Economic Impact of Credit Crunch Limited, Fed Says

by: Susan Lerner

Financial markets may have been exceptionally volatile in August given the broadening credit crisis, but the economic impact of the rout was limited largely to the housing sector, according to the Federal Reserve. "Outside of real estate, reports that the turmoil in financial markets had affected economic activity during the survey period were limited. Economic activity has continued to expand," the central bank said in its Beige Book survey of the 12 Fed districts released Wednesday. Moderate expansion was reported in two districts while three said expansion was modest and four districts said expansion was slowing. The New York Fed said expansion "continued." The report noted that tighter lending standards were hurting housing activity, however, with most districts reporting weak or declining residential sales and declining or stable prices. Unsold home inventories were high, and seven regions said they believed housing market softness would continue in the near future. Despite somewhat tighter credit conditions, the Fed said commercial real estate was "generally stable to expanding." Elsewhere, the report said most districts reported gains in manufacturing, while retail sales were "generally positive" and employment increases were "modest." Fed Chairman Ben S. Bernanke said last week the bank would pay "particularly close attention" to information from regional business contacts because regular economic reports don't capture the impact of the credit-market sell-off.

Sources: Bloomberg, Reuters, MarketWatch
Commentary: Is a Housing Crisis Developing?Five Reasons Why the Fed Will Cut RatesJust How Widespread is the Fallout from the Unfolding Credit Crisis?

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