Fed Finds New Signs Recovery Is Faltering

WASHINGTON -- The fragile economic recovery faltered in October and early November as lower interest rates failed to stimulate much new borrowing, the Federal Reserve Board reported Wednesday.

Economic growth slowed even in midwestern states that had not suffered too badly from the recession, according to the Fed's regional economic reports known as the Beige Book.

Analysts expect that the fresh evidence of weak economic growth will prompt the central bank to announce, perhaps as early as Friday, its fifth discount rate cut of the year.

Rate Touching Bottom

The discount rate stands at 4.5%, its lowest level since 1973. The Fed has not cut the rate as many as five times in a year since 1982.

The Beige Book, prepared by the 12 regional Federal Reserve banks, helps guide monetary policy decisions of the Federal Open Market Committee, which meets next on Dec. 17 and 18.

In the relatively robust Midwest and Plains states, the survey said, the economy grew slightly in October and early November, but at a slower pace than in previous months.

Elsewhere, economic activity was stagnant or slightly weaker.

Manufacturing production, which had been a bright spot in recent months, leveled off in most regions. Retail sales remained sluggish, and construction activity weak.

Weak Demand for Lending

Lending remained weak across most of the nation, except for mortgage refinancings and home equity loans. Soft demand was the culprit, the Fed said, as bank credit standards were generally unchanged.

Housing activity continued to expand slowly, and there were scattered signs that sales of low-priced homes were picking up. The Kansas City and St. Louis Fed districts reported modest improvements in home construction, but housing starts were weak in the San Francisco and New York regions.

The Kansas City Fed, for instance, reported that some car buyers are having trouble qualifying for loans. And the St. Louis Fed said first-time homebuyers in one market are not getting mortgages because they lack adequate down payments.

By region:

* Boston: Economic activity has not revived, and no upturn is expected until mid-1992. Consumers remain skittish, making for a "very competitive" holiday season.

* New York: Small and midsize banks are stepping up advertising to bring in new loans, but demand is weak. Nearly half of bank officers surveyed reported a rise in consumer loan delinquencies.

* Philadelphia: Business was slower in most industries, and manufacturing edged down. Retail sales rose, but only after extensive discounting.

* Cleveland: Regional economists foresee slower growth, perhaps in the range of zero to 1% this quarter, but not a double-dip recession. Retail sales were flat, and manufacturing may slow because of auto production cutbacks. Mortgage rate cuts came too late to help home sales.

* Richmond: Despite growing weakness, businesses are optimistic about the next six months. Retail sales and factory activity slowed down, and "retailers said they would be pleased" if this Christmas sales matched last year. Lending remains lackluster.

* Atlanta: Heavy discounting has boosted retail sales, but manufacturing is slow. Only sales of low-priced homes are strong and auto sales are flat. Loan demand is up slightly.

* Chicago: Auto and housing production slowed. New car sales are "depressed." Consumer spending grew sluggishly. Manufacturing was a bright spot, but new orders and production appeared to be tapering off.

* St. Louis: Retail and auto sales are weak, but home building and sales have picked up somewhat. Retailers are optimistic about holiday sales.

* Minneapolis: Along the northern border of Montana, the Dakotas, and Michigan, an influx of Canadian shoppers has lifted retail sales. The recent World Series brought $25 million of business to Minneapolis-St. Paul. New car sales have declined substantially.

* Kansas City: Retail sales and housing starts are up slightly; auto sales are down. Loan demand is steady to slightly higher.

* Dallas: Declines in defense and energy sectors are holding back recovery. Construction is growing, but more slowly. Lending is weak, but improvements are seen ahead.

* San Francisco: Business is slow and expectations are deteriorating. Retail sales, manufacturing, construction, and real estate are all weak. [Graph Omitted]

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