Economic growth slows across nation
The Fed's dark picture of sluggish consumer spending, high energy and commodity prices, and a tepid job market was underscored when crude oil prices jumped by $5 to a new record on Wednesday of $104.52 a barrel. At the same time, separate government and private data showed declining activity in the manufacturing and services sectors.
The Fed Beige Book report, named for the color of its cover, "adds to the weight of evidence that the economy is struggling with recessionary forces," said Brian Bethune of economic forecaster Global Insight.
The Fed has slashed a key interest rate to 3 percent from 5.25 percent since last September to stimulate economic activity and combat the fallout from a deep housing recession and broad credit crunch that has spread from Wall Street to Main Street.
In recent days, some central bank officials, such as Dallas Fed Bank President Richard Fisher, have suggested that additional interest rate reductions might not be wise, given rising inflation.
But the Beige Book noted that "firms' ability to pass along cost increases by raising selling prices varied." Further, wage increases have been muted. That's bad news for workers, but positive in the sense there is "no sign of a 1970s style wage-price spiral" that would escalate inflation, Bethune said.
Bethune and other economists expect the Fed to cut a key rate by a half a percentage point at its March 18 meeting, if not sooner.
The Beige Book found softening business activity in two-thirds of the 12 central bank districts. Economic conditions from early January to Feb. 25 weren't much better in the remaining areas, where activity was described as "subdued, slow" or modestly growing.
Retailers in a majority of Fed districts called sales "below plan, downbeat, weak." Factory activity was sluggish or had slowed in about half the Fed regions. Housing "generally remained weak," while formerly strong commercial real estate markets were sagging.
"Upward pressure on prices from rising materials and energy prices was noted in almost all the district reports," the Beige Book said. There were some bright spots, including strong agriculture and energy markets.
The economy crawled along, growing at a 0.6 percent annual pace in the final three months of 2007. Recent data suggest growth could be even slower in the first quarter of 2008. The central bank will be closely watching Friday's February unemployment report to see how hiring and wages are holding up.
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