Fed gives gloomy report on economy
WASHINGTON The economy was still mired in a slowdown during July, and manufacturing companies' weakness was spilling into other areas, the Federal Reserve said yesterday.
Analysts said the exceptionally gloomy report sets the stage for a seventh interest rate cut when Fed policy-makers meet Aug. 21.
The Fed's latest survey compiled from reports from its 12 regional banks found slow growth or none at all in most parts of the country.
"The overall message from this report is that the economy is moving sideways at best," said Lynn Reaser, chief economist at Banc of America Capital Management Inc. "The tone was very negative."
The Fed's economic survey, known as the beige book for the color of its cover, found little sign of a pickup in activity although it noted that home sales, helped by low mortgage rates, had remained at high levels.
Economists said the Fed's description of a listless economy was consistent with the June-July time period when the survey was taken, a period that many of them believe will reflect the low-point for the yearlong economic slowdown.
"As dark as this report is, it is what you would expect as the economy bottoms out," said Diane Swonk, chief economist at Bank One in Chicago.
Manufacturing, which has lost 837,000 jobs since June 2000, continued to suffer in July, according to the Fed report, hit by falling demand domestically and in foreign markets.
The survey reported retail sales "generally were sluggish and frequently below expectations, despite substantial discounting on a wide range of consumer goods."
The Fed did say the weak economy was helping to keep inflation pressures in check with the exception of employee benefit costs, which were rising because of higher health costs.