Fed’s Regional Report Sees Generally Stable Economy

U.S. economic activity ranged from stable to expanding modestly last month, although the manufacturing sector showed signs of weakness, the Federal Reserve Board said Wednesday in its look at regional economic trends.

But in its “Beige Book” report on economic conditions, the central bank said only two of its 12 districts showed “some recent softening” in the economy. The districts were not named, but summaries provided by the Fed indicated that they were the ones based in Richmond, Va., and St. Louis.

“Consumer spending has varied among districts,” the report said. “Strength has been mostly confined to nondurable items, while sales of autos and other durables have generally been weak.”

Higher interest rates have dampened sales of durable goods--big-ticket items expected to last more than three years--because such items often are financed through borrowing.

“The majority of districts report some softening in manufacturing activity, but there are pockets of strength,” the Fed said. “Construction is strong or improving in the West and Midwest but somewhat sluggish in other areas.

“Weakness in the auto industry and among its suppliers was most commonly cited as a major factor in the manufacturing slowdown,” the Fed said, but the computer, electronics and defense industries also slowed down.

Referring to inflation, the report said, “Those districts that reported on price developments generally noted flat to modestly increased input prices, with several mentioning the continuing escalation of medical insurance costs.”

The survey by the 12 district banks was conducted before Nov. 28 in preparation for the Dec. 18 meeting of the Federal Open Market Committee.

As the central bank’s monetary policy-setting arm, the committee sets goals for monetary growth, which in turn influences interest rates. It was the tighter monetary policies that pushed up interest rates recently as the Fed sought to restrain inflation.

The manufacturing and housing industries were most affected by the tight-money policies, although the Fed has eased its grip recently, and the housing industry has picked up as mortgage rates have fallen.

Retail sales were described as on target or healthy in the New York, St. Louis, Minneapolis and San Francisco districts and unchanged in Boston, Cleveland and Philadelphia. Richmond and Dallas noted some softening.

“Some slowing in manufacturing activity has occurred in most areas,” the report said. “Weakness in the auto industry and among its suppliers was most commonly cited as a major factor in the manufacturing slowdown.”

The Fed survey showed agriculture improving in much of the country, although drought was reported in south Texas and along the Gulf Coast.

It also reported increased natural gas exploration in the Kansas City district and said the oil and gas industry is optimistic about expanding in the Dallas district next year.

Loan demand at commercial banks, the survey said, varied by type and region.

The San Francisco region, hit by the strong earthquake in October, “reports strong loan demand in most areas, though the rate of growth seems to have slowed from its earlier robust pace,” the Fed reported.