Beige Book Finds Economy Soft, But Not Quite Comatose

"Reports from the 12 Federal Reserve Districts indicated that economic activity continued to expand at a modest pace, though some Districts noted mixed or weakening activity," according to a report from the Federal Reserve.

The latest Beige Book from the Federal Reserve, or the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” to be nit-pickingly formal about the name, was released on Wednesday. It painted a picture a lukewarm U.S. economy at best.

“Reports from the 12 Federal Reserve Districts indicated that economic activity continued to expand at a modest pace, though some Districts noted mixed or weakening activity,” it said. “Consumer spending increased slightly in most Districts since the last survey, but non-auto retail sales were flat or down in several Districts… The demand for services was generally positive throughout the nation, but one region said conditions were deteriorating.”

As for commercial real estate, the Beige Book found conditions to be more of the same. That is, still weak. “Commercial real estate conditions remained weak or little changed in most Districts, although some improvements were noted by New York, Minneapolis, and Dallas,” the report noted. “New York said office vacancy rates declined noticeably in the Buffalo and Rochester metro areas and modestly in Manhattan and Long Island.”

CRE values creep upward

Green Street Advisors reported on Wednesday that its Commercial Property Price Index rose 1 percent in August compared with the previous month. According to the company, U.S. CRE has increased in value by more than 45 percent from its 2009 trough, which means that three-quarters of the decline that occurred from 2007 to ’09 has been erased.

In fact, prices are back to where they were in late 2006, according to Green Street, and are now only 10 percent below their all-time highs. Values might not climb much higher for a while, however, either because the 2007 peak represented a bubble high that the market doesn’t really have the stomach to return to, or the fact that the economy is running on fumes these days.

Green Streets posits the latter—and maybe that the obstacles to further value-growth aren’t so daunting. “Some of the factors that had been fueling the impressive recovery in values have taken a turn for the worse, including the economic outlook and capital availability,” Mike Kerby, Green Street’s director of research, noted in a statement. “Fortunately, return hurdles remain low  by historic standards, a fact that has provided valuation support even as the outlook for growth has become less certain.”

German court OKs euro-zone bailout

The German Constitutional Court said, as expected, on Wednesday that the country’s participation in the bailout of weaker EU states is indeed constitutional. Investors were happy about that, driving the euro and various equity markets up.

The other shoe has yet to drop. In making its decision, the court also required the government to ask for the approval of the German parliament’s budget committee before committing more bailout money, which could be something of a obstacle for Chancellor Angela Merkel in dealing quickly with future debt crises (and there will be more). But at least the court didn’t require all of parliament to sign off on bailouts.

Wall Street was happy on Wednesday—or maybe just a in yo-yo mood again—with the Dow Jones Industrial Average up 275.56 points, or 2.47 percent. The S&P 500 gained 2.86 percent and the Nasdaq jumped 3.04 percent.