US Slowly Clawing Out of Recession: Fed's Beige Book

In its "Beige Book" of anecdotal reports on the economy, which was prepared at the Federal Reserve Bank of Richmond based on information collected before Oct. 13, the Fed noted improvement in two of the hardest hit areas - residential real estate and manufacturing.

"Reports from the 12 Federal Reserve districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels," the Fed said. "Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered."

U.S. stocks stayed at higher levels after the report was released, while prices for government debt remained lower, as did the U.S. dollar.

The central bank gave a grim assessment of commercial real estate, which is widely seen as one of the big remaining trouble spots for the still-struggling financial sector.

"The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all districts," the Fed said.

A number of the regional Fed banks said businesses in their area did not expect commercial real estate to improve much, if at all in, in 2010.

"Tenants are demanding significant concessions - including space improvements and one- to two-year leasing commitments - along with low rental rates," the Boston Fed reported.

Those Wall Street Bonuses

Labor markets were typically characterized as weak or mixed, although there were "occasional pockets of improvement."

That assessment supported the view that the worst of the job losses are over, but it may be a while before growth resumes.

The Atlanta Fed said many employers "indicated that they were holding on to the most skilled workers, but have reduced overall hours. They feel that a sustained increase in orders and sales is a prerequisite to adding to payrolls."

Despite all the recent talk about huge bonuses at Wall Street firms, the New York Fed heard from one of its contacts that times were getting tougher for top-tier bankers.

"Compensation - especially cash compensation - has reportedly fallen sharply, and is expected to fall further during the remainder of the year and into 2010, most notably for the top earners in the industry," the New York Fed said.

On Wednesday, the government ordered deep pay cuts at bailed-out firms.

The report said the "cash for clunkers" auto sales incentive program left depleted inventories and slower sales in its wake. Overall spending remained weak in most districts, although "some improvements" were noted.

In residential real estate, which was at the heart of the credit crisis that sparked the recession, the government's $8,000 first-time homebuyers' tax credit helped to lift sales of low- to middle-priced houses, the Fed said. However, residential construction activity remained weak in most districts.

Measures of discretionary and business spending were a mixed bag. In New York City, retail sales showed improvement, particularly for one, unnamed, higher-end department store. Broadway theaters report that attendance picked up somewhat in September and early October but remained slightly lower than a year earlier.

In North Carolina, a contact on the Outer Banks, a popular vacation spot, indicated that bookings for the Columbus Day holiday weekend were somewhat stronger than a year ago, which she attributed to "visitors being a little more positive."

And in the Boston Fed's region, business travel was especially soft, and one contact worried that decreased corporate travel and spending will become "the new norm."