US growth slows to a crawl

By Peronet Despeignes in Washington

Published: March 7 2001 17:53GMT | Last Updated: March 8 2001 02:12GMT

Economic growth slowed to a crawl across much of the US last month, with some parts of the country actually recording a slide in economic activity, according to a closely watched Federal Reserve survey.

The monthly "Beige Book" summary of regional economic conditions was significantly more gloomy than the last one.

The Beige Book is compiled in advance of meetings of the Fed's monetary policy-making open market committee and is regarded as a good guide to how it sees the economic outlook.

The FOMC next meets on March 20, and the report is likely to fuel expectations of an aggressive interest rate cut to revive the flagging economy. The Fed has already cut short-term interest rates by 100 basis points to 5.5 per cent this year, and last week Alan Greenspan, the chairman, hinted it would do more if conditions continued to deteriorate.

The report noted weakening labour markets for the first time in several years in over half of the districts. Demand for factory, construction, temporary and high-technology workers in particular had "softened".

However, it said workers remained generally hard to find.

Consumer spending continued to rise slightly in most of the country, but the Beige Book attributed the increase to "extensive discounting in January to clear out winter merchandise".

Manufacturing continued to decline in all but two of the Fed's districts. A number reported a high level of inventories at manufacturers in February, suggesting production may need to slow further to bring stockpiles to healthier levels.

One bright spot was housing, with housebuilding continuing to rise in several regions.

Some economists said a possible restraint on the Fed could be the surge in wages over the past year amid persistent labour shortages. On Wednesday the Fed said that, though employers noted rising costs for health-care and energy, overall wage pressures appeared to be easing. Other prices were generally stable.

The report said farmers continued to be squeezed by weak commodity prices and rising energy costs and, except for higher mortgage lending, bank lending was "sluggish".

The central bank's 12 districts nationwide reported either "sluggish" or "mixed" economic conditions through January and February. One, St Louis in the Midwest, said economic activity was "noticeably slower".

Four other districts - Chicago, Cleveland, Philadelphia and Minneapolis - said conditions were mixed, in effect indicating a standstill, while the other seven regions reported some growth.

In January, the Fed said only that economic growth slowed in the previous month, easing labour shortages and limiting price pressures. While activity slowed in one district in January, only one reported stalled growth; the rest said output and demand continued to grow, albeit at a more modest pace.

-- Swissrose (cellier3@mindspring.com), March 08, 2001