'Favorable' economic reports
URL:http://www.washingtontimes.com/op-ed/20040115-085005-5218r.htm
On the heels of Friday's disappointing December jobs report, the Federal Reserve on Wednesday issued a relatively upbeat assessment of the economy from mid-November through the first week of January. The report, known as the Beige Book, includes economic information compiled throughout the country by the Fed's 12 regional banks. It declared that "the nation's economy has continued to improve since the last survey," which covered the first half of the fourth quarter.
Most Fed districts delivered "quite favorable reports," the summary review said. Overall consumer spending, which has accounted for about 70 percent of the nation's gross domestic product in recent years, apparently met the "generally positive" expectations that retailers held before the holiday season began. Broken down by consumer-product category, demand for "high-end items" was "especially strong in several districts." Meanwhile, several districts also reported that sales at discount stores in general came in below expectations.
In line with earlier, quite favorable manufacturing reports for November and December by the private Institute for Supply Management, the Beige Book offered positive summaries throughout the country for this important sector. While nearly all districts "reported increases in manufacturing activity" last month, several districts noted that "factory employment had begun to edge up as well." The Labor Department's December payroll survey revealed that the manufacturing sector, overall, had shed 26,000 jobs. It was the 41st consecutive month of job contraction in that industry. Indicating a stirring of manufacturing hiring activity in at least some districts, the Fed's report offers hope that the three and a half years of job losses in the relatively high-paying blue-collar manufacturing sector may be coming to an end.
The outlook for manufacturing was also quite positive. Particularly significant were the reports from several districts projecting that capital spending will be "somewhat higher" than in 2003. After soaring throughout the second half of the 1990s, business investment declined for nine consecutive quarters before beginning to rise during the second and third quarters of last year. (Figures due out late this month will likely confirm that business investment increased during the fourth quarter as well.) It is difficult to underestimate the long-run importance of an acceleration in the growth of business investment. In order for the economy to reach the point where its recently robust expansion will become sustainable over the long term, economists have stressed that business investment will have to resume strong growth to supplement the consumption and housing sectors, neither of which wilted from the forces of 2001's recession.
Inflationary pressures remained subdued throughout the economy. With labor markets experiencing only "modest improvement" in most districts and with retail prices remaining "generally stable," the Fed's monetary-policy committee will likely refrain from raising short-term interest rates for the indefinite future. |
