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Economic Growth Slowed Recently -- Fed
September 11, 2002 02:42 PM ET
By Tim Ahmann
WASHINGTON (Reuters) - U.S. economic growth slowed in recent weeks as strength in housing and autos was offset by weakness elsewhere, the Federal Reserve said on Wednesday in a report underscoring the patchy nature of the recovery.
"Most districts indicated slow and uneven economic growth, with mixed or scattered experiences across sectors of the economy," the Fed said in its so-called beige book, an anecdotal snapshot of economic conditions across the nation.
The report found an uneven performance among retailers in late July and August, and "sluggish" manufacturing activity.
In addition, most of the 12 regional Fed bank districts said few or no jobs were created, although three noted increased demand for temporary workers.
"It captured the economic pessimism that gave rise to talk of a potential double-dip (recession) this summer," said Lou Crandall, chief economist at Wrightson Associates in New York.
He said many economists had expected activity to pick up after a July lull, but added that does not appear to be the case.
"It came away with a gloomier assessment," he said of the Fed's report.
The beige book, a compilation of material from each Fed district, will be used by the central bank's policymakers when they gather on Sept. 24 to discuss interest rates.
At that meeting, the Fed, which slashed borrowing costs 11 times last year to combat economic weakness, is widely expected to leave the benchmark overnight lending rate at a 40-year low of 1.75 percent, which it reached last December.
AUTOS, HOUSING LEND SUPPORT
The report said auto sales rose above year-ago levels "mostly due to aggressive financing and rebate incentives," but that sales at other retailers were mixed.
Three districts found warm weather curbed apparel sales, while three said back-to-school sales were strong and a fourth said they were disappointing.
"Overall, retailers are cautiously optimistic about the fall, expecting sales to be flat or slightly up from their 2001 levels," the Fed said.
It also said manufacturers were still struggling.
"On the whole, manufacturing activity was sluggish, with a good deal of variation by industry and region," the beige book said, noting signs of strength in autos and steel but weakness among the high-tech and building materials industries.
The report said inflation was well-contained, with both consumer prices and costs for items businesses need for production unchanged or up only slightly.
But businesses were not without worries on the cost front.
"Despite few signs of pressures on wages, there was widespread concern about the effect that rising health care costs might have on labor costs," the report said.
The report said home-building and buying were strong, but commercial real estate markets were weak. While mortgage and refinancing demand was robust, business lending was soft.
The picture painted by the beige book fits in with other recent economic reports showing strong activity in some areas -- notably housing and autos -- but weakness elsewhere.
SLEUTHING
Markets largely shrugged off the report, taking the view that it offered few new clues on the direction of Fed policy.
Most economists think the next move on interest rates will be up -- although perhaps not until well into next year -- but some believe the central bank could cut rates again to boost a sluggish economy struggling under the weight of a massive stock-market decline.
However, a number of Fed officials have recently suggested they see little need for further rate cuts.
Indeed, policymakers, in announcing their decision to hold borrowing costs steady after their last meeting on Aug. 13, said the current low level of rates should prove sufficient to underpin growth, even as they changed their assessment of economic risks to one in which the downside predominates.
Fed Chairman Alan Greenspan may offer some further clues on the direction of interest rates on Thursday when he testifies on the economy before the House of Representatives Budget Committee. His testimony is slated for 10 a.m. (1400 GMT).
AI
