Federal Reserve survey finds faint signs of recovery

WASHINGTON

The Federal Reserve said yesterday that there are some faint signs that the steep plunge in economic activity that began last fall is starting to level off.

The Fed's latest survey of business conditions nationwide found five of its 12 regional banks reporting a moderation in the pace of the economic decline.

Several regions "saw signs that activity in some sectors was stabilizing at a low level ... (but) overall economic activity contracted further or remained weak," the Fed said.

In the Richmond district, which includes North Carolina, the Fed said that "On balance, the … economy softened further in recent weeks, although business contacts were beginning to provide scattered positive reports."

The survey, known as the Beige Book, struck a slightly more positive tone than last month's report, which described an economy plunging rapidly after the financial shocks that occurred in the fall.

Both President Obama and Federal Reserve Chairman Ben Bernanke mentioned some recent signs of progress Tuesday while cautioning that the recession is far from over.

Information in the new Fed survey underscored that view. The report lists problems in the manufacturing, home-building, and travel and tourism sectors, but it notes some faint signals that the steep fall in activity is starting to moderate.

In one sign of a possible rebound, the report said that while home prices and new home construction declined in most parts of the country, the number of people shopping for homes was beginning to rise, leading to a scattered pickup in sales in a number of districts.

The Fed also said that several districts observed a slowdown in the pace of manufacturing declines. The Cleveland, New York and Dallas regions reported a leveling off in the pace of declines in new orders.

The nation's job market, however, is not improving. "Labor market conditions were weak and reports of layoffs, reductions in work hours, temporary factory shutdowns, branch closures and hiring freezes remained widespread across districts," the report said.

The Fed found a silver lining in that as well, noting that the job losses have eased worries about inflation being generated by rising wage pressures.

The report also said that the credit squeeze that has occurred as banks suffered mounting loan losses did not show any significant improvement. Demand for business loans remains weak.

Still, private economists said that the new Fed survey reinforces a slightly more upbeat view on the economy.

"This is good evidence that activity is becoming less bad across the country," said Jennifer Lee, an economist at BMO Capital Markets. "Granted, things are still bad, but less so."

The new survey was based on information that each of the regional banks collected in March and early April. It will be used when Fed policymakers next meet to consider their stance on interest rates and other monetary issues on April 28 and 29.

The Fed is widely expected to keep a key interest rate at a record low of near zero while continuing to supply massive amounts of money to the banking system in the hopes of combating the worst financial crisis to hit the country in 70 years.

The Fed report said that retail spending remained sluggish but that some districts had seen a slight improvement in sales compared with the previous reporting period.

A rebound in consumer spending is critical since consumers account for about 70 percent of total economic activity.

Consumer spending plunged at an annual rate of 4.3 percent in the final three months of last year, the biggest decline in 28 years. That was the major factor leading the overall economy, as measured by the gross domestic product, to contract at an annual rate of 6.3 percent, the worst showing since 1982.

Even though retail sales retreated a bit in March, private economists expect consumer spending to be slightly positive in the first quarter. A small rebound in spending should trim the overall GDP decline in the January-March period to about 5 percent.

However, analysts say they believe that the current quarter should show a slightly slower rate of retreat, with GDP growth perhaps turning slightly positive by the third quarter.

Even if the current recession, which is expected to become the longest downturn in the post World War II period, does end in the second half of this year, economists say that unemployment will keep rising until probably this time next year.

The jobless rate hit a 25-year high of 8.5 percent in March, a month when businesses cut another 663,000 jobs.

So far in this recession, which began in December 2007, a net total of 5.1 million jobs have been lost.

The official word

Here is the Federal Reserve's summary of economic conditions in its Richmond District, which includes Virginia, North Carolina and South Carolina:

• "On balance, the Fifth District economy softened further in recent weeks, although business contacts were beginning to provide scattered positive reports. Commercial real estate sales were sluggish and vacancy rates increased; on the other hand, some contacts observed moderate increases in leasing activity. Residential lending edged higher, largely due to increased demand for refinancing. Contacts also reported some pickup in home sales. Retail sales were down overall, particularly for big-ticket items such as automobiles, although a few retailers noted slightly increased sales and shopper traffic. Revenues at services firms generally decreased, as did average service sector wages and employment. Meanwhile, demand for manufactured goods remained weak, inventories continued to grow, and both raw materials and finished goods prices began to fall. Temporary employment agents continued to report weak demand for workers."