WASHINGTON -- The economy weakened in most regions of the United States during October and early November as shoppers held off on making major purchases going into the holiday season, the Federal Reserve Board said yesterday.
The Fed's so-called beige book, which provides a snapshot of the economy based on reports from the 12 Federal Reserve district banks, said there was evidence of "flagging momentum in the economic recovery."
The report's findings are the most explicit admission to date by Fed officials that the weak recovery that showed up in government economic statistics earlier this year is fading. The findings are expected to serve as the basis for the Federal Open Market Committee's deliberations on monetary policy at its Dec. 17 meeting.
Private economists say the economy is stalled, with only scattered signs of growth. "The economy is very weak, and that's the only way you can describe it when you look at jobs, production, sales, profits, and confidence levels," said Joseph Wahed, chief economist for Wells Fargo Bank in San Francisco.
A separate report yesterday from the Commerce Department said U.S. gross domestic product -- the new measure of output of goods and services -- increased at an annual rate of 1.7% in the third quarter after a gain of 1.4% in the second quarter.
The bond market rallied on the report, which contained a number of technical revisions to previously published data and was weaker than expected.
Previously, Commerce had estimated GDP was up 2.5% in the third quarter.
Much of the third-quarter rise in GDP came in the accumulation of inventories by business. Final demand for goods and services was weak, and businesses are likely to be cutting back again, according to Mr. Wahed. "The economy is in trouble, and I think we are in a double dip," he said.
The Fed's beige book report was not as pessimistic, but it did not contain much holiday cheer, either. Retail sales, which account for two-thirds of the entire economy, remained generally sluggish, it said, and several districts reported that gains were concentrated in nondurable goods. New car sales were called "uniformly weak."
Many districts reported that stores were actively discounting, and several said the price cuts were needed to achieve sales gains. In general, the beige book said, "reports on price trends suggested steady to diminished inflation."
The Commerces figures showed that inflation continued to cool throughout the year. The implicit price deflator was up 2.1% in the third quarter, compared with 3.1% in the second quarter and 5% in the first quarter.
Manufacturing activity leveled out in most districts, according to the Fed report.
Philadelphia reported that business had "edged down slightly in recent weeks," and about half of the factories in Boston said orders had softened recently. The Cleveland and Chicago districts reported slower growth in the auto industry, and other districts said conditions also remained sluggish.
Housing activity continued to expand at a slow pace. Demand for existing homes picked up in the New York City area, and Kansas City said home sales remained well above earlier levels.
In the financial sector, bankers generally reported terms for commercial and industrial loans were unchanged. Demand for loans was called "stable but weak" in Richmond, Philadelphia, Cleveland, Chicago, St. Louis, and Dallas.
In general, Midwestern regions seemed to be holding up better than other parts of the United States, but even in the Midwest growth was slowing, the Fed report said. Cleveland and Chicago, for example, all said conditions had grown more sluggish.
Despite the generally gloomy tone of the Fed's latest economic assessment, businesses in some districts said they remained optimistic about better times in 1992. Manufacturers in Philadelphia said they expect more growth over the next six months, and retailers in Richmond were also hopeful about sales. However, sales expectations by auto industry suppliers in Cleveland and Chicago deteriorated, and more business leaders in San Francisco said they expect renewed recession.