Fri, Jun 12, 2009 - Page 1 News List

US economy’s sharp downward trend is easing, Federal Reserve report says


The US economy’s sharp slide eased in the late spring and hopes for future business activity improved, suggesting that the worst of the recession has passed.

A US Federal Reserve snapshot of economic conditions issued on Wednesday found that five of the Fed’s 12 regions said the “downward trend is showing signs of moderating.” In addition, “several” regions said their expectations of future business activity had improved, although they don’t see a “substantial increase” through the end of the year. In the last survey, several regions simply noted signs of some stability at low levels.

Altogether the assessments of businesses on the front lines of the economy appeared to be slightly better than those they provided in the previous report issued in mid-April.

Known as the Beige Book, the Fed survey is consistent with ­observations made by Fed Chairman Ben Bernanke and other central bank officials that the recession — which started in December 2007 and is now the longest since World War II — is loosening its strong hold on the economy.

Many analysts predict the economy is sinking at a pace of between 1 percent and 3 percent in the current quarter. If they are right, that would mark a big moderation from the steep declines seen since last fall. The economy shrank at a pace of 6.3 percent in the final quarter of last year and by 5.7 percent in the first three months of this year. It marked the worst six-month performance in 50 years.

The survey’s findings will figure into discussions when Bernanke and his colleagues meet next from June 23 to June 24. Economists have mixed opinions on whether the Fed will take additional action to bolster the economy at that time.

Some believe the Fed will move to increase its purchases of government bonds beyond the US$300 billion already announced in a bid to drive down rates on mortgages and other consumer debt. The goal: spur Americans to buy more, which would aid the economy.

“We believe the Fed may have to move in this direction,” said Brian Bethune, economist at IHS Global Insight. “While financial market conditions generally have improved, the Fed is now confronted with a new set of challenges” as mortgage rates have increased sharply in recent weeks, he added.

Investor worries about rising interest rates sent the Dow Jones industrials down more than 24 points to 8,739.02 on Wednesday. The Dow slid as much as 123 points after the government sold US$19 billion in 10-year Treasury notes in a relatively weak auction.

Manufacturing activity declined or stayed at low levels across most Fed regions, the report said. However, the Atlanta and Kansas City regions indicated that the rate of decline slowed. The New York region described factory activity as having “stabilized,” and the Dallas region observed “signs of stabilization.”

In an encouraging note, the Richmond region reported a rise in both new orders placed with factories and shipments.

Consumer spending, the lifeblood of the economy, “remained soft” as shoppers focused on buying “less expensive necessities.” Reports from New York, Minneapolis and Dallas indicated a modest rise in retail sales, while the Boston, Philadelphia, Cleveland, Atlanta, Kansas City and San Francisco regions said sales were “flat or mixed.” The other regions experienced declining sales.

New car sales stayed “depressed” across most Fed regions.

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