WASHINGTON - The economy's expansion is being hampered by anxieties among businesses and consumers over President Clinton's budget and health-care programs, the Federal Reserve Board said yesterday.
The assessment is contained in the so-called beige book report, which is based on a survey of businesses in the 12 Fed district bank regions and serves as a basis for members of the Federal Open Market Committee to set monetary policy. The panel is scheduled to meet July 6 and 7.
"Businesses commented that investment and hiring were being delayed because of uncertainties about federal tax increases and national health care reform," the report says. "Retailers also said that such concerns might be preventing a more vigorous increase in consumer spending."
Economists for some time have been saying that worries over tax increases and higher health-care premiums are leading businesses to hold back on full-time hiring.
Some have also said that the drumbeat of news coverage over Clinton's programs is depressing consumer confidence.
"I keep hearing that all the time," said Steve Cochran, an economist with Regional Financial Associates, a business advisory firm in West Chester, Pa., that has a number of bank and retail clients. "There's a lot of uncertainty out there. "
Administration officials are hoping that once the President's deficit reduction package wins approval in Congress, public and business confidence will be revived. The Senate began debate on the legislation yesterday.
In general, yesterday's beige book report seemed slightly less optimistic about the economy than the previous report issued April 5, saying business activity "was increasing at a slow to moderate pace in most Federal Reserve districts in May and early June." The latest report, prepared by the Federal Reserve Bank of Philadelphia, is based on information collected before June 15.
"Expectations generally are for continued slow growth," the report says.
Conditions remained gloomiest in California, which is continuing to suffer from a downturn in manufacturing, construction, and real estate. Businesses in the 12th District of San Francisco have actually grown more pessimistic about the near-term outlook since surveys earlier this year, the Fed said.
Retail sales increased in most districts, according to the Fed report. Atlanta and Chicago said appliances, home furnishings, and durable consumer goods were doing well. Auto sales were up in Atlanta, Cleveland, Dallas, Minneapolis. and in Far Western states outside California.
Sales and construction of single-family homes were reported to be on the rise in most regions, and there were small declines in office vacancy rates in Boston and several other districts. including New York.
Bank lending activity was mixed, the Fed said. Bankers reported loan volumes were increasing slowly in St. Louis and other parts of the Midwest, but loans in New York and Philadelphia were flat, and they were down in California and Richmond.
Economists yesterday said they are still looking for moderate economic growth during the year, but some were jarred by a Commerce Department report that durable goods orders tumbled 1.6% in May.
The decline was the third straight drop and was read as evidence that the manufacturing sector is struggling once again after picking up steam at the end of last year. Order backlogs fell for the third consecutive month, hitting the lowest level since last November.
The Commerce Department also reported that its final estimate for gross domestic product growth in the first quarter was only 0.7%. an even weaker showing than the 0.9% gain reported last month. Moreover, much of the growth came on a large rise in business inventories.
Kathleen Camilli, chief economist for Maria Florini Ramirez Inc., said the drop in durable goods orders was a carryover from rising inventories and should not be read as a sign of economic weakness. Consumer spending remains moderate. she said. "but the boom that was expected just isn't there. "
Ray Stone, managing director of Stone & McCarthy Research Associates Inc., said the weakness in orders was concentrated in defense goods and aircraft, particularly orders to Boeing Co. He estimated that GDP in the second quarter would rise a modest 2%. Other analysts took a more negative view of the drop in orders. "It's a surprise and a great disappointment," said Laurence H. Meyer, president of a forecasting firm in St. Louis. "This tells us there doesn't seem to be much of a pickup on the horizon in the manufacturing sector. While the economy is now moving forward, it's doing so at a disappointingly slow pace."
