consumers. They are indeed spending, the Beige Book report notes, but mostly on essentials. Luxury goods purchases are not where the action is at. You don’t have to look far to find the reason: Job creation is still weak and insecurity about jobs is far from over.

The Fed Chairman devoted the final part of his comments to America’s need to address its deficit. No one can argue with that, but I’m guessing that before this big economic funk is over they’ll be talking seriously about a second dose of federal stimulus.