By Dirk van Dijk
The market sold off in response to a Beige Book that saw only modest but widespread growth in the economy, with all 12 districts seeing an economy on the upswing in April, although some parts of the economy saw a loss of upward momentum in May. The most important areas of strength were consumer spending, including spending on tourism (with the notable exception of the Atlanta District, which noted a slowdown in Gulf Coast tourism due to the BP (BP) oil spill). Business spending is mixed, with spending going up on equipment and even on employment, but the rate of inventory restocking slowing. However one area that was singled out as having exceptionally lean inventories was in the auto industry, which will probably lead to further increases in production at Ford (F) and GM. That is also likely to be good news for the parts suppliers like TRW Automotive (TRW).
Investment in commercial real estate remains very weak. Vacancies in office and retail spaces continue to rise, which is putting some downward pressure on rents. With lots of existing properties available for rent or sale, new commercial construction was depressed and is likely to stay that way for a while. Residential real estate was strong, but that was due to the effects of the end of the tax credit for homebuyers; it is very clear that there will be a pretty severe hangover from that party. Inflation pressures were very well contained, both in terms of wages (no real upward pressure on wages) and in terms of final prices to consumers.
