Slow, Uneven Growth in Economy, Fed Says : Commerce: California’s situation is particularly bad because of defense industry cutbacks, report notes.
The economy is growing slowly and unevenly, with California in particularly bad shape, according to a survey by Federal Reserve System banks published Wednesday.
Defense industry layoffs continue to rack the West Coast, driving down consumer loan demand and sending home foreclosures soaring as a painful adjustment to a post-Cold War world continues.
The Beige Book summary of economic conditions, issued at roughly six-week intervals, was prepared on the basis of information collected before Oct. 27.
It will be considered by the policy-making Federal Open Market Committee when members gather at the Federal Reserve Board on Nov. 17. The central bank is closely watched for indications that it may lower interest rates to try to fire up the economy.
In a separate report, American business confidence in the economy plunged 8.1% in October to its lowest level since last December, according to a survey by the U.S. Chamber of Commerce.
The latest Fed Beige Book summary differs little from the one issued Sept. 23 in concluding that the economy is mending slowly after the 1990-91 recession.
“Economic activity has continued to increase in most of the districts, but at a slow and uneven pace,” the Fed said.
But it noted that “activity in the manufacturing sector apparently lost some momentum in much of the nation as several districts noted a slower pace of expansion or declining demand.”
Marilyn Schaja, an economist with Donaldson, Lufkin & Jenrette Securities Corp. in New York, said the Fed’s conclusion that manufacturing was slowing was “very surprising.” She said the Commerce Department had reported that September factory orders rose 1.1% after two months of weakness. It was the best performance since a 2.4% gain in June.
But the Fed said reports from several regions, including Atlanta, Chicago, Cleveland, New York and Philadelphia, indicated that the pace of expansion among manufacturing companies was slowing or declining.
The Fed said retail sales grew in most areas during October, but not California. Similarly, several Fed banks said there was a slight increase in consumer and business loan demand in recent weeks--but not in California, where credit demand was feeble or falling.
The Federal Reserve Board has lowered interest rates substantially since late 1990, bringing its key discount rate to 3.0% at the beginning of July, the lowest in 29 years.
Financial markets are focusing on Friday’s employment report for October as the next potential trigger for Fed action. A sampling of economists forecasts that 25,000 more jobs will be created but that the unemployment rate will be stuck at September’s 7.5%.
Housing was a bright spot, with sales and construction improving in most regions, the Fed said.
Once again the exception was California. The San Francisco Fed said home foreclosures have shot up 74% in Southern California since the beginning of 1992.
The Economy: A Regional Outlook
The following is a district-by-district summary of economic conditions from the Federal Reserve’s latest Beige Book report:
1. Business conditions took on a slightly more positive tone. Retail sales were mixed. The real estate market stabilized in most New England states.
2. The economy remained mixed. Retail sales were stronger than expected and office leasing was up. But residential construction was uneven, and bank loans remained hard to get.
3. Business activity had negatives and positives. Manufacturing eased, but retailers and bankers reported improvement. Demand for consumer loans and mortgages increased.
4. Activity was uneven, but edged upward slightly. Manufacturing showed some signs of revival, though the auto sector was weak. Slow growth in consumer spending was expected to continue.
5. Conditions were improved. Retail sales and manufacturing rose. Residential real estate improved somewhat, but the commercial market remained sluggish.
6. Economic activity edged up, though more sluggishly than in the last period. Manufacturing and commercial construction remained slow. Home sales were healthy. Loan demand was flat.
7. The economic expansion, earlier led by manufacturing, was now driven by retail sales. Commercial and industrial loan demand were mixed.
8. Economic activity continued to expand modestly. Employment in manufacturing increased, while the job market elsewhere was unchanged. All categories of loans showed gains.
9. The district economy improved slightly. Farm and tourist industries had a successful season. Retail chain stores reported stronger sales and public construction was up.
10. Growth continued to improve modestly. Retail sales increased despite a drop in car sales. Housing starts and sales were up as interest rates fell. Demand for bank loans rose.
11. A slow expansion continued. Manufacturing activity was up slightly. Service sector growth was light. Construction activity was sluggish, and banking activity was weak.
12. Conditions were mixed, with continued weakness in California. The state saw downturns in trade, finance, real estate and construction. In Southern California, aerospace continued to suffer from lack of demand. Budget problems led to cuts in health and welfare programs.
Source: Dow Jones News Service
