Modest Growth Rate Reported So Far in ’96

The nation’s economy grew modestly in January and February, the Federal Reserve System reported Wednesday, with more than half its 12 districts--including the West--citing moderate growth or continuing solid levels of economic activity.

The report provides further evidence that it is unlikely the nation’s central bank will lower the cost of borrowing money any time soon. “This is a recipe for holding interest rates stable,” said Robert Dederick, an economic consultant at Northern Trust Co. of Chicago.

The Fed’s outlook, known as the “beige book” and based on reports from the 12 district banks, is published eight times a year. The latest report was compiled by the Federal Reserve Bank of Boston using information collected before March 4.

“Wage and price pressures are generally described as subdued, notwithstanding observations of tight labor markets in several districts,” the report says.

The report depicts “an economy that shows no signs of accelerating into a boom, nor of slipping into a recession,” said Richard B. Berner, chief economist at Mellon Bank in Pittsburgh.

The survey’s findings, which are likely to figure in the Fed’s deliberations on interest rates, undercut fears, raised by last week’s surprisingly strong employment figures, that the economy is far stronger than previously believed.

“It clearly throws some cold water on the employment report,” said Joseph Carson, chief economist with Dean Witter in New York. “Nothing in this report says growth is running so fast that it will compel companies to go out and hire a lot of workers.”

As a result, the beige book findings may persuade Fed officials not to lower short-term rates when the central bank’s policy-setting Federal Open Market Committee convenes March 26, analysts said.

The Fed last cut rates on Jan. 31, the third reduction since July. Until recently, some economists had expected the Fed to cut rates to forestall further economic slowing.

The West, including California, saw generally solid economic activity in early 1996, with strength in manufacturing, particularly industrial machinery and high tech, as well as in high-tech services such as computer software, the study found. Retail sales were weak.

That finding mirrors those in a separate report by Bank of America. It concluded that the West will be the strongest regional economy in 1996, a year of otherwise modest economic growth, due mainly to the reemergence of the California economy.

“Tourism, international trade and high-tech manufacturing and services will be the strongest sectors,” the bank’s report says.

“Anecdotal reports support the notion that the California economy is one of the better-performing parts of the nation right now,” said Mellon Bank’s Berner.

Nationally, economic activity improved in February following January’s blizzards. Retail sales generally picked up, though not in the West.

Manufacturing was mixed across the nation, with the West showing the best growth in recent months, due in part to machinery and equipment manufacturing.

Other findings of the beige book report:

* In real estate, most districts reported higher sales of residential property. Prices were stable or rising in most districts; the San Francisco Bay Area was among the regions reporting improvement. In Southern California, commercial vacancy rates were declining slowly, but rental rates were not improved enough to spur new commercial construction.

* In manufacturing, the Minneapolis, Kansas City and Dallas regions reported slowing sales and orders, while things picked up in much of the East. The West reported the most positive outlook. Sales of electronic and computer-related machinery was rising, while demand for memory chips and microprocessors fell, particularly in the Dallas region.

* In retailing, most areas reported a February pickup in sales following the weather-related slow pace of January. The exceptions were parts of the Midwest and far West, including California. Durable goods, including autos, generally showed better sales than apparel.

Times wire services contributed to this report.