The Fed's Beige Book, covering anecdotal evidence through the first week of January, suggests manufacturing remains in a slump, labor market conditions are stagnant and holiday sales were disappointing. Housing remains the highlight of growth, although some regions noted a slight moderation of activity. Other economic news reported this week confirmed the Beige Book. Industrial production fell in December; nonauto retail sales were unchanged for the month. The international trade deficit surged as West Coast ports operated at full throttle. It seems that consumer demand is satisfied by imports. Perhaps the best news? Inflation is subdued.
Equity investors began the year on a positive note, believing that economic activity would be on the mend in 2003. Each time war talk comes to the forefront, stock prices tumble. With potential problems on two fronts, it is no wonder investors are skittish.