The United States Federal Reserve's latest Beige Book report, released yesterday, shows glimmers of hope in U.S. business conditions. Although overall economic activity contracted further or remained weak, the reports from the Federal Reserve Banks show faint signs the steep plunge in economic activity that began last fall is starting to level off.

The survey of a dozen Federal Reserve districts, known as the Beige Book, "again described a landscape of continuing economic woe, one marked by rising job losses, declines in manufacturing and lower prices," the New York Times notes. The report listed a host of problems in manufacturing, retail spending and home building.

Yet this month's assessment struck a slightly more positive tone than last month's findings, which described an economy plunging rapidly after the financial shocks that occurred last fall. In information collected on or before April 6, five of the 12 regional banks reported a moderation in the pace of economic decline, and several saw signs that activity in some sectors was stabilizing at lower levels.

The Fed report says that although retail spending remained sluggish, some districts noted a slight improvement in sales compared with the previous reporting period. Consumers' focus on necessities, such as food and health products, prompted modest sales gains for some discount chains. Sales strengthened a bit further for grocers, and they and other retailers noted a pronounced demand shift from brand name to less expensive private-label products.

Industrial production dropped 1.5 percent last month, the Federal Reserve reports, as factories curbed their output of furniture, appliances and other goods to line up their operations with reduced demand. Manufacturing output for the first quarter fell at an annual rate of 20 percent, the largest drop since 1975. The amount of production capacity manufacturers used fell to its lowest level since the government began publishing such data in 1967.

Although declining demand pulled down manufacturing output across a wide range of industries in most districts last month, there were signs of leveling out in parts of the country, and falling energy prices put more money into consumers' pockets.

Even as manufacturing activity continued to decline, several reports noted that the pace of decline had slowed or that factory activity had stabilized.

The Beige Book reports:

The Boston, Philadelphia, Richmond, Atlanta, St. Louis, Minneapolis, and San Francisco districts cited decreases in production. The Chicago and Kansas City districts said declines in production had slowed. The Cleveland district noted some leveling off in declines in new orders, and the New York and Dallas districts noted that demand was beginning to bottom out following steep declines.

". . . [D]emand remained strong at pharmaceutical companies in the Chicago district and petrochemical producers in the Dallas district," the Washington Post notes. "Moreover, a modest improvement in home sales was seen in the Atlanta, Minneapolis, San Francisco and Kansas City regions."

In a separate sign of improvement, the National Association of Home Builders (NAHB) said its housing market index posted its biggest one-month gain in five years in April as many home-buyers jumped on lower prices and incentives. The NAHB/Wells Fargo Housing Market Index, which is based on a survey of home-builders' perceptions about the housing market, rose to 14 in April from 9 in March following months of dismal readings. "Partly driving the unexpectedly large rise this month was the builders' brightening outlook for sales over the next six months," the Wall Street Journal says (subscription required).

Districts that reported on prices noted downward pressures, from cheaper raw materials to lower prices for products and services. Transportation service contacts noted a reduction in prices. (Plus, freight transporters reported that the sharp drop in shipping volume, which began in the fourth quarter of 2008, is showing some signs of leveling off, despite February shipments declining about an average of 20 percent on a year-over-year basis.)

"Despite the overall decline in prices from March 2008, core prices excluding food and energy were 1.8 percent higher in March than a year ago, muting some concerns that the economy was sliding toward a deflationary spiral of lower prices, falling wages and vicious economic contraction," the New York Times says.

Some other relatively positive points from the Beige Book report:

• Home prices and construction still fell in most areas, but better-than-expected buyer traffic led to a scattered pickup in sales in a number of districts;
• Downward pressure on prices was reported across districts;
• Wage and salary pressures eased as labor markets weakened in all districts, and many contacts continued to report job cuts as well as wage and hiring freezes; and
• Although employment continued to decline across a range of industries, there were scattered reports of hiring (e.g. Cleveland, Chicago and Minneapolis reported hiring in health care; Richmond noted solid demand for tech-savvy professionals and IT and office-support workers; and Chicago and Dallas saw a slight uptick in hiring of finance personnel).

"A reduction in the pace of declines does not simply equate to economic rebound," the New York Times reports Dan Greenhaus, an analyst in the technical strategy group at Miller Tabak & Company, as having written in a note. "This is a crucial difference and one that in many months and years, people will be wondering why everyone on the block didn't realize this."

To wit, retailers' sales unexpectedly fell in March after showing some hopeful signs earlier this year. Now they are working through their inventory backlog and have reduced their factory orders, analysts said. "Retailers kept inventories lean, in line with the slow pace of sales, and most expect demand to stay at current low levels over the next few months," the Fed report says.

Indeed, an economy falling at a slower rate is still an economy falling down.

Resources

The Beige Book: Current Economic Conditions
Federal Reserve District, April 15, 2009

Industrial Production and capacity Utilization
Federal Reserve Board, April 15, 2009

Fed Report Hints That Pace of Decline Is Easing
by Jack Healy
The New York Times, April 15, 2009

Manufacturing Slips, but Fed Finds Stability in Some Parts of U.S.
by V. Dion Haynes
The Washington Post, April 16, 2009

Home Builder Confidence Posts Biggest Gain In Five Years
National Association of Home Builders/Wells Fargo, April 15, 2009

Builders' View on Housing Brightens
by Michael Corkery
The Wall Street Journal, April 15, 2009