Around the Street

Experts Talk Beige Book, Bernanke Testimony


Businessweek.com compiles comments from Wall Street economists and strategists on the key economic and market topics of June 9.

Kim Rupert and Michael Wallace, Action Economics

The Federal Reserve's Beige Book said that "economic activity continued to improve since the last report in all twelve districts, although many districts described the pace of growth as modest." The June report also said that consumer spending and tourism generally increased while business spending rose on net, with employment and capital spending edging up, but with inventory investment slowing. The Fed cited the April deadline for the homebuyer tax credit as buoying residential real estate, though commercial real estate remained weak. Some districts did note an increase in commercial leasing. A few districts noted a modest increase in lending, which was a new inclusion in the Fed's beige book summary, though financial activity was also said to have remained little changed. Spring planting was generally ahead of the normal pace, while conditions in the natural resource sectors varied across the districts. Prices of final goods and services were stable alongside minimal wage pressures.

Peter Newland, Barclays Capital

[Federal Reserve Chairman Ben] Bernanke, in testimony to the House Banking Committee, stuck to the cautiously optimistic tone of his recent speeches and FOMC minutes. He described the recovery as having advanced "at a moderate pace" and likely to continue "through this year and next." He also noted that gains in private final demand should "sustain the recovery in economic activity" when support from fiscal policy diminishes. However, he judged that such a recovery would lead to "only a slow reduction" in the unemployment rate and "subdued" inflation and noted some "significant restraints on the pace of recovery," including the residential and nonresidential construction sectors and state and local government.

Bernanke went on to downplay the effect of fiscal problems in Europe on the U.S. economy, noting that "offsetting factors" to the drop in equity prices and weaker economic prospects in Europe included declines in market interest rates and commodity prices. Finally, on fiscal policy, he reiterated the point he made to the Joint Economic Committee in April that the fiscal deficit reflects both cyclical and structural factors, and that the latter "appears to be on an unsustainable path." However, he stopped short of encouraging immediate fiscal tightening, concluding only that "we should be planning now how we will meet these looming budgetary challenges."

Scott Anderson, Wells Fargo

Inventory rebuilding continued in April for U.S. wholesalers, increasing 0.4 percent, a slight slowdown from March's upwardly revised 0.7 percent gain. Sales slowed somewhat, largely on a decline in petroleum sales. Wholesalers … notch[ed] a fourth month of inventory increases. Excluding petroleum, inventories would have edged higher only 0.1 percent.

Sales were stronger than the headline suggests, as petroleum sales, historically a more volatile component, fell 3.5 percent. Excluding petroleum, the sales increase would have been a more substantial 1.3 percent.

While sales relative to a year ago are much improved, the massive inventory drawdown is taking more time to reverse. Businesses must continue restocking to return to prerecession levels, but are treading somewhat cautiously as the underlying strength in demand remains uncertain.

Inventory-to-sales ratios for most wholesale sectors have returned to the trend established before the recession.


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