US economy continues modest expansion in early 2010 - Fed

03 March 2010 21:43  [Source: ICIS news]

WASHINGTON (ICIS news)--US economic conditions continued to expand modestly in the first months of 2010, the Federal Reserve said on Wednesday, with slight gains in consumer spending, services demand, manufacturing and the housing sector.

In its periodic economic status report, known as the Beige Book, the Fed said that data from its 12 district bank branches showed that “economic conditions continued to expand since the last report” in January, although increases in key indicators were modest, in part due to severe winter weather in late January and early February.

“Consumer spending improved slightly in many districts,” the Fed reported, noting that “The demand for services was generally positive across districts, most notably for health care and information technology firms”.

“Manufacturing activity strengthened in most regions, particularly in the high-tech equipment, automobile and metal industries,” the report added.

“Residential real estate markets improved in a number of districts, although several districts noted that activity softened or remained weak partly due to the extreme winter weather," the report said.

However, most of the Fed’s reporting districts “characterised commercial real estate and construction activity as weak or having declined further”, although some branch banks noted slight stabilisation and a few signs of modest improvement in that sector.

Underlying the housing and commercial real estate markets, the Fed noted that “loan demand remained weak, and lending standards remained tight across the country.”

“Districts reporting on energy activity said it continued to strengthen, particularly drilling for natural gas,” the Fed said.

The US petrochemicals industry and downstream chemical makers are heavily dependent on natural gas as a feedstock and energy fuel.

The Fed’s 11th district, headquartered in Dallas, Texas, reported that prices for chemicals and related products have seen gains since the first weeks of this year, although petrochemical demand was characterised as mixed.

The 11th district report indicated that the mixed demand for chemicals was directly related to downstream consuming markets.

“Demand for [chemical] products tied to domestic manufacturing rose further, while producers that sell to residential and commercial construction said domestic sales remained weak.”

Export demand for US chemicals “is still strong due to the cost advantage of US natural gas-based products over foreign oil-based ones”, the report said. However, it noted that “producers say that this cost advantage has narrowed in recent weeks”.

In refining, which is heavily concentrated in the 11th district’s area, “depressed demand has further weakened margins”, the report said, “and contacts say refiners are responding with further cuts in utilisation rates”.

“Currently, rates are below 80%, which excluding weather-related shut-ins, are among the lowest utilisation rates over the past 25 years,” the report added.

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By: Joe Kamalick
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