Economic recovery may be near, Fed report says

In the eyes of most, the second half of 2001 was a dark time for the U.S. economy, despite some glimmers of light from the consumer sector. But what about the future?

Well, thankfully — but not definitively — the "Beige Book" report issued by the Federal Reserve Board in the middle of January provided some evidence that the U.S. economy was in the process of "bottoming out" during the early days of this year. This is welcome news, given concerns last fall that the current recession would be long and deep.

Yet, nothing in the Fed report leads to expectations of a surge in economic activity in the near future. At best, conditions should gradually improve during the course of 2002, as businesses re-stock depleted inventories, and as investment patterns stabilize and turn positive again.

In summary, the latest "Beige Book" report shows that economic activity remained generally and pervasively weak from late November 2001 through mid-January. But there also were scattered reports of encouraging improvement, at least for selected sectors of the economy.

Housing markets, for example, continued to hold up surprisingly well across the board. Although manufacturing activity was reported to be weak, there were some signs of a pickup in auto production. This follows the success of the inventory-depleting "zero percent" sales incentives offered during the final months of 2001. Furthermore, retail sales of most other consumer goods were reported to be surprisingly strong during the holiday season.

Trends identified in the report were an important factor in the Fed's decision not to lower interest rates further at its Jan. 30 meeting.