U.S. Fed Beige Book Says Economy Sluggish, But Still Growing

The economy's growth pace slowed to a crawl at the end of 2007 amid tepid holiday spending, weak manufacturing and an extended slide in housing, the Federal Reserve said in its Beige Book report Jan. 16. "Reports from the 12 Federal Reserve districts suggest that economic activity increased modestly during the survey period of mid-November through December, but at a slower pace compared with the previous survey period," the Fed said in its report.

Retail spending during the key holiday season was "subdued" and there was "further weakness in auto sales."

The housing market "continued to be quite weak in all districts," it added while commercial real estate activity was mixed.

In manufacturing, the Fed cited "pronounced weakness noted in housing-related industries as well as the automobile industry" offset in part by strong export demand for some goods.

The report was consistent with other indicators of softening economic conditions that is likely to prompt Fed policymakers to cut interest rates further. The Fed has already cut rates three times since September, slashing a full percentage point from its federal funds rate, which now stands at 4.25%. Many private economists expect the Fed to cut rates another half-point this month, and some say even that may not avert a recession.

The economy grew at a solid 4.9% pace in the third quarter but the Fed and private economists expect a much slower pace in the fourth quarter and into 2008, and some say a recession is possible if credit conditions stay tight.

Businesses were also facing rising costs for energy, petrochemicals, metals and food, the report said.

Wage increases "remained moderate overall" although labor markets were "relatively tight" except for housing-related jobs.

Banks said they had cut back on both their business and consumer lending and tightened up on their credit standards. Several Fed districts also reported rising delinquencies.