Washington, March 7 (Bloomberg) -- The U.S. economy's record expansionfinished its 10th year with ``sluggish to modest'' growth and a decliningdemand for workers, the Federal Reserve said in its latest regional reportcard. Seven of the 12 regional Fed banks saw some growth in the last two monthsand four reported ``mixed'' economic conditions. The St. Louis Fed saidgrowth was ``noticeably slower.'' ``Consumer spending rose slightly in most districts in January and Februaryas retailers offered deep discounts on winter merchandise,'' said the Fedreport, commonly known as the beige book. ``Auto sales were generallysteady, but below last year's rate.'' While the Boston and Richmond Fed banks said factories in their districtsreported improvement, ``manufacturing activity continued to decline in most ofthe nation,'' the report said. More than half of the Fed banks said employers reported they were seekingfewer workers in recent weeks. ``Demand for manufacturing workers hasbeen declining and, recently, demand for construction workers andinformation technology workers has softened,'' the Fed said. The report undergirds a warning from Fed Chairman Alan Greenspan, whotold Congress last week that a slowdown that caused growth to stall at theend of the year has ``yet to run its full course.'' The economy, which begins arecord 11th year of expansion this month, grew at a 1.1 percent annual ratein the fourth quarter of last year, the slowest pace in 5 1/2 years.
Greenspan Concern
Greenspan said while the economy may have performed better in the first twomonths of this year than in late 2000, it ``appears to be on a track wellbelow'' its potential for growth. That's why Federal Reserve policy makers ``quickened'' the pace of interest-rate cuts earlier this year, he said. Today's report, based on anecdotal comments to the 12 regional Fed banksfrom businesses in their districts, covers developments in late January andFebruary. It will be used during discussions of the economy by the Fed'spolicy-setting Open Market Committee at its next meeting March 20. Investors are betting policy makers at that meeting will cut their benchmarkinterest rate by a half percentage point to 5 percent. The Fed already cut theovernight bank lending rate twice this year, each time by a half point, as theeconomy weakened.
Production Declines
The Fed's latest report showed factories reporting declines in production insome districts ``among makers of high-tech equipment and motor vehiclesand parts.'' Others reported a drop in production of electronics andtelecommunications gear, industrial equipment and building materials. Business investment in buildings and equipment also slowed in the last twomonths. ``Business loan demand eased'' in some districts and in the SanFrancisco region commercial loan demand fell ``for capital spending and plantexpansion,'' according to the report. ``Commercial real estate activity eased in most of the districts reporting onthat sector, but vacancy rates remained mostly steady and rents have beenlevel or rising,'' the Fed said. A Fed survey of loan officers released Feb. 5 suggested lenders remainconcerned about the ability of many people to make their payments as theeconomy slows and unemployment rises. About 15 percent of banks``anticipate some tightening in their standards and terms of all types ofconsumer loans,'' according to the Fed's survey.
Little Inflation
The report showed little sign of inflation. ``In most districts, firms indicatedthat they have not passed higher fuel and energy costs on to theircustomers,'' the Fed said. The report also said retail prices fell in January asstores discounted seasonal goods to clear their shelves. Economic reports in the last three weeks have supported the idea that growthmay be slow to accelerate in coming months, especially manufacturing. Orders placed with U.S. factories fell 3.8 percent in January, the fifth monthlydecline since June. And the National Association of PurchasingManagement's factory index declined for 11 straight months before its firstincrease in February. Even so, last month's reading was still at a level that suggested morefactories were reporting a decline in business than an increase. And NAPM's3 1/2-year-old companion index for non- manufacturing businesses fell to itsall-time low in January.
Consumer Confidence
Moreover, a hoped-for pickup in spending runs counter to declines in variousmeasures of consumer confidence. The Conference Board's confidence indexfell for a fifth straight month in February to its lowest level since June 1996.Even so, ``It's hard to believe that if consumer confidence keeps going down, thatconsumer spending will hold up,'' said Robert McTeer, president of the FedBank of Dallas yesterday. McTeer said the odds of recession were low, while the odds that theeconomy would contract during the first three months of the year were higher.``Somebody asked me recently the chances we would avoid a negativequarter. I said it would be way above zero and somewhat less than 50percent,'' McTeer said. Housing has been one consistent bright spot. ``Sales of new and existinghomes continue to be fairly brisk in many regions, bolstered by lowermortgage interest rates,'' the Fed said today. New homes sold at annual pace of 921,000 units in January, above the907,000 sales rate of 1999, the industry's best year. And starts ofconstruction on new houses surged 5.3 percent that month -- the thirdstraight rise -- to an annual rate of 1.651 million units, the fastest pace innine months. One reason is that mortgage rates have fallen since the middle of last year --just as the economy started to cool. The average rate on a 30-year fixedmortgage has hovered at about 7 percent this year, down from a five-yearhigh of 8.64 percent in mid-May last year. ``For the moment we appear to be bulletproof to what otherwise would seemto be a nasty gathering storm and a drop in the consumers' willingness tobuy large ticket items,'' said Toll Brothers Inc. Chief Executive Robert Tolllast week. Toll Brothers, based in Huntington Valley, Pennsylvania and the biggestbuilder of luxury homes in the U.S., said it sold 971 houses in the quarterended January 31, up 21 percent from a year earlier. The average price of thehomes rose 13 percent to $472,000. The Fed's regional outlook is published eight times each year in advance ofFOMC meetings. The latest edition was compiled by the Federal ReserveBank of Philadelphia. Information was gathered before Feb. 26.