Fed Beige Book Shows Modest Growth In Most Regions
Most parts of the country logged moderate economic growth in the early spring, despite sluggish manufacturing largely due to the housing slump.
The fresh snapshot of the national economy, released Wednesday by the Federal
Reserve, found that "manufacturing activity was slow" in many areas and that "residential real estate activity continued to weaken, with sales declining in many districts and flat in a number of others."
The latest Beige Book report followed two other reports Wednesday that showed a mixed economic picture.
In one, sales of new homes rebounded slightly in March, helped by better weather, but the gain was not enough to offset big declines in the previous two months, and the increase fell short of economists' estimates.
Meanwhile, orders to U.S. factories for big-ticket manufactured goods rose 3.4% in March, the fastest clip in three months, helped by the biggest jump in orders by businesses to expand and modernize in 2 1/2 years.
Overall, most regions reported "only modest or moderate expansions," the Fed said. There were some exceptions, though. The Minneapolis region reported "firm growth" and the Dallas region characterized economic activity as "moderately strong."
Information from the survey will figure into discussions at the central bank's next meeting on May 9. Many economists predict the Fed will continue to hold a key interest rate at 5.25%, where it has stood since last June. Before taking a breather, the Fed had steadily boosted rates for two years to ward off inflation.
On the inflation front, the Fed survey found that "consumer prices remained generally stable, with some districts experiencing only modest price increases."
Still, businesses had to cope with higher prices for fuel and raw materials such as metals. As a result, some manufacturers in the Fed regions of Boston, Cleveland, Chicago and Dallas boosted prices to their customers, the report said.
Federal Reserve Chairman Ben Bernanke and his colleagues have said that the biggest risk to the economy is if inflation doesn't recede as they currently predict. The hope is that inflation will ease as economic growth slows.
So far, the slowing economy hasn't derailed the jobs market.
The Fed survey found that businesses in most regions reported strong demand for workers, especially for those with certain skills. However, workers for the most part saw modest wage gains, the report said.
Higher Home Sales
The Commerce Department reported Wednesday that new home sales rose 2.6% in March compared with February, when new home sales had plunged to the lowest level in nearly seven years. New homes were sold at a seasonally adjusted annual rate of 858,000 units in March.
The March improvement was just half what analysts had expected and still left the sales pace 23.5% lower than a year ago as the housing industry continues to go through a painful adjustment after an extended boom period.
The report on new home sales followed a report Tuesday that sales of existing homes, by far the larger part of the sales market, had fallen 8.4% in March, the biggest decline in 18 years.
The slump in housing, which began last year, has been a significant drag on economic growth. Analysts expect that to continue as rising mortgage foreclosures dump more homes onto the market and cause lenders to toughen their standards, making it harder for prospective buyers to qualify for loans.
The housing report showed that the rise in sales activity helped to lift prices, with the median sales price increasing to $254,000, a gain of 6.4% compared to the same period a year ago.
Analysts said the rise in home sales reflected better-than-normal weather in March following serious winter storms in January and February.
The biggest increase was a 50% rise in sales in the Northeast followed by an increase of 9.8% in the Midwest, two regions which had been slammed by winter storms in February. Sales fell 2.7% in the South and were down 0.9% in the West.
Aircraft Demand Surges
Much of the strength in orders for durable goods came from a 37.6% surge in demand for commercial aircraft. However, orders for business capital goods excluding aircraft also posted a strong gain of 4.7%.
That was the best showing for this closely watched category of business investment since a 7.9% rise in September 2004. The rebound came after two consecutive monthly declines had increased worries that troubles in housing and auto manufacturing were beginning to cause other businesses to grow more pessimistic about the future.
Still, analysts said that the orders rebound did not change their view that manufacturing remained under pressure from the slowing economy.
"The significant bounce back in business equipment spending evidenced in the durable goods report is more a function of the volatility inherent in these data than a clear sign that business confidence in the economy has stabilized enough to allow capital spending to resume a healthy growth trajectory after weakening considerably in the latter months of 2006," said Cliff Waldman, Economist for the Manufacturers Alliance/MAPI.
The 3.4% rise in durable goods orders pushed demand up to $214.9 billion in March following a 2.4% increase in February, which was previously reported as a weaker 1.7% rise.
Manufacturing has endured a slowdown in recent months, reflecting the slowdown in the overall economy.
Many economists believe the economy slowed to an annual growth rate of just 1.8% in the first three months of this year, which would be the weakest showing since the end of 2005 when the country was struggling to cope with the devastation from Hurricane Katrina. The government will release its first look at growth in the gross domestic product for the January-March period on Friday.