Economy Seen at ‘Slow Pace’ in Fed’s Survey of Regions
The U.S. economy continued to be sluggish in the spring, dragged down by lackluster retail sales and weak manufacturing, the Federal Reserve said Wednesday. Offering hope for a rebound down the road, orders to factories posted their first gain for the year.
In its latest snapshot of economic conditions around the country, the Fed reported “a slow pace of economic activity in March and early April.”
The survey, based on information supplied by the Fed’s 12 regional banks, will be used by Fed policymakers at their next meeting May 15 to set interest rates.
Seeking to stave off recession, the central bank has slashed interest rates four times this year, totaling 2 percentage points, in an effort to rejuvenate economic growth. Many economists believe another rate cut will come at the May meeting.
The Fed survey “paints a picture of a very flat economy,” said Mark Zandi, chief economist at Economy.com. “I think it gives policymakers a green light to continue to ease.”
In the survey, the Fed said that retail sales were weak in March and that although they strengthened in April, most Fed districts expected “only small gains at best” in the coming months.
In California and other Western states, the survey cited the energy situation as a continuing concern and said businesses “expressed concern about escalating energy prices and the threat of supply disruptions.” The survey also said retailers reported weaker-than-expected sales.
Nationwide, manufacturing, which has been hardest hit by the slowdown, has seen activity continue to weaken, the Fed noted. “The high-tech and telecommunications industries are experiencing a pronounced slowdown,” the survey said.
Despite sharply higher energy costs, the Fed said consumer prices were largely steady. Wage pressures also abated. Analysts said the Fed has room to continue lowering rates because inflation is not a current risk to the economy.
In another report, the Commerce Department said factory orders increased by 1.8% in March to $370.5 billion. Factory orders fell by 4.3% in January and 0.1% in February.
All the strength in March factory orders came from a whopping 24.8% increase in orders for transportation equipment, which includes everything from cars and airplanes to ships and military tanks.
Because the transportation category includes such costly items for which demand can swing widely from month to month, economists often look at another figure, which excludes transportation orders, to gauge the health of the manufacturing sector.
Excluding transportation equipment, overall factory orders fell 1.2% in March, the fourth straight monthly decline.
National Assn. of Manufacturers economist Gordon Richards said the slowdown isn’t over but called the March rise in factory orders a welcome sign. “We may still see a couple of weak months in April and May,” he said. “But we should see a return to stronger growth sometime this summer.”
Orders for electronics and electrical equipment, including communications equipment and household appliances, decreased by 5.5% in March. Industrial machinery, which includes computers and machine tools, saw orders fall by 2.8%.
Shipments, a good barometer of current demand, however, rose 0.4%, registering the first increase since August.
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Factory Orders
New orders, in billions of dollars, seasonally adjusted:
*
March: $370.5 billion
Source: Commerce Department
