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Growth slows in 8 of 12 regions in US: survey

Beige Book cites weak retail sales, slow manufacturing and housing woes

(NEW YORK) The Federal Reserve says economic growth has slowed in eight of 12 US regions since the start of the year, hurt by faltering retail sales, manufacturing and a continued decline in housing.

‘Two-thirds of the districts cited softening or weakening in the pace of business activity, while the others referred to subdued, slow or modest growth,’ the central bank said in its regional business survey, known as the Beige Book, on Wednesday.

The report provided anecdotal evidence of a cooling economy that echoed reports this week that showed a contraction in manufacturing and services last month.

Fed chairman Ben Bernanke told lawmakers last week that the central bank is prepared to lower interest rates further as needed to avert a deeper downturn.

The report noted that retail activity in most districts was weak or softening. Manufacturing was sluggish or have slowed in about half the districts.

Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by its meeting on March 18. Policy makers have lowered the rate by 2.25 percentage points since September to 3 per cent.

The Fed report also said that almost all districts reported ‘upward pressure on prices’ from higher raw materials and energy costs, though companies reported ‘mixed success’ in passing along costs in higher prices.

The Beige Book said housing remained a drag on the US economy. ‘Residential real estate markets generally remained weak,’ the report said, citing ‘tight or tightening credit standards’ in most districts.

Scarce credit, bloated inventories and falling prices continue to depress housing markets. Sales of existing homes fell in January to the lowest level since records began nine years ago, the National Association of Realtors said last month.

‘Growth risks are much more severe in the near term’ for the Fed, Bruce Kasman, chief economist at JPMorgan Chase, said. ‘Growth is pretty much stagnant right now.’

Companies reduced workers last month, the first reductions in the US in almost five years, a private report based on payrolls from ADP Employer Services showed on Wednesday.

The economy expanded 0.6 per cent at an annualised pace last quarter. Fed officials lowered their projections for economic growth by half a percentage point this year, according to quarterly figures published last month.

‘I continue to expect a period of economic weakness in the near term,’ Fed governor Frederic Mishkin said on Monday. ‘With the economic outlook having deteriorated significantly and financial markets under considerable stress, the FOMC will face significant challenges.’

The Beige Book’s regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 US states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff.

The Beige Book was prepared by the Boston Fed based on information collected on or before Feb 25.

Source: Bloomberg (Business Times 7 Mar 08)

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