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Data shows recession in some US states, industries

Economists see signs damage is spreading to states; industries now unaffected

(WASHINGTON) A wide range of data from the government, private corporations and independent analysts paints a picture of a nation that is already in recession in some states and industries, while much of the nation and big parts of the economy have suffered little.

It is a divided economy in which major Wall Street banks are recording multibillion-dollar write-downs even as most regional banks have endured little damage.

While unemployment is rising and consumers are falling behind on their bills in highly populated states such as Florida, California and Michigan, most other states appear to be doing fine. Construction workers are on unemployment lines, but engineering and consulting firms are still getting in bidding wars for staff members.

This divide, reflected in a report released on Wednesday by the US Federal Reserve, shows a nation struggling to fight off the housing and credit crisis. The challenge facing policy-makers is to prevent the problems from spreading without unnecessarily increasing the budget deficit or stoking inflation.

‘We don’t have a full-blown nationwide recession now, or even a full-blown slowdown,’ said Joel Naroff, chief economist of Commerce Bank. ‘But that doesn’t mean it doesn’t ultimately turn into one. What the Fed and Congress need to do is try to make sure this is a soft period rather than a recession.’

The Fed’s ‘beige book’, a compilation of anecdotal reports of business conditions around the country, speaks of ‘robust demand’ in industries such as health care, hotels, insurance and the legal sector. The agricultural sector is enjoying good times as corn prices rise. The beige book said, however, that recent holiday sales were disappointing in much of the country and that manufacturing activity was mixed.

The economic damage appears to be concentrated in hotbeds of the mortgage crisis, states that also include Arizona and Ohio.

By sector, economists said, the damage is worst in the construction, manufacturing and housing-related portions of the financial services industry. The Fed reported on Wednesday that industrial production was flat in December.

‘So far the economic damage has been concentrated in housing and housing-related activities,’ said Mark Zandi, chief executive of Moody’s Economy.com. ‘Where housing is crashing is where economies are contracting.’

Prices for food and energy have been rising rapidly, underscored by fresh data from the Labor Department on Wednesday that consumer prices rose 0.3 per cent in December. That could have the same impact on households as a rise in taxes.

The consumer price index rose 4.1 per cent for all of 2007, compared with a 2.5 per cent increase in 2006.

In this bifurcated economic landscape, the sectors that are suffering are slowing the nation’s overall growth rate.

Some economists see tentative, worrying signs that the damage is spreading to states and industries now unaffected.

If those signs turn into a broad weakness, it would mirror the late 1980s, when there were ‘rolling recessions’, in which one region or industry after another suffered from weak economic conditions. ‘The economy never went into recession but different sectors did, with different regions hit at different times,’ Mr Naroff said.

 

Source: The Washington Post

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