Posted on: Thursday, July 31, 2003

Fed says economic signs encouraging

Advertiser News Services

WASHINGTON — The U.S. economy is showing some signs of improvement, the Federal Reserve said yesterday in its most upbeat report released in many months.

But the report of conditions in the 12 Federal Reserve districts was filled with qualifiers, and the muted tone suggested the sluggish economy is not jumping out of the blocks at full speed.

The districts reported "signs that the pace of economic activity increased a notch during June and the first half of July," the Fed said in its "beige book" report, an anecdotal study of the state of the economy known for the color of its cover.

Eight of the districts reported "somewhat stronger" growth in recent weeks. Atlanta said conditions were "mixed" while Chicago, St. Louis and San Francisco said activity was "sluggish."

The Fed's San Francisco district noted that while tourism remained slow in most Western states, Hawai'i's tourism sector picked up sharply, despite low foreign visitor traffic.

The residential real estate market, helped by low mortgage rates, was one of the strongest sectors in the Western states.

"Home sales, home prices and new home construction all continued at a rapid pace in most areas, particularly in Hawai'i and parts of Southern California," according to the San Francisco district's report.

Several districts noted increased optimism about economic prospects in coming months, the Fed said.

"It's clearly encouraging that the Fed is seeing things look a little bit better," says Steven Wood, president of Insight Economics, an economic consulting firm in Walnut Creek, Calif.

"But it's a little bit too soon to break out the champagne," Wood says. "We have a lot of work to do to get the economy back to where we'd like to see it."

The report will be studied by Fed officials before their next meeting Aug. 12. Central bankers are expected to leave interest rates at 1 percent, the 45-year-low reached when they cut rates at their last meeting in June.

This time, the Fed said hard-hit factories saw increased activity in most regions. Ten of the 12 districts reported higher demand for a range of services including business consulting, legal, high-tech and insurance. Retail sales, however, were mixed, and discounting was widespread.

Employment was mixed, with only a few mentions of increased hiring at businesses throughout the country. Richard Yamarone, director of economic research at Argus Research in New York, says continued job losses continue to threaten the economy.

"The Federal Reserve is looking through rose-colored glasses," Yamarone says. "Jobs are not being created. That is weighing greatly on consumer attitudes, income and spending."

A number of firms announced layoffs yesterday. May Department Stores said it will cut 3,700 workers as it closes 32 Lord & Taylor stores across the USA, and textile manufacturer Pillowtex said it was shutting down, eliminating 6,450 jobs.