Fed survey finds lackluster economy

Strengths were related to housing

weaknesses were manufacturing, retail

April 24, 2003|By BLOOMBERG NEWS

WASHINGTON - Manufacturing slowed in the United States, and retail sales weakened as consumers turned cautious at the onset of war with Iraq, the Federal Reserve said in its survey of regional economies.

"The pace of economic activity continued to be lackluster during March and the first two weeks of April," said the survey that was released yesterday. "The onset of the war appeared to have some effect on sales and spending, although it is too early to ascertain the full effect of the war on both consumer and business confidence."

The survey, which the Fed calls the "beige book" because of its color, is based on information the Fed's 12 regional banks collected before April 15 and includes the March 19 start of the war. Manufacturing slowed in nine of the districts but home construction and mortgage lending "remained strong" during the period, the report said.

"Reports on consumer spending were generally weak in March," the Fed survey said. "Respondents attributed part of the weakness to poor weather and the onset of war."

Most regions showed "continued weakness in labor markets, as several districts noted substantial layoffs in March and early April," the beige book said. Companies in the Cleveland and Kansas City regions reported fewer layoff plans, and demand for temporary workers rose in New York, Atlanta and Dallas.

Fed policy-makers will meet May 6 to review the benchmark overnight bank-lending rate, which they have kept at a 41-year low of 1.25 percent since November.

"The Fed will no doubt try to look past this news with the hope that postwar economic data looks better," said Joseph LaVorgna, a Deutsche Bank Securities economist. "We think that the next beige book will take on a slightly more positive tone."

The Federal Reserve Bank of Cleveland prepared the latest regional report card. The anecdotes reported by the regional Fed banks from local businesses are meant to supplement the theoretical models and projections produced by the staff at the Washington-based Board of Governors. The Fed found little evidence of inflation in any of the regional surveys.

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