In an unusually upbeat assessment, the Federal Reserve says the economy is pointed toward a lasting, jobs-creating recovery.
By Wire services
Published November 27, 2003
WASHINGTON - Retail sales are up, residential housing is booming and even the nation's beleaguered factories are coming back to life, the Federal Reserve said Wednesday in its most optimistic assessment of the economy in more than three years.
That report and several others were further evidence that two years after the 2001 recession ended, a long-awaited resurgence in business spending finally is propelling the U.S. economy toward a lasting, jobs-creating recovery.
"Businesses are coming out of their cocoon," said Mark Zandi, the chief economist at Economy.com, an economic analysis firm in West Chester, Pa.
"Four to eight weeks ago, I was much more worried that the recovery might be short-circuited," he said. "Now I'm convinced it won't. Businesses are doing what we thought they'd be doing a year ago, which is expanding. That was the key missing ingredient, and we've found it."
The Fed said its latest nationwide survey of business conditions found that the economic rebound that got going in the summer was picking up steam in October and early November with improvements across many industries.
The survey, compiled from reports submitted by the Fed's 12 regional banks, was the most upbeat since before the start of the 2001 recession and the listless recovery that has extended over the past two years.
"Descriptions of the pace of growth varied somewhat. But improvements appeared to be reasonably broadly based with most districts noting growth in a number of industries," the Fed said.
The Fed survey, commonly called the Beige Book for the color of its cover, will be used when central bank policymakers hold their last meeting of the year Dec. 9. Analysts expect the Fed to hold a key interest rate at a 45-year low of 1 percent in an effort to bolster economic activity enough to persuade businesses to begin rehiring workers they had laid off.
The Fed has been able to keep interest rates low for an extended period because of an absence of price pressures. The central bank said Wednesday that workers' wages and consumer prices continued to be fairly stable, although there were some increases in raw materials prices and the cost of health insurance continued to surge.
The new Fed survey found some hopeful signs on the jobless front, noting that "labor market conditions generally stabilized after an extended period of weakness," with layoffs slowing and demand rising for temporary workers.
The Beige Book report was one of a number of signs that the economy is continuing to power forward in the current quarter after the summer's amazing 8.2 percent growth spurt.
In other reports Wednesday:
DURABLE GOODS: The Commerce Department reported that new orders for "durable" goods - costly manufactured products expected to last at least three years - rose by 3.3 percent last month, up from a 2.1 percent rise registered in September.
SPENDING, INCOME: Consumer spending held steady in October, while people's incomes grew by a solid 0.4 percent, the department said. The figures matched economists' forecasts. The growth in income was encouraging because it provides a critical foundation for future spending.
UNEMPLOYMENT CLAIMS: New claims for unemployment benefits last week dropped by a seasonally adjusted 11,000 to 351,000, the lowest level since January 2001, the Labor Department said in a report that provided fresh evidence that the jobs market is turning around.
SALES OF NEW HOMES: New-home sales declined by 3.5 percent in October from the previous month to a seasonally adjusted annual rate of 1.1-million units, the Commerce Department said in another report. Even with the drop, October's sales pace represented the fifth-best month on record and marked a 10 percent increase from the same month a year ago. Economists expect home sales to set a record high for all of 2003.
"It's hard to find anything wrong with the economy lately. Everything is going right for a change," said David Wyss, chief economist at Standard & Poor's in New York.
The Bush administration, which is counting on an improving economy to bolster President Bush's re-election chances, saw the new reports as further evidence that the economy is heating up.
"We are cautiously optimistic," said White House spokeswoman Claire Buchan.
The Fed survey found that manufacturing activity was improving in most districts, with Atlanta - the district that includes Florida - and San Francisco reporting higher demand for building materials; Dallas, Boston, San Francisco and Minneapolis reporting rising demand for high-tech products; and Richmond indicating firms in "almost all sectors reporting higher shipments."
Tourism, which has been hard hit since the 2001 terrorist attacks, showed moderate improvements this fall with early snows and cold conditions helping boost demand in ski areas in the San Francisco district. New York reported that occupancy rates in Manhattan hotels were up "noticeably" over a year ago.
The Atlanta Fed reported strong demand, with Florida cruise ships and amusement parks both reporting increases in activity. Richmond reported that coastal areas were still recovering from the damage caused by Hurricane Isabel but that hotels and motels in mountain areas were booked almost to capacity for the Thanksgiving holiday.
- Information from the Associated Press and Knight Ridder Newspapers was used in this report.
