The U.S. Federal Reserve's latest Beige Book report on the economy is a classic example. The Fed confirmed that the U.S. economic recovery had slowed in the second quarter, with regions reporting uneven levels of growth.
The gem? The recovery, although in low gear, nevertheless remains fast enough for commercial borrowers to service their debt, and this is helping to stabilize the commercial debt market.
For example, a year ago spreads on top-rated commercial mortgage bonds were 516 basis points above U.S. Treasuries; they're 235 basis points higher today, Bloomberg News reported Thursday.
"There's more appetite for risk across the board," said Dan Castro, head of structured finance analytics and strategy at broker-dealer BTIG LLC in New York, told Bloomberg News. "CMBS is an avenue that's going to provide better returns. There are a lot of guys clamoring for these returns."
Economic Analysis: Put the above reduction in the 'risk premium' in the category of incremental progress. The Fed's latest Beige Book was not completely downbeat, with credit market stabilization being one ray of light. Another bright spot: Many U.S. corporations, particularly those with substantial international operations, are also lean, productive, cash-flush, and poised to to tackle new tasks and markets.
The immediate hurdle for the economy is that, like consumers, corporations are waiting to see signs of increased demand, before spending/launching new projects and hiring new employees. The problem is that if all parties continue to 'wait for a sign of increasing growth' they may end up delaying that growth.