Fed’s Beige Book cites rising tide of red ink …
The U.S. economy "deteriorated further" in almost all corners of the country over the last two months as consumer spending slumped and manufacturing declined, the Federal Reserve said in its regional business survey.
Ten of 12 Fed district banks reported "weaker conditions or declines" in their regional economies, and respondents didn’t expect a "significant pickup" until late this year or early next year, the Fed said Wednesday in its Beige Book release, published two weeks before officials meet in Washington to set monetary policy. Housing "remained in the doldrums in most areas," the Fed said.
Lending fell across the United States, and credit availability "remained tight," the Fed said.
"We’re in the throes of the deepest part of the recession now," Kevin Flanagan, a Purchase, N.Y.-based fixed-income strategist for Morgan Stanley’s individual-investor clients, said on Bloomberg TV.
The report reflects information reported through Feb. 23 and summarized by staffers at the San Francisco Fed, which oversees the largest portion of the U.S. economy.
"Consumer spending remained very weak on balance, albeit with slight firming noted by many districts," the Fed report said. About half of the districts said consumer demand was slower or "fell significantly" from a year earlier.
The economy shrank at a 6.2 percent annual rate in the fourth quarter, the most since 1982, revised government figures showed last week. Home construction contracted at a 22 percent pace after a 16 percent decline in the prior quarter.
The recession in U.S. manufacturing persisted for a 13th month in February, a private report showed this week. Other reports showed consumer spending rose in January with a spurt of post-holiday discounts, and construction dropped more than twice as much as anticipated instant credit report.
"Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall," the Fed said.
Exceptions to the economy’s weakening included food production and pharmaceuticals, the Fed said.
In January, Fed officials downgraded their forecasts for growth this year, seeing a deeper contraction as the credit crunch tightens. Most forecast a contraction of 0.5 percent to 1.3 percent.
The Fed report said home prices kept falling this year "with little or no signs of a deceleration evident." Home builders "remain pessimistic regarding recovery prospects this year," the Fed said. Demand for commercial real estate "weakened significantly," and the retreat in construction is expected to continue through at least year-end, the Fed survey said.
U.S. employers probably eliminated 650,000 jobs from payrolls in February, the most since 1949, while the jobless rate may have increased to 7.9 percent from 7.6 percent, according to the median estimate of economists surveyed by Bloomberg News. The Labor Department will report the figures Friday.
The Beige Book says unemployment is up in "all areas, reducing or eliminating upward wage pressures." Weaker demand is spurring discounting of goods other than fuel and food, the Fed said. As such, "upward price pressures continued to ease across a broad spectrum of final goods and services," the Fed said.
The consumer price index was unchanged in January compared with a year before. That was the first month without a year-on-year increase since 1955.