Fed’s ‘Beige Book’ Points to Slowdown

The U.S. economy, beset by weakness in automobile sales, manufacturing and construction, showed further signs of slowing in November, while inflation remained generally subdued, the Federal Reserve said Wednesday.

In its latest review of economic conditions around the country, the central bank found plenty of evidence of a slowdown in activity--lackluster consumer spending, scaled-back auto production and a declining pace of new single-family home construction.

These signs provided “further evidence of slowing in economic growth,” the Fed said in a survey compiled from information supplied by its 12 regional banks.

The information in the Fed’s “beige book” will be used by Fed policy-makers when they meet Dec. 19 to set interest rates.

Analysts said the Fed survey supported the view expressed Tuesday by Federal Reserve Chairman Alan Greenspan that U.S. economic growth had slowed “appreciably.”

In a separate report, the Labor Department said productivity, the key factor determining living standards, rose at a solid annual rate of 3.3% in the third quarter, a downward revision from an initial estimate of a 3.8% rate of increase in the July-September period.

Unit labor costs, a measure of wage pressures, rose at a 2.9% annual rate in the third quarter, the fastest pace since a 4.3% jump in the second quarter of 1999. Originally, the government had estimated that unit labor costs were rising at a 2.5% rate in the third quarter.

Analysts said they were not concerned by the acceleration in labor costs because over the last 12 months those costs have risen a tiny 0.2%. Productivity over the same 12-month period is up a strong 4.8%.

Jerry Jasinowski, president of the National Assn. of Manufacturers, said the combination of strong productivity and low wage pressures means that the Fed has room to cut interest rates to guard against a recession.

“These strong productivity numbers should reassure the Federal Reserve that inflation is not a serious threat right now, even as the growing slowdown becomes more grave,” Jasinowski said.

Worker productivity, measured by the amount of output per hour of work, is the key to improvements in the standard of living. As long as workers are becoming more efficient, their employers can afford to pay them more without having to boost the cost of their products.

The Fed report on economic conditions said that eight of its 12 districts--Boston, Cleveland, Richmond, Va., Chicago, St. Louis, Kansas City, Kan., Dallas and San Francisco--were seeing signs of a slowdown, while the others--New York, Philadelphia, Atlanta and Minneapolis--reported “moderate, steady growth.”

The Fed said that while labor markets remained tight across the country, wage growth continued to be generally moderate. But it did take note of “widespread reports of increased costs for employee health benefits.”

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Productivity

Percentage change from previous quarter at annual rate, seasonally adjusted:

3rd quarter: 3.3%

Source: Labor Department