Beige Book a Model of Restrained Optimism

Economic conditions thawed in the last two months of 2010; new life is expected for housing starts in 2011; and AIG is on its way to paying back U.S. taxpayers.

By Dees Stribling, Contributing Editor

The first Beige Book of 2011, more formally known as the Summary of Commentary on Current Economic Conditions by Federal Reserve District and which covers the last two months of 2010, wasn’t exactly exuding cheer about the economy upon release on Wednesday. But it wasn’t downbeat either: “Reports from the 12 Federal Reserve Districts suggest that economic activity continued to expand moderately from November through December,” it says.

Naturally, some parts of the economy are doing better than others. Real estate and construction, unfortunately, still “remained slow across all Districts,” the report notes. “A majority of the districts, including Boston, New York, Cleveland, Atlanta, Chicago, Minneapolis, Dallas and San Francisco, characterized local housing markets as weak and sluggish with little change from the previous reporting period.”

Commercial real estate was a more mixed bag. The Beige Book said that “commercial real estate markets displayed mixed results across the districts again this reporting period, as leasing markets exhibited increasing signs of recovery and nonresidential construction remained weak. Vacancy rates, while quite high across the country, fell marginally in the Kansas City District and in New York City’s office market. Leasing market fundamentals held roughly steady in the Boston, Philadelphia and San Francisco districts.”

AIG set to pay back bailout

American International Group, considered a financial black hole for the U.S. government in the wake of the financial crisis, said on Wednesday that it has all but completed its recapitalization, which will allow it to repay the government bailout. Part of the payback plan involves converting the company’s preferred shares, which the U.S. Treasury owns, into common stock that the Treasury will sell off.

Will investors buy AIG shares in its upcoming re-IPO, as it’s being called? Some of them might still harbor hard feelings from AIG’s losses during the Panic of 2008, which cost investors an estimated $50 billion. Still, if the appetite for shares in resurrected major corporations (such as GM) is any indication, AIG should be able to raise capital through its re-IPO.

“With today’s announcement, we anticipate that we will be able to deliver on our promise to the American people to repay the extraordinary assistance they provided to AIG during the financial crisis of 2008,” Robert Benmosche, AIG president and CEO, said in almost an understatement–though if any bailout sum can be said to be “extraordinary,” roughly $182 billion would be it.

NAHB’s Crowe expects uptick in housing starts in 2011

The National Association of Home Builders chief economist David Crowe predicted on Wednesday that U.S. homebuilders would start 575,000 single-family houses in 2011, a 21 percent increase from 2010’s estimated total of 474,000, but still well below a year such as 2005, when there were 1.7 million starts.

Crowe, speaking at the annual International Builders’ Show in Orlando, said that the year’s increase in demand will come from “an enormous pent-up demand for households,” along with moderate job growth that will allow at least some of those who want new houses to buy them.

Wall Street had an up day on Wednesday, with the Dow Jones Industrial Average gaining 83.56 points, or 0.72 percent. The S&P 500 did even better, advancing 0.9 percent, and the Nasdaq was up 0.75 percent.