Fed study reports growing confidence in recovery

January 22, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- One day into President Clinton's first term, the Federal Reserve handed him its read on the nation's economy with a report showing increased confidence in the recovery.

The generally upbeat assessment, however, was tempered by a dearth of jobs and California's poor showing. In addition, a separate Fed report on manufacturing in Maryland showed a downturn in December, though optimism for the future.

"Reports . . . indicate continued improvement in economic conditions across much of the nation," the nation's central bank said in its report, compiled from its 12 regional banks.

Retailing activity across the country was upbeat, with the holiday season "generally fulfilling or exceeding retailers' expectations," the Fed wrote.

The report, known as the "beige book," provides a selective snapshot of economic activity through interviews with business leaders. Its report on business activity and future plans is geared for the Fed's monetary policy-making Federal Open Market Committee, which meets next on Feb. 2 and 3.

In light of the sustained recovery, most observers believed the committee would not change interest rates. A lowering is not needed because the economy appears to be doing well, while higher rates appear premature because of the low risk of inflation, they said.

The Fed is known to generally oppose the sort of strong fiscal stimulus program favored by some of Mr. Clinton's advisers. The report seems to indicate that a strong stimulus is not necessary.

Despite the general tone of contentment with the recovery, a few remarks showed why many people were not satisfied. While orders and sales were up, the Fed reported, the improvements "may not be reflected proportionately in labor markets."

Previous reports have also showed weak manufacturing output, but this report said output "is steady to increasing moderately in nearly all districts."

The report on manufacturing in Maryland, however, showed that local conditions were the exception. Respondents said they planned few new hires and had experienced a decrease in orders from November to December.

The contrast between the local conditions in December and hopes for the future were especially striking. While only 11 percent of Maryland manufacturers said they had hired more employees in December, 22 percent said they expected hires

in the future.

And while 56 percent said general business conditions had been improving in December, 67 percent said local conditions would be even better in six months and 89 percent said the national situation would be better by then.

But Maryland's position as the weak link in the Fifth Federal Reserve District, which is based in Richmond, Va., was apparent in almost all of the survey's questions. On hiring, inventories, prices, orders and capital expenditures, Maryland manufacturers virtually always reported worse conditions than other states in the district and were less optimistic about the future.

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