Fri, Apr 17, 2009 page10

• US economy contracts further

  DECLINE: The latest government figures showed that the economy contracted 6.3 percent in the last quarter of last year. Estimates for Q1 will be released on April 29

  • AFP
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  The US recession has deepened, the US Federal Reserve said on Wednesday, as fresh data showed industrial output slumped to a decade low in March and annual inflation fell for the first time in 54 years.

  “Overall economic activity contracted further or remained weak,” the Fed said in its Beige Book report, a survey of economic activity culled from the central bank’s 12 districts.

  The report, based on information gathered from early last month until April 6, said five of the 12 districts surveyed noted a “moderation in the pace of decline” while several districts also “saw signs that activity in some sectors was stabilizing at a low level.”

  The report did not provide figures on any additional economic contraction.

  The latest government figures showed the economy contracted by 6.3 percent in the last quarter of last year, following a home-mortgage meltdown that triggered financial turmoil and slammed the brakes on economic growth.

  The US plunged into recession in December 2007.

  The government will announce its initial estimate of first-quarter GDP on April 29.

  A survey of 53 economists released by the Wall Street Journal last week said GDP could contract in the first and second quarters of this year by 5 percent and 1.8 percent respectively.

  A modest return to growth is not expected until the third quarter.

  The Beige Book report, based on phone calls to businesses across the country, is used by the Federal Open Market Committee, the central bank’s policy-making body, in decision making. Its next meeting will be held on April 28 and April 29.

  Policymakers last month voted to unanimously hold the Fed’s base interest rate at a historically low range of zero to 0.25 percent, where it has been since the middle of December and have suggested the rate would be kept there for quite some time.

  Underscoring the depth of the US recession, government data showed on Wednesday that consumer prices last month posted their first annual drop in 54 years and industrial production fell to a decade low.

  The Labor Department said the consumer price index (CPI) fell 0.1 percent last month on a seasonally adjusted basis from a month ago and declined 0.4 percent from a year ago, the first annual drop since August 1955.

  Most analysts had expected a 0.1 percent month-on-month rise in March for the CPI, which tracks the average price of consumer goods and services purchased by households. It had risen 0.4 percent in February.

  Core CPI, which excludes food and energy prices, increased 0.2 percent for the third month in a row in March. The core rate was up 1.8 percent from last March.

  The annual inflation figure could continue to decline in the months ahead and “become significantly negative,” said Marie-Pierre Ripert, an economist with Natixis bank, adding that “the risk of deflation will not disappear rapidly.”

  It could hit a negative 2.3 percent in July, as a result of a “large base effect” from oil prices that had reached record peaks above US$147 last year, she said.

  Deflation is a price decline on a sustained basis that encourages consumers to delay purchases because they expect prices to continue falling.

  The Fed said in a separate report on Wednesday that industrial production fell last month for the fifth consecutive month, by 1.5 percent, to the lowest level in a decade.

  The seasonally adjusted monthly decline matched the 1.5 percent drop in February and was much steeper than the 0.9 percent decline expected by most analysts.

  Output last month dropped to its lowest level since December 1998 and was a hefty 12.8 percent below its year-earlier level.

  “The huge declines in industrial production in the past two quarters reflect very aggressive cuts in inventories by businesses,” said Nariman Behravesh, chief economist at IHS Global Insight.

  “The potentially good news is that businesses are now close to getting their inventories under control,” Behravesh said.
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