WASHINGTON -- The U.S. economy is showing signs of recovery from the recession, the Federal Reserve Board said yesterday.
"Economic conditions appear to be improving modestly in much of the nation," according to the Fed's beige book report on business conditions in the banking system's 12 districts.
The report, which the Federal Open Market Committee will use at its meeting on July 2 and July 3 to decide whether to change the conduct of monetary policy, cited increases in consumer spending, home sales, and manufacturing. It marked the Fed's most optimistic assessment of the economy in many months.
The report is in line with Federal Reserve Board Chairman Alan Greenspan's comments on Tuesday that the recession may have ended some time in the second quarter.
Michael Boskin, chairman of the President's Council of Economic Advisers, also had some upbeat comments yesterday about the economic outlook. The latest statistical reports are "consistent with the very early signs of economic recovery," Mr. Boskin told the House Ways and Means Committee.
He estimated that output of U.S. goods and services was flat or perhaps up slightly in the second quarter, and predicted real gross national product will rise at an annual rate of 2% to 3% in the second half of the year. Mr. Boskin also said inflation seems to be "on a downward track."
Although the pattern for retail sales varied from one region to another and there were no reports of large gains, the Fed report says, "the overall situation is somewhat brighter than that described in the last beige book" published on May 1. That report called sales "sluggish" in nearly all districts, with no pickup following the end of the Persian Gulf war.
Chicago reported sales advances led by consumer durable goods, and businesses in the Northeast reported warm weather had boosted sales of summer goods. Although Richmond reported a slight decline in sales, and Atlanta said sales were stalled, other districts were optimistic that stepped-up home sales would lead to more purchases of household goods.
Manufacturing activity "seems to be improving overall," although several districts reported slower growth in exports, the Fed report says. Philadelphia reported business had picked up in most major industries, and Boston noted sales and orders were doing better. Cleveland said manufacturing had apparently bottomed as the slide in capital goods industries came to an end.
Recent gains in home sales are leading to increased construction activity in parts of the Midwest and elsewhere, the report says. However, nonresidential construction activity remained weak, with high vacancy rates at commercial office sites and only sluggish leasing.
Bank lending remained weak in the eight districts that reported on financial conditions, despite a pickup in demand for home mortgage loans. Much of the strength in mortgage lending involves refinancing rather than new purchases, and demand for business and consumer loans is soft in most regions, the report says.
On a regional basis, the Boston district reported "some signs of improvement," although most manufacturers and retailers indicated that they did not believe a recovery was yet underway. Respondents to the Cleveland survey said they believed the recession in the region "is about over, although they still expect a low recovery."
The Chicago district reported most sectors of the economy "were flat to expanding slightly," and St. Louis said although business remained flat there were "some signs of strengthening." Minneapolis reported "some evidence that the region is rebounding." Kansas City said it was growing moderately due to continued strength in farm income and increased housing starts.
Dallas said the regional economy has improved since the May 1 survey on gains in residential construction and consumer spending.
San Francisco and New York reported that business conditions remained generally flat.