Md. region shows modest economic gains, Fed says

December 10, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- The Maryland region is shadowing the natio in registering modest increases in economic activity, according to a Federal Reserve analysis issued yesterday.

The main gains locally were reported in retail and residential home sales, but manufacturing and employment remained stubbornly unchanged.

"Retailers were upbeat about recent business conditions and saw improved prospects for the next six months," said the report from the Federal Reserve Bank of Richmond, which covers Maryland, Virginia, the Carolinas, Washington and most of West Virginia.

But it found activity in many sectors in the region remained sluggish.

Nationally, the Fed reported "modest improvement" in most areas, with California a notable exception. The increasingly loud ring of cash registers in stores across most of the country is making retailers "optimistic" about Christmas sales, said the Fed's regular survey of regional economic developments, known the "beige book."

The Fed's optimism was restrained by the "uneven" rate of regional gains and the "notable drag" on economic growth being exerted by defense cutbacks in some areas.

The book's tone was strikingly cautious in the wake of a recent spate of encouraging economic news, which has convinced many economists that the economy has entered a secure, if modest, period of post-recession expansion.

"The beige book is definitely a disappointment," said Kathleen Stephansen, economist with Donaldson, Lufkin & Jenrette Securities Corp., New York. "We certainly expected a much stronger or firmer tone to the report.

"But, taken with the other indicators that seem to have pointed to a somewhat stronger trend in the economy, it really does confirm that the economy has stabilized or is improving. The economy is moving away from the critical point at which it could have tipped back into recession."

Ray Owens, the economist at the Fed Bank in Richmond who prepared the report on the Maryland region, said the beige book was based largely on anecdotal evidence gathered in interviews with bankers, business executives and economists.

"The general tone in the Maryland area is somewhat cautious," he said. "Certainly the overall impression is the economy is growing in that area, but the rate of growth certainly seems to be not as robust as many people would have hoped."

The Richmond bank's entry to the survey found increased consumer spending, and "looking ahead, retailers expected increases in most indicators, especially sales and shopper traffic."

Manufacturing in the region held steady, while wages and employment remained unchanged.

Representatives of the region's ports -- Baltimore, Charleston, and Hampton Roads -- reported import traffic up and exports down in October compared to September. That was in line with a national trade trend reflecting strengthened domestic demand but weakened overseas markets because of recessions in Japan and Europe. Baltimore officials expected their export traffic to remain unchanged over the next six months.

Local banks reported "steady" credit demand but said increased mortgage loan rates had reduced home re-financing applications, though Realtors reported improved home sales and steady house prices. Activity remained "sluggish" in commercial real estate.

Despite the measured tone of the book, the recent indicators of a strengthening economy -- lower unemployment, higher consumer confidence, an annual growth rate of 3.9 percent in the third quarter -- were further reinforced yesterday by a Commerce Department announcement that wholesale inventories dropped for the second straight month in October.

This suggested that production and hiring might have to be accelerated to refill the emptied shelves and store rooms. Inventories stood at $198.64 billion, the lowest value of total stocks since $197.40 in May.

At the same time a survey of 50 leading economists produced a revised and more optimistic assessment of future growth.

The consensus view was that the economy would be growing at an annual rate of 3.1 percent by the end of next year, still only half the usual post-war recovery rate after a recession but in line with the historic norm for annual growth.

The economists agreed the economy would not be able to sustain the surprising 3.9 percent growth rate it registered in the third quarter of this year.

They suggested a 2 percent growth rate for this quarter, up from their earlier estimate of 1.9 percent.

The annual growth rate next year should be 2.7 percent in the first quarter, 2.9 percent in the second and 3.1 percent in the fourth.

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