Economic activity was accelerating in early fall with consumer spending strong in most parts of the country and even the nation’s beleaguered manufacturing sector showing signs of life, the Federal Reserve reported Wednesday.
In its latest survey of business conditions around the country, the Fed said its 12 regional banks were reporting a number of signs that the recovery from the 2001 recession was finally beginning to gain momentum.
Ten of the Fed’s 12 districts reported stronger economic activity, according to information gathered in September and early October while the other two — Boston and Cleveland — reported economic activity was mixed but at least not declining.
“On balance, the pace of economic expansion has picked up since the last report,” the Fed concluded in its latest “Current Economic Conditions” survey.
This survey, one of eight done every year, will be used when Fed policy-makers meet on Oct. 28 to review interest rates. Most analysts believe the central bank will leave its target for banks’ overnight borrowing unchanged at a 45-year low of 1 percent in the belief that economic recovery is finally beginning to pick up steam.
Federal Reserve Chairman Alan Greenspan and other Fed officials have indicated they are prepared to leave rates low for a considerable period of time to make sure that economic growth strengthens enough to spur companies to start rehiring laid off workers.
While the country has been out of the last recession since November 2001, businesses have continued to slash payrolls and the unemployment rate is currently stuck at 6.1 percent.
Many economists, however, are predicting that economic growth in the just-completed July-September quarter could come in at an annual rate above 5 percent, with growth in the current quarter expected to top 4 percent. That would represent the strongest back-to-back increases in the gross domestic product in four years.
The Fed survey gave support to this optimistic forecast, reporting that housing sales, one of the economy’s leading lights, remained “robust” in the early fall despite a slight uptick in mortgage rates.
Consumer spending in general improved in much of the country, helped by the latest round of federal tax cuts, although most districts reported a slowdown in auto sales. In a separate report Wednesday, the Commerce Department said overall retail sales were down 0.2 percent in September, reflecting a big drop in auto sales. Excluding autos, retail sales were up 0.3 percent last month.
Some of the brightest news in the Fed survey came in the area of manufacturing, with a number of districts reporting signs of a rebound. Manufacturers have been the hardest hit sector of the economy with factory employment down for 39 consecutive months, bringing total job losses to 2.7 million workers.
But the Fed said both the Atlanta and Chicago districts reported a rebound in orders for machine tools while computer chip makers in the San Francisco region and high-tech industries in the Dallas region both reported increased demand.
On the employment front, the Fed reported “modest signs of improvement” with Richmond, Va., Chicago, Minneapolis and Dallas all reporting increased demand for temporary workers, which could be a harbinger that companies will soon begin rehiring laid-off workers.
Inflation at the consumer level remained under control although several districts reported a jump in prices paid by businesses for such items as lumber and plywood, an increase blamed in part on heavy demand for housing construction in the United States, rebuilding efforts in Iraq and repairs needed along the East Coast following Hurricane Isabel.
Isabel brought significant damage in the Richmond region not just to homes and businesses but also to farmers with the combination of flooding, high winds and power outages harming crops, livestock and fishing equipment, the survey reported.
In other parts of the country, recent rains were reported to have improved crop yields in the St. Louis, San Francisco, Atlanta, Kansas City and Chicago districts while cattle producing regions of the country were reporting banner prices.