By Steven K. Beckner
Market News International - The Federal Reserve's latest survey of economic conditions around the country, known as the beige book, found evidence that the economy is in a growth slump, but not in a recession.
The beige book, which Fed policymakers will review when they meet to set interest rates March 20, said most of the 12 Federal Reserve Banks that participated in the survey reported "sluggish to modest economic growth" over the past two months.
Manufacturing continued to decline, but consumer spending "rose slightly" in most districts, and home building rose in many places, according to the poll of business and banking contacts, whose results were compiled and summarized by the Philadelphia Fed. The beige book was based on information gathered before Feb. 26.
The Fed said labor markets remained "tight" but found "some signs of easing" of labor market conditions in half of the Fed districts. There was less demand for manufacturing, construction and information technology workers, but an increase in demand for clerical and health care workers. The survey also detected a lessening of wage pressures and said that, outside of energy, pressure on prices has not increased.
The survey also revealed a lessening of loan demand, other than for mortgage refinancing. In particular, there was less business borrowing to finance capital spending and plant expansion.
"A majority of Federal Reserve Districts reported sluggish to modest economic growth in February, while others generally reported mixed conditions," the beige book stated.
The Boston, New York, Richmond, Atlanta, Kansas City, Dallas and San Francisco Feds all reported growth, while the Philadelphia, Cleveland, Chicago and Minneapolis Banks reported "mixed" conditions. The outlier was the St. Louis Fed, which reported "noticeably slower economic activity."
The Fed survey found that "consumer spending rose slightly in most districts in January and February as retailers offered deep discounts on winter merchandise." It said "auto sales were generally steady, but below last year's rate."
Elaborating, the beige book said "retail sales rose modestly in a majority of Federal Reserve districts" compared to the same months last year. The New York, Philadelphia, Atlanta, Chicago, Minneapolis, Dallas and San Francisco Feds all reported increased sales of general merchandise, with decreased sales reported by Boston, Cleveland, Richmond and Kansas City.
The beige book said "manufacturing activity continued to decline in most of the nation, although in the Boston and Richmond districts manufacturers reported improvement." The New York and San Francisco Banks said "conditions varied among manufacturers."
From district to district, there were reports of falling output of high tech equipment, motor vehicles and parts, electronic products and telecommunications equipment, industrial equipment and building materials. On the other hand, "some improvement was noted" among manufacturers of pharmaceuticals and biotechnology, food products and ships.
The survey seemed to find evidence that the inventory adjustment process may have a ways to run in the manufacturing sector. "Several Reserve Banks reported high inventories among the manufacturers in their districts," the beige book said. High inventories of steel and telecommunications equipment were cited.
The survey also found that manufacturers were "trimming capital spending" in Boston, Philadelphia, Kansas City and San Francisco. Signs of a pull-back in business investment spending in at least some places also showed up in the survey of banking contacts. The San Francisco Fed said banks there had reported "decreased demand for business loans for capital spending and plant expansion and increased demand for asset-based loans." On the other hand, the New York, Philadelphia and Cleveland Feds said "commercial and industrial loan demand in their districts has been steady."
"Philadelphia, Richmond and San Francisco reported that business loan demand has been restrained as firms in a variety of industries have cancelled or postponed plans to expand their operations," the beige book continued. "In particular high-tech, telecommunication and Internet firms have scaled back their activities." The beige book described bank lending generally as "sluggish" and "lackluster" outside of mortgage refinancing.
Commercial banks in several districts have "tightened credit standards" and "stepped up monitoring of borrowers," according the beige book. It said that non-performing loans have increased in the St. Louis district but that loan quality has been "steady" in Atlanta and Dallas.
In other areas of the economy, the Fed report said "commercial real estate activity eased in most of the districts reporting on that sector, but vacancy rates remain mostly steady and rents have been level or rising."
"Home building activity rose somewhat in New York, Richmond, Atlanta, Chicago and Minneapolis, but declined in St. Louis, mainly because of bad weather," it added.
The beige book said "labor markets remain tight," but said "over half of the Federal Reserve districts -- Boston, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City and San Francisco --- noted some signs of easing." A "greater availability of workers" was noted by Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Among other things, there was a decline in demand for temporary workers in some places.
As labor market conditions eased, "employers reported some easing in wage pressures, but they have seen increases in health benefit costs," the beige book said.
And other than higher prices for natural gas and other fuels, the report said "price pressures for many other products do not appear to have increased."