Glimmer of Hope in Economic Survey

The weakness that gripped the nation’s economy near the end of last year seemed less evident by February, the Federal Reserve suggested in its latest snapshot of economic conditions around the country.

Although the economy still was mired in a slowdown, the Fed’s new survey, released Wednesday, offered glimmers of hope.

A majority of districts reported “sluggish to modest economic growth in February,” said the survey, based on information supplied by the Fed’s 12 regional banks. Seven districts experienced growth, four saw “mixed conditions” and one district, St. Louis, reported noticeably slower economic activity, the Fed said.

A separate report showed that borrowing by U.S. consumers increased more than expected in January as consumer spending rebounded.

Consumer credit rose at an annual rate of 12.6% in January, the fastest pace in two months, Fed statistics showed. The rise of $16 billion in outstanding debt to $1.5 trillion followed a December gain of $7.2 billion that was more than previously reported.

The numbers suggest Americans were less discouraged by rising energy costs and job cuts than typical measures of confidence indicated.

The Fed’s “beige book” report showed that although manufacturing, which has been bearing the brunt of the economic slowdown, saw continued decline in activity over most of the nation, manufacturers in the Boston and Richmond, Va., regions reported improvements.

Consumer spending, which accounts for two-thirds of the nation’s economic activity, rose slightly in most districts, aided by deep price discounts on winter merchandise, the survey said.

Retail sales were described by the Fed as lackluster in its previous report.

Auto sales, “were generally steady” but below last year’s pace, the new survey said. In the last survey, auto sales had “slowed substantially.”

Housing construction rose in New York, Atlanta, Chicago, Minneapolis and Richmond but declined in St. Louis, mostly because of bad weather, the new survey said.

Sales of new and existing homes continue to be fairly brisk in many regions, bolstered by cheaper mortgage rates.

Separately, the National Assn. of Realtors made a sharp upward revision in its report of existing-home sales for January, saying a software glitch resulted in incorrect calculations.

Sales of previously owned homes rose 3.8% during January, rather than the 6.6% decline the Realtors’ group reported Feb. 26.

“When upgrading to new software in May 2000, a software vendor failed to update data covering the first four months of 2000,” NAR said.

The Fed’s survey is known as the beige book for the color of its cover and is based on information collected before Feb. 26.

The survey also showed that demand for workers generally remained solid but eased in some industries.

Also, other than soaring energy prices, inflation remained contained, the report said.

The survey will be used by Fed policymakers at their next meeting, on March 20, to set interest rates.

The Fed slashed interest rates twice in January, totaling a full percentage point, to prevent the economy from sliding into recession.

Many economists believe the Fed will cut rates a third time at the March meeting, but they are divided over whether the central bank will reduce rates by another half-point or a more moderate quarter-point.