Gloomy Beige Book Report Signals Q4 '07 Slump

The Federal Reserve reported U.S. economic growth at a slower pace for November/December as released in its Beige Book summary. Specifically, 7 of the 12 Fed Districts reported slower growth. Slower growth was caused by:

• Soft holiday retail spending at levels below last year. Auto sales were also soft. Tourism, however, was up.
• Mortgage lending continued its slide. However, the decline has now spread to consumer and business lending.
• Depressed residential real estate sales has now spread to the commercial sector, as well. Commercial construction is a lagging indicator because construction of stores and offices follow residential building. This confirms the downward trend.
• Inflation seems to be rising, and labor markets are still tight, keeping upward pressure on wages.

(Source: Federal Reserve Beige Book, July 25, 2007)

What It Means to You

The Beige Book helps the Fed set monetary policy. Its gloomy outlook will probably influence the Fed to lower rates another 1/2 point at its next meeting on January 29, 2008.

Related Articles

• What Is Inflation?
• A Primer on the Role of Interest Rates in the U.S. Economy
• What Are the Components of GDP?