Economy Shows Signs of Slowing, Fed Says

The U.S. economy was operating at a healthy pace through July, but growth showed signs of slowing as slumping exports to Asia and shortages of employees were felt across the country, the Federal Reserve Bank said Wednesday.

“Despite the high level of economic activity in recent weeks, many districts noted that labor shortages, shipping bottlenecks and continued weakness in East Asia were beginning to temper growth in their regions,” the Beige Book economic summary said.

At the same time, a rising volume of cheaper imports from Asia was pressuring U.S. manufacturers and retailers to keep a lid on prices, the Fed said, implying little or no inflation pressure.

The periodic survey by the U.S. central bank covers the period from June 8 to July 27. It is based on interviews with business executives in all 12 districts and will be used by policy-setting members of the Federal Open Market Committee when they meet Aug. 18 to consider interest-rate strategy.

The previous Beige Book, issued June 17, had rated the economy’s performance as “excellent.”

The latest Fed summary implied that robust domestic demand still was keeping the worst effects from a crisis-racked Asia at bay but it highlighted the influences that were putting some drag on U.S. expansion.

The Fed said manufacturing activity remained at a high level in July despite a strike at auto maker General Motors Corp. that lasted nearly eight weeks, weakening demand for exports and a general slowing in the high-tech sector that dampened the rate of growth.

But factories were starting to feel the impact from Asia as exports slowed while cheap imports combined to depress demand for many American goods. Asian countries’ active efforts to increase their sales into buoyant U.S. consumer markets are getting a boost from the strong U.S. dollar that makes foreign-made goods relatively cheaper for Americans to buy.

But U.S. companies reported their sales and orders for clothing and textiles, computers, industrial machinery, paper and wood products were falling, the Fed said.

Jobs were plentiful, with skilled people especially in demand.

Yet wage increases were “limited” and price inflation was muted. “Manufacturers and retailers reportedly cannot sustain price increases in the current competitive environment,” the Fed said.

The report from the San Francisco district, which covers the West, indicated a generally solid pace of overall economic activity, though with moderation in growth for some sectors. Retailers reported healthy sales growth, but as with other parts of the country, manufacturing activity cooled in recent weeks, damped by declining export demand and a general slowing in the high-tech sector. The report also noted strong demand for real estate--both commercial and residential--continued to fuel construction activity.

The bank’s regions, including San Francisco, also reported that farmers hit by falling commodity prices--in part because Asian countries are unable to buy as much from the U.S.--were feeling a profit pinch.

“Price declines for some commodities have been so large that producers cannot cover costs,” the Fed said, while leftover 1997 crops still fill many storage facilities.