Fed Survey Suggests Worst of Recession Over
The economy’s sharp slide eased in the late spring and hopes for future business activity improved, suggesting that the worst of the recession has passed.
A Federal Reserve snapshot of economic conditions issued Wednesday found that five of the Fed’s 12 regions said the “downward trend is showing signs of moderating.”
In addition, “several” regions said their expectations of future business activity have improved, although they don’t see a “substantial increase” through the end of the year. In the last survey, several regions simply noted signs of some stability at low levels.
Altogether the assessments of businesses on the front lines of the economy appeared to be slightly better than those they provided in the previous report issued in mid-April.
Known as the Beige Book, the Fed survey is consistent with observations made by Fed Chairman Ben Bernanke and other central bank officials that the recession — which started in December 2007 and is now the longest since World War II — is loosening its strong hold on the economy.
Many analysts predict the economy is sinking at a pace of between 1 and 3 percent in the current quarter. If they are right, that would mark a big moderation from the steep declines seen since last fall. The economy shrank at a pace of 6.3 percent in the final quarter of last year, and by 5.7 percent in the first three months of this year. It marked the worst six-month performance in 50 years.
The survey’s findings will figure into discussions when Bernanke and his colleagues meet next on June 23-24. Economists have mixed opinions on whether the Fed will take additional action to bolster the economy at that time.
Some believe the Fed will move to increase its purchases of government bonds beyond the $300 billion already announced in a bid to drive down rates on mortgages and other consumer debt. The goal: spur Americans to buy more, which would aid the economy.
“We believe the Fed may have to move in this direction,” said Brian Bethune, economist at IHS Global Insight. “While financial market conditions generally have improved, the Fed is now confronted with a new set of challenges” as mortgage rates have increased sharply in recent weeks, he added.
Investor worries about rising interest rates sent the Dow Jones industrials down more than 24 points to 8,739.02 Wednesday. The Dow slid as much as 123 points after the government sold $19 billion in 10-year Treasury notes in a relatively weak auction.
Manufacturing activity declined or stayed at low levels across most Fed regions, the report said. However, the Atlanta and Kansas City regions indicated that the rate of decline slowed. The New York region described factory activity as having “stabilized,” and the Dallas region observed “signs of stabilization.”
In an encouraging note, the Richmond region reported a rise in both new orders placed with factories and shipments.
Consumer spending, the lifeblood of the economy, “remained soft” as shoppers focused on buying “less expensive necessities.” Reports from New York, Minneapolis and Dallas indicated a modest rise in retail sales, while the Boston, Philadelphia, Cleveland, Atlanta, Kansas City and San Francisco regions said sales were “flat or mixed.” The other regions experienced declining sales.
New car sales stayed “depressed” across most Fed regions.
Travel and tourism activity dropped as vacationers spent less. Business at Manhattan hotels and Broadway theaters fell in May after a modest increase in April, the report said. The San Francisco region reported “pronounced” declines in occupancy rates, especially in luxury hotels. However, bookings at resorts in the Richmond region are starting to pick up and the Minneapolis region saw indications that summer reservations at campgrounds and resorts are “strong.”
On the housing front, the residential market remains weak, but there were some positive signs. Real-estate agents in eight of the 12 regions — New York, Philadelphia, Cleveland, Richmond, Chicago, Kansas City, Dallas and San Francisco — reported an “uptick in home sales.”
Low interest rates, declining home prices and tax credits for first-time home buyers were cited as factors in the improvement. Much of the increase in sales was found in the lower-priced end of the housing market.
Still, commercial real-estate markets remained frail.
Weakness in the jobs market persisted nationwide, with wages generally flat or falling, the Fed said.
In manufacturing, employment stayed at low levels, although some regions saw signs that job losses may be moderating. Retail employment was mixed, with some regions like Boston and Cleveland reporting stability, while Richmond reported more reductions.
The Atlanta, Chicago and St. Louis regions reported that some state and local governments faced hiring freezes or outright job cuts. Some regions mentioned employers’ plans to scale back employee benefit programs in a bid to cut costs.
The nation’s unemployment rate jumped to 9.4 percent in May, even as job losses slowed considerably, the government reported last week. Even if the recession ends this year, the recovery will be tepid and gradual. Analysts are predicting the jobless rate could top 10 percent next year.
6/10/2009 6:03 PM JEANNINE AVERSA AP Economics Writer WASHINGTON