Fed report on economy finds few good signs

Grim assessment suggests it may cut rates again in December

November 29, 2001|By BLOOMBERG NEWS

WASHINGTON - The economy showed few signs of improvement in late October and the first half of November as businesses reduced spending and cut jobs, the Federal Reserve's latest survey of regional economic activity said yesterday.

"Economic activity generally remained soft" through the first half of this month and "evidence of additional slowing in most regions outweighed signs of recovery in a few districts," said the report, commonly known as the beige book.

The tone of the report means people "are much less likely to buy into this notion that things are stabilizing," said Joseph LaVorgna, senior economist at Deutsche Banc Securities Inc. in New York. "If you get continued weakness, the line in the sand of when recovery is going to begin gets erased and pushed back."

The report suggests the Fed's policy-making Open Market Committee may decide at its next meeting Dec. 11 to reduce interest rates for an 11th time this year.

"I haven't seen any signs yet of positive economic growth" in the Midwest, said Michael H. Moskow, president of the Federal Reserve Bank of Chicago and a voting member of the committee.

At their last meeting, Nov. 6, central bankers cut the benchmark overnight bank lending rate by a half percentage point to 2 percent. That's the lowest in 40 years. Yesterday's beige book - named for the color of its cover - is a compilation of anecdotes and data about business and the economy gathered by the Fed's 12 regional banks.

In October and early November consumer spending was "mixed," the report said. While zero-interest financing helped propel a surge in auto sales, there were questions about whether the pace could be sustained. "Automobile dealers expressed concern that sales in coming months would fall as incentives ended," the report said.

Commerce Department figures showed retail sales surged 7.1 percent last month, mostly boosted by cars. Excluding autos, sales rose 1 percent.

Non-auto sales "were spotty" and tourism remained weak, according to the Fed's report. Consumer spending "remained at or below pre-Sept. 11 levels in most districts," the Fed said.

Given that, the outlook for the holiday shopping season was mixed, the beige book said. Stores in some areas were forced to lower prices to lure buyers, while expectations at others, mainly discounters, had "brightened."

Manufacturing remained in distress. Factory activity "weakened further in nearly all regions" with declines reported in production, new orders and employment, the beige book said. "More than two-thirds of the districts reported that new orders and production decreased or grew more slowly," the report said.

Hiring continued to deteriorate and wages were "steady to lower," the report said. U.S. unemployment rose to a five-year high of 5.4 percent in October, and companies eliminated 415,000 jobs that month, the most since May 1980, Labor Department figures showed.

The National Bureau of Economic Research, the unofficial arbiter of expansions and contractions, said Monday that the nation entered a recession in March, when unemployment started to tumble from its peak.

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