Slump Spreading Across Nation, Fed Indicates

The Federal Reserve Board reported Wednesday that the economic slump is gradually sweeping across the nation and is no longer as regionally isolated as it was a few months ago.

The Fed said that the slowdown is beginning to have a sharp impact on manufacturing, previously a bright spot in the economy. Weak domestic demand for manufactured goods is being offset only partly by strong exports, the central bank said.

Consumer spending, one of the driving forces behind economic growth until the middle of the year, seems especially weak just as retailers gear up for the holiday rush. “Retailers are pessimistic about sales prospects for the Christmas season, as well as for 1991,” the Fed said.

In a report compiled from surveys of business conditions by the Federal Reserve’s regional banks, the Fed suggested that the downturn has broadened since its last report on business conditions was released in late October.

The report on regional conditions is issued eight times each year, just before the Fed’s policy-makers meet to determine interest rate policy.

The Fed’s Open Market Committee, which determines the course of national monetary policy, plans to meet on Dec. 18 in Washington, and analysts increasingly expect a decision to lower interest rates.

However, a few Open Market Committee members--led by Lee Hoskins, president of the Federal Reserve Bank of Cleveland--oppose any further rate reductions because they fear lower rates would fuel inflation.

Wednesday’s report could give advocates of easier monetary policy more ammunition in their debate against the hard-liners.

“In many of the Federal Reserve districts, economic activity appears to have declined recently, while it has remained sluggish or grown slowly in the rest,” the report said. “Manufacturing conditions have weakened in most districts . . . (and) retail sales appear to have fallen from their year-ago levels.”

The Fed confirmed independent reports that a significant plunge in consumer confidence is starting to sap strength from the economy and that growing fears about the economic outlook and the Persian Gulf crisis are affecting spending patterns.

Still, other figures released by the government Wednesday were more upbeat, continuing the trend of recent months in which the economy has provided analysts and policy-makers with a maddening mix of good-news, bad-news reports.

The Commerce Department said that factory orders rose a surprisingly strong 2.8% in October, the largest gain in the order rate since March and well above analysts’ expectations.

The surge may have been something of a fluke, however, because the government attributed much of the increase to strong orders for big-ticket items like aircraft and automobiles.

Since October, the domestic automobile industry has cut its production schedules drastically and announced massive layoffs.

Although the aircraft industry is still buoyed by a heavy backlog of long-term orders, an increasing percentage of its business is coming from overseas rather than from domestic customers, the Fed said in its report.

The strength in the auto and aircraft sectors in October spurred a 3.6% rise in durable goods orders, which account for about half of all factory orders as measured by the Commerce Department. That rise followed a steep 1.6% drop in durable goods orders in September.

Meanwhile, orders for smaller, non-durable goods rose 1.6% in October, after a 1.3% rise in the previous month.

But, in contrast to the favorable figures on factory orders, a separate report on the nation’s productivity offered another dash of bad news.

In revising an earlier report, the Labor Department said that productivity grew by only 0.2% in the third quarter.

The report found also that the average number of hours worked fell slightly during the quarter, the first decline since 1986.