Fed Dampens Hopes of Early Economic Rebound

14 June 2001

America’s ten-month long economic downturn shows no sign of levelling out, according to the latest assessment by US central bank, the Federal Reserve.

Its so-called ‘beige book’, published immediately prior to meetings of the Fed’s open market committee, reports a growing broad-based weakness across most of the nation. Business activity, says the ‘book’, is "little changed" or "decelerating".

The Fed’s open market committee meets eight times annually to set short term interest rates and next convenes on June 27. Its latest ‘state of the nation’ report paints a picture of consumer spending “slow to flat”, with commercial real estate softening, construction levelling-off and mining “stagnant”.

Tourism is also on the wane, with average hotel room rates in and around New York City – an economic bellwether if ever there was one – falling at their fastest rate in eight years. In most of the city, office accommodation vacancies also rose in April.

Things are no better in the labour market, which a year ago reflected “pervasive shortages”. This continued to ease with hi-tech workers in the Boston, Dallas and Midwestern conurbations finding jobs harder to come by. "More people are looking for work, and hiring is considered easier [for employers]," the report said.

In a separate report by the US Commerce Department, also published yesterday, there was further evidence of weakness with retail sales barely up in May after leaping 1.4% in April. And although sales rose in gas stations, furniture stores, grocers, restaurants and bars, this was all but negated by business declines at car dealerships, building material providers, clothes and electronics shops.

Fed vice-chairman Roger Ferguson said that while he was "cautiously optimistic" about the economy's long-term prospects, the short-term risks remained predominantly "to the downside in this slow period". He described as “premature” any optimism reflected in the recent rise in long-term interest rates .

News source: Financial Times