The latest Beige Book tells a story of horrible sell in small quantities and vehicle sales, declining manufacturing, and worsening real estate markets

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Beige may be the color that describes the Federal Reserve’s periodic update of U.S. relating to housekeeping conditions—the Beige Book, of course—but ghastly is the hue that captures the outlook of the central bank in the issue released on Jan. 14. (The report was prepared by the St. Louis Fed for the Jan. 26-27 Fed policy meeting.) In the latest Beige Book, the central bank said "economic activity continued to weaken over almost all" Fed districts in December. Retail sales were characterized as "generally weak, particularly during the holiday season." The Fed noted discounting by retailers in a full age of districts. Vehicle sales were also weak in those districts that reported. But the gloom wasn’familiarily limited to sell in small quantities: A "distant roving" of manufacturing industries reported declines, space of time service sector activity "generally" declined over, including removal services.

Conditions in residential real estate markets continued to worsen in most districts, said the Fed, with commercial absolute estate markets deteriorating as well. Fed contacts in the Boston district described the commercial real estate place of traffic as "grim and depressing," notes Action Economics. The Fed added that overall lending sprightliness declined in several districts, with tight or tightening lending conditions reported in most regions. Credit quality also remained a concern. Most districts reported a generalissimo weakening of drudge market conditions, and carry on pressures remained largely contained.

Meanwhile, some other repute released on Jan. 14 indicated just how deep and dark December was for retailers: U.S. deal out in small portions sales fell 2.7%, with sales down towards a memoir sixth consecutive month. Reports without interruption import and send out prices, also released the same epoch, piled on the gloom. Here, BusinessWeek and Standard & Poor’s (MHP) MarketScope staff write insights from Wall Street economists on the Jan. 14 releases:

David Greenlaw, Morgan Stanley (MS)

[The December retail sales report was] much weaker than expected…even after incorporating our belief there would be more payback on the heels of an upside seasonal bias in November, with overall sales into disgrace 2.7% and ex autos 3.1%. Moreover, in that place were also unusually large downward revisions to October sales (ex autos -2.9% vs. -2.4%) and November sales (ex autos -2.5% vs. -1.6%). The deal out in small portions sales results point to a 3.4% decline in real consumption taken in the character of antidote to the fourth furnish. This compares with our appraise of -1.7% prior to this report.

Even after incorporating some expected offset from higher inventories, the revision to our estimate for consumer spending pushed our tracking estimate according to [fourth-quarter gross home yield] all the way from -5.0% to -6.0%.

Beth Ann Bovino, Standard & Poor’s

U.S. import prices fell 4.2% in December and export prices declined 2.3%, the fifth consecutive month of declines for both. Markets expected a 5.5% decline for importance prices and a 1.5% decline for exports. Import prices are down 9.3% over last year, while export prices are down 3.2%. To no one’s astonish, much of the weakness came from declines in barbadoes tar prices, which were down 21.4% in December and -47.0% over last year. Excluding petroleum, prices were into disfavor 1.1%. Agriculture export prices fell 6.5% month-over-month but are up 23.3% because the year. Excluding agriculture, export prices fell 1.9% month-over-month otherwise than that are up 4.5% for the year.

The data reflect the not sharp corrosion in commodity and other prices as a result of the recession.

Michael Englund, Action Economics

The U.S. business inventory report revealed a larger-than-expected 0.7% November inventory drop that included a 1.3% decline at the retail level through a 1.7% drop for the volatile vehicle component part. The retail data accompanied the already-reported November list declines of 0.6% in the wholesale sector and 0.3% in the factory sector.

Today’s figures remain consistent with our assumption of a $76 billion inventory subtraction in the fourth-quarter GDP report, following a $21 billion contribution in the third quarter. The inventory-to-sales (I/S) ratio bounced exactly in November to 1.41, from 1.34 in October, 1.30 in September, and a record-low 1.23 reading as recently as June. The big bounce mostly reflects price-effects, as sales are typically more sensitive to price swings than inventories.

Today’s reported 5.1% price-led drop in business sales should be followed by another big decline that we peg at 3.2% in December, given the drop in today’s retail sales describe for the month. As sales continue to plummet faster than inventories through the fourth furnish with quarters, we should see a further rise in the overall I/S ratio to the 1.45 area by January that we also assume will print the peak for the ratio in this cycle, as price impacts on sales diminish blameless as the declines "catch up" with the reported titular inventory figures in the first and second dwelling.

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