Are The Shoots Green or Beige?

Over the last few weeks investors have been pretty excited about strong earnings reports and some positive economic news. Each time good news comes out we try to express some caution as we view the economy stabilizing but with many risks still present.

Today we had some weak statistics reported where durable goods declined and mortgage applications fell. We aren't that concerned with the durable goods number as it can fluctuate on a monthly basis but we still believe it will be a long time before durable goods orders have a steady positive trend. The other day consumer confidence numbers also showed a decline. These are only a few areas where investors might realize that everything isn't so rosy.

Today the Federal Reserve released its Beige Book which indicates economic conditions in the twelve districts around the country. While the recession seems to be moderating, there are clear signs of weakness everywhere. Banks continue to tighten credit,the job market is soft, retail activity is sluggish, residential real estate is soft, commercial real estate is weakening further, and wages are steady or falling.

Although the Beige Book covers the three month period ending in May, it is unlikely that economic activity has improved dramatically in two months. There is enough weakness in these numbers for investors to question whether stocks have been anticipating a return to sales growth sooner than is likely possible.