Fed: Weakness In U.S. Manufacturing Spreads To Other Businesses

By BridgeNews In an unusually somber assessment of U.S. economic conditions, the Federal Reserve Aug. 8 stated that the U.S. economy showed little or no growth in June and July. Retail sales were "frequently below expectations," and activity in the battered manufacturing sector weakened even further, the Fed said. Moreover, weakness in manufacturing has spread to other businesses. "Reports from most Federal Reserve districts point to slow growth or lateral movement in economic activity in June and July," the Fed said in the summary of its "Beige Book" report. The tone of the latest report seems even more pessimistic than the Fed's last Beige Book report June 13, when it said activity was little changed or decelerating and that consumer spending was lackluster. The Beige Book is released every six to eight weeks, two weeks before Fed officials hold their regularly scheduled meetings on monetary policy. It serves as a guide for Fed officials as they debate policy on short-term interest rates. Its contents are likely to be viewed as a leading indicator of what the regional Fed Bank presidents will say about economic conditions in their districts at the upcoming Aug. 21 Fed policy meeting. Today's report was particularly pessimistic in its description of manufacturing conditions, which have been battered by the economic slowdown of recent months. "Reports of reduced work hours, lost overtime, forced furloughs, and planned shutdowns and layoffs were pervasive," the report said. Nearly every district reported new orders and shipments remained sluggish, and weakness was especially evident for producers of clothing and textiles, computers, semiconductors, steel, and telecommunications equipment, the Fed said. The weakness in manufacturing also reflected softer global demand for U.S. goods, especially in Europe and Asia, the Fed said. Moreover, the Fed said that weakness in manufacturing "spilled over to other businesses, with many districts indicating declines in demand for office space and trucking and shipping services." The report's description of consumer spending also was relatively downbeat, though not as gloomy as the assessment of manufacturing conditions. "Retail sales generally remained weak in June and July, although there were scattered reports of a pickup in sales," it said, adding that weakness was "broad-based across product lines and types of outlets." In addition, various districts reported continued weak demand for such services as advertising, data processing, transportation, accounting, and insurance. Many districts noted airline bookings, hotel occupancies, and hotel room rates fell in recent months, the Fed said. Furthermore, banks reported less demand for a "wide variety of loans," and tighter credit standards, the Fed said. The lone bright spot in the report was the housing market, which the Fed described as generally "stable" in recent months. As for inflation, "falling input costs and stiff domestic and foreign competition kept prices of most consumer goods in check," the Fed reported. Job markets remained steady or "loosened somewhat in recent weeks," the Fed said. Layoffs boosted the number of skilled workers applying for jobs through temporary agencies. The softer job market helped contain wage pressures, but benefit costs rose, the Fed said. Lower gasoline prices allowed shippers and truckers to remove or reduce fuel surcharges imposed earlier this year, the report said. However, higher prices were reported for drugs, services, and single-family homes in some regions.

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