California Still Among Lagging Areas, Fed Says
The nation’s economy is beginning to show signs that the recession is near an end, but at least some regions of the country are still deeply mired in the slump, the Federal Reserve Board reported Wednesday.
The Fed’s regional report, compiled regularly by economists at its 12 district banks, found that California and many other states have not seen evidence that a recovery is on the way.
“Economic conditions (in the West) are characterized by continued weakness in California, offset partly by relatively strong activity in other states,” the Fed reported in its Beige Book on regional conditions.
Although the report, based on interviews with business leaders in each district, discovered some improvement in real estate prices and sales in California, it said consumer spending is still sluggish, “with little pickup noted since the end of the Gulf War.”
The central bank’s regional breakdown on the condition of the economy came one day after the Fed’s move to push interest rates down to help revive the sluggish economy.
The Fed’s cut in the discount rate signaled that Chairman Alan Greenspan and other senior Fed officials have become far more concerned about the lingering recession than about the threat of renewed inflation. In fact, senior Fed officials said they believe that inflation probably will remain moderate throughout the year, which should help set the stage for a recovery by midsummer.
Indeed, a survey of Western business leaders conducted by the Federal Reserve Bank of San Francisco for the regional report found increasing optimism on the outlook for economic conditions for the coming year.
An April survey showed that 47% of Western business leaders expect housing starts and consumer spending to rise during the next year; a similar survey in December showed 90% of Western business leaders expecting conditions to worsen in 1991.
The Fed discovered that the long-suffering Northeastern economy remains in the tank, however, with little evidence of a turnaround. The Federal Reserve Bank of New York characterized the New York regional economy as remaining “soft to mixed,” with sluggish department store sales and rising unemployment. The jobless rate in New Jersey, for instance, reached its highest level in seven years in March, while defense cutbacks on Long Island are expected to worsen the unemployment rate in New York, which hit a five-year high.
Although developers in the region reported increased customer traffic at homes for sale, officials of commercial banks in the area said there was virtually no increase in demand for real estate loans. This is an indication that potential home buyers, lured into the market by low mortgage rates, are still not convinced that housing prices have hit bottom in New York. Office leasing activity in Mid-town Manhattan actually hit a three-year low in the first quarter of the year, the Fed found.
The picture in New England appears equally bleak, according to the report. Although home sales are picking up from their very depressed levels in the Boston area, retailers and manufacturers in New England still reported weak sales and sluggish production levels. Two-thirds of the New England manufacturers surveyed by the Fed said their sales are flat or down from year-ago levels.
More than in other areas of the nation, New England business leaders insist that a severe credit crunch is hampering their region’s recovery. The crunch is largely a reflection of woes at large banks, including the January collapse of Bank of New England.
Other regions, however, reported brighter prospects. The industrial Midwest’s heavy manufacturing base appears to be righting itself after a disastrous winter. The Federal Reserve Bank of Cleveland reported that “the worst of the cutbacks appear to be over” in manufacturing production and employment, and some business executives in Ohio and other industrial states told the Fed that they saw “some signs of revival.”
In the Plains States, the economy has started to grow once more; the Federal Reserve Bank of Kansas City said strong export sales are propelling manufacturing production.
Although the euphoric rise in consumer confidence following the end of the Gulf War has subsided in most of the country, the return of victorious American troops has buoyed the economy of the Southeast, home of many military bases.
THE ECONOMY: A REGIONAL LOOK The Federal Reserve on Wednesday published its regular Beige Book of reports from the 12 district Federal Reserve banks, showing that although the recession continued throughout much of the nation, indications were that the decline may be coming to an end. Here is a rundown of what is happening in each Federal Reserve district:
1)Economic activity remains subdued. Retail sales are sluggish. Manufacturing is weak. But home sales are on the rise, providing some signs that the recession is bottoming out.
2)The economy is soft to mixed. Retail sales are sluggish but improving. Manufacturing has picked up somewhat. Traffic in residential real estate has increased substantially.
3)Activity is mixed, but conditions seem to be stabilizing. Retail sales have softened somewhat, but sales seem level in dollar terms. Manufacturing is steady, with new orders picking up.
4)Signs of bottoming out are apparent. Worst of the cutbacks appears to be over. Auto output and sales are recovering. Retail sales are strengthening. Consumer spending is on the rise.
5)Business and financial conditions have improved in recent weeks, partly due to the return of troops from the Middle East. Housing, sales and loan demand are rising. Manufacturing is stabilizing.
6)Some positive signs appear, but the economic picture is still mixed. Retail sales continue to rise, but it’s uncertain if the increase can be sustained. Manufacturing still is spotty.
7)The decline is slowing throughout the economy, but real improvement still is elusive. Consumer spending may have declined, though homes sales are up. Manufacturing is still weak.
8)The economy remains weak, and manufacturing continues to decline. Consumer spending is picking up slightly. Construction is still depressed. Farming has improved.
9)The economy is uneven. The job market continues to decline, except in North and South Dakota. Consumer spending has risen a little. Housing and manufacturing are depressed.
10)Slight economic improvement is seen. Retail sales are up a bit; auto sales have gained somewhat. But manufacturers continue to operate below capacity. Housing is just beginning to pick up.
11)The economy is stagnating under the impact of falling oil prices. Manufacturing orders have declined. Retail sales are flat or down. Construction activity remains sluggish.
12)The economy is weak but probably will perk up. Consumer spending is sluggish. Manufacturing--except for defense-related industries--is solid. Construction is improving.
Source: Federal Reserve
PRIME RATE CUT
Major banks lowered their prime lending rates to 8.5% from 9%. A1
