Fed Survey Indicates Slowing in Growth
Economic growth lost some steam in September and October as Asia’s woes further sapped manufacturing activity, the Federal Reserve Board said Wednesday.
“District reports suggested that the pace of economic expansion moderated in September and October amid signs of slowing in some sectors,” the Fed said in its beige book summary of national economic conditions.
The survey will be used by the policy-setting Federal Open Market Committee when it meets Nov. 17 to consider whether to trim interest rates further.
The U.S. central bank has cut short-term rates twice since late September, and analysts said the indication of slowing activity likely means more rate reductions ahead.
The latest report said growth in manufacturing activity weakened in 11 of the 12 Fed districts in the period. Most districts reported that “economic turmoil abroad, especially in East Asia, was at least partially responsible for softening demand,” the survey said.
There was virtually no sign of inflation pressures in the Fed report, despite “very tight” labor markets in most districts yet shortages in some that were hampering businesses’ ability to expand.
The Fed said retail prices were steady while wholesale prices were flat-to-lower since the last beige book was issued Sept. 16.
The survey found that both businesses and consumers were cautious about the economic outlook. Economic uncertainty was cited by bankers as a key reason for stiffening lending terms for business loans in about two-thirds of the Fed districts.
Most of the tightening in credit terms was applied to real estate developers, the Fed said, though in some cases companies found it harder to borrow money to finance mergers and takeovers.
By contrast, consumer lending was strong and some districts reported that banks were softening their conditions for loans to individuals.
Falling interest rates also were spurring refinancings of mortgages and demand for new mortgage loans, the Fed said.
In another report, the Commerce Department said new orders received by factories rose 0.4% in September to a seasonally adjusted $339.2 billion after rising 0.9% in August.
But unfilled orders were unchanged after a 0.3% increase in August, and there was no addition to inventories of finished goods, pointing to a slowdown ahead as manufacturers try to work off stocks of unsold goods.
Jerry Jasinowski, president of the National Assn. of Manufacturers, said businesses were scaling back for fear of being caught with excess unsold goods. He noted that consumers dipped into savings to keep spending in September.
“For this reason, manufacturers may well try to work inventories off in the fourth quarter, so as not to be caught with an overhang,” he said.
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Factory Orders
New orders, in billions of dollars, seasonally adjusted:
September ‘98: $339.2 billion
Source: Commerce Department
