We're not sure if the Beige Book got its name because of its bland content, but the markets found it made for some interesting reading Wednesday.
The U.S. Federal Reserve's eight-times-a-year report, which measures economic activity across a host of regions based on the views of economic experts and business leaders, has helped light a small fire under stocks since its 2:00 p.m. ET release. Not a raging bonfire, mind you, but the report's general tone of a broadening U.S. economic recovery did provide a modest lift to some otherwise fairly lifeless markets.
The Dow Jones industrial average has added about 45 points after the Beige Book's release, building on the small gains of earlier in the day, while the S&P/TSX composite index climbed about 40 points, lifting the Canadian index solidly into positive territory for the first time all session.
The consensus among economists reviewing the Beige Book is that the report signals a continued improvement in the U.S. economy - albeit a slow improvement, and not one so robust that it would spark any interest-rate hikes.
"Today’s Beige Book report continues to suggest that in the main economic conditions are improving. However, the improvement is very gradual, with continuing pockets of weakness," said Paul Ferley, assistant chief economist at Royal Bank of Canada.
The report showed 10 of the 12 Fed regional districts reporting growth in economic activity - up from eight in the previous Beige Book report in early December. Conditions in manufacturing and housing, in particular, showed improvement.
But there are a couple of areas of nagging concern - namely, consumer spending and credit.
While consumer spending over the survey period - which covered the holiday shopping season - did improve modestly from a year earlier, the report reminded us that a year earlier was, well, crummy. The tiny improvement in the 2009 shopping season "did not represent a significant shift in trend," it said.
"A lack of follow-through from the consumer leaves open the risk of a double-dip [recession]," said Stephen Ricchiuto, chief economist at Mizuho Securities USA,
Meanwhile, loan demand either remains depressed or is actually falling in the majority of districts, and "credit quality continued to deteriorate," the report said. That lack of credit certainly doesn't imply that the U.S. consumer is on the cusp of a dramatic recovery.
"We believe the Fed will interpret this as a sign that rate hikes can be delayed for quite some time," said Eric Lascelles, TD Securites' chief economics and rates strategist.
