Fed Report Says U.S. Growth Has Slowed

The U.S. economy slowed in the last six weeks, limited by sluggish factory production and little or no gains in employment, the Federal Reserve said Wednesday.

Although increases in auto and home sales supported the recovery, manufacturers are less optimistic than they were earlier this year and companies aren’t adding workers, the Fed said in its latest regional economic report card, known as the “beige book.”

The report “mirrors a lot of the themes we have seen in the economic news lately that growth is uneven,” said James Glassman, a senior economist at J.P. Morgan Securities Inc. in New York.

The Fed’s regional economic report card suggests the central bank may keep its target for overnight lending between banks at a 41-year low until growth accelerates. The Fed’s policy-setting Open Market Committee meets Sept. 24 to decide whether to change the benchmark U.S. interest rate from 1.75%.

Fed Chairman Alan Greenspan testifies about the economy today before the House Budget Committee.

The beige book was compiled by the Federal Reserve Bank of St. Louis using information gathered after the third week in July and before Sept. 3.

The report, a collection of anecdotes reported to the regional Fed banks from local businesses, gives central bankers an idea of economic developments beyond what statistics show.

The Federal Reserve bank in San Francisco found modest growth in the region, with limited increases in wages and prices. Businesses “noted solid consumer demand for automobiles and other big-ticket items, but sales of other retail trade and service items generally were flat to down.”

The beige book report found “little change” in labor markets since July. Employers in the Chicago area indicated a “downward trend,” and Kansas City companies showed “little interest” in hiring until the economy picks up.

Wages were flat, with virtually no reports of upward pressure, the Fed said.

The Fed’s comments run counter to Labor Department statistics showing the unemployment rate fell to a five-month low of 5.7% in August from 5.9% in July.

The Fed’s report confirmed that factories still are struggling. “Reports of manufacturing activity indicate that there was little to no growth in July and August,” the report said. “Manufacturers have become less optimistic than they were earlier in 2002.”

The central bank said retail sales were “mixed for the nation as a whole.” In some districts, discount stores are registering strong sales compared with general merchandise stores, the Fed said.

“All districts noted that retail inventories are in line with expectations, although a few heard that retailers are maintaining leaner inventories than in the past,” the Fed said. “Retailers are cautiously optimistic about the fall, expecting sales to be flat or slightly up from their 2001 levels.”

Prices for goods and services have remained unchanged, the Fed said. Still, there’s increasing concern about the rising cost of health insurance, “which is leading some businesses to have higher labor costs,” the report said.

Demand for residential mortgages and new-home construction was strong, while commercial real estate activity in many Fed districts remained soft, the Fed said.

Banks report strong demand for mortgage loans, “although business lending continued to be weak across the board,” the Fed said. “Credit quality was described as good and delinquency rates as either stable or declining.”

At its last meeting Aug. 13, the Open Market Committee held rates steady and changed its outlook, saying risks to the recovery were weighted toward additional weakness rather than excessive strength and inflation.