updated 3/3/2004 3:32:08 PM ET 2004-03-03T20:32:08

Factories hummed and consumers kept cash registers busy in the first two months of this year, fresh evidence that the economic recovery is moving ahead, according to a Federal Reserve report Wednesday.

Major Market Indices

“Economic activity continued to expand in January and February,” the Fed said in its latest survey of business conditions around the country. However, on the jobs front, “employment has been growing slowly in most Federal Reserve districts,” the report said.

Factory activity rose in 11 of the 12 regional Fed districts, good news for America’s manufacturers, who were hardest hit by the 2001 recession and have struggled mightily to get back on firm footing. In the Fed’s Cleveland region factory activity didn’t go up, but rather held steady, the Fed survey said.

Even with the pickup in factory activity, manufacturers have lost 3 million jobs since July 2000. That’s the month factory employment peaked as the economy was enjoying a record-long expansion.

The lackluster jobs climate is a sore spot for President Bush, and the Democrats are trying to use it as an election-year issue.

“I don’t think our country has an economic strategy,” said Sen. Hillary Rodham Clinton, D-N.Y., who urged the administration to take steps reverse the loss of manufacturing jobs.

In the Federal Reserve report, consumer spending on general merchandise rose in most of the Fed’s regions except for St. Louis, which reported a slight decline.

Strong or strengthening sales were reported for the New York, Richmond and the Dallas regions. Sales growth was moderate in the Boston, Philadelphia, Chicago, Minneapolis, Kansas City and San Francisco districts. Retailers in Cleveland said sales met or exceeded expectations. In the Atlanta region, sales moderated a bit in February but were up from the same month a year ago, the Fed said.

However, it said that nearly all regions reported slower auto sales in January and February compared to a year ago.

Activity in the service sector also expanded in January and February. Boston and St. Louis, for instance, saw stronger demand for information technology services.

The report, dubbed the Beige Book for the color of its cover, will be used as a basis for discussion when central bank policy-makers meet on March 16.

Overall, “it’s a good report card for the economy,” said Stuart Hoffman, chief economist at PNC Financial Services Group.

Most economists, including Hoffman, expect the rate-setting Federal Open Market Committee to hold rates steady at a 45-year low of 1 percent at the March meeting.

Fed Chairman Alan Greenspan on Tuesday said that extra-low short-term interest rates eventually will have to go up. He gave no clue when.

Since last June, the Fed’s main lever to influence economic activity, called the federal funds rate, has been at 1 percent. Near rock-bottom short-term interest rates have helped motivate consumers and businesses to spend and invest, an important factor to lift economic growth.

Some economists believe the Fed will start to push up rates this year. Others don’t believe higher rates will come until 2005.

On the employment front, the Boston region indicated that temporary-help agencies were placing more workers in manufacturing, software development and government. Employment agencies in New York indicated that they have been experiencing gradual increases in demand.

Agriculture conditions, meanwhile, were mixed in the first two months of the year. Demand for beef appeared to be recovering from the effects of the nation’s first case of mad cow disease. But U.S. exports of poultry have been hurt by the outbreak of avian influenza, the Fed said.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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