Survey finds economy weakened further in October and November
Wednesday, November 28, 2001
AP Economics WriterWASHINGTON (AP) -- The U.S. economy, jolted by the Sept. 11 terrorist attacks, weakened further in October and November, the Federal Reserve said Wednesday. Production declined at American factories and airlines and hotels struggled with a sharp drop-off in travel.
In its latest survey of economic conditions around the country, the Fed found "evidence of additional slowing in most regions" and said this outweighed the faint signs of recovery reported by a few Fed districts.
The survey, compiled from information supplied by the Fed's 12 regional banks, will be used by policy-makers when they hold their last meeting of the year on Dec. 11 to consider changes in interest rates.
On Monday, the economy was officially declared by the National Bureau of Economic Research to have been in recession since March. The downturn is the first in a decade.
Many economists believe the central bank will cut interest rates for an 11th time this year at the December meeting in a continued effort to lessen the severity of the downturn.
The Fed report did find some evidence of a rebound in activity, particularly in sales of autos, which soared to record levels in October as consumers responded to attractive offers of free financing.
However, the report said that nonauto sales were spotty, with strong sales in some regions offset by weaker activity in other parts of the country.
Retailers in many parts have begun bracing for a disappointing Christmas sales season, the central bank said.
"Store managers had already begun discounting prices in some areas to counteract weak customer traffic," the report said.
The Conference Board reported Tuesday that consumer confidence fell in November for a fifth straight month, reflecting growing concerns by Americans about the recession's impact on the labor market. The unemployment rate shot up to 5.4 percent in October as 415,000 Americans lost their jobs, the largest number in 21 years.
The Fed reported that the rising number of layoffs had taken pressure off wages and that the weak economy was keeping a lid on inflation generally. Prices of cars, gasoline and computers fell during the survey period while prices of insurance and health care rose.
Analysts say the Fed, which has already pushed interest rates down to the lowest level in 40 years, will keep cutting rates until there are signs that the economy has stabilized and begun to rebound.
The Fed report, known as the beige book for the color of its cover, said most regions found lingering troubles for the travel industry with a major car rental company filing for bankruptcy in Florida and sharp declines in hotel occupancy rates and the number of passengers flying on airlines.
However, the Fed report said New York City, where suicide hijackers demolished the World Trade Center, saw hotel bookings rebound in October to 75 percent occupancy after falling below 50 percent in late September. But the October rate was still 12 percentage points below a year earlier.
Also, the Fed said hotel owners in the Richmond Fed district reported solid holiday bookings as residents opted for travel destinations closer to home.
For manufacturing, which has lost more than 1 million workers since early 2000, the Fed reported continued grim news with further declines in production, new orders and employment.
"More than two-thirds of the districts reported that new orders and production decreased or grew more slowly," the report said. "Five of the districts indicated that conditions in telecommunications and other high-tech equipment manufacturing industries softened further during the survey period."
The first of the Fed's 10 rate cuts occurred Jan. 3 and the reductions have accelerated following the terrorist attacks, with three half-point moves since that time. The federal funds rate, the interest that banks charge each other, is now down to 2 percent, the lowest level since September 1961.
On Tuesday, Fed board member Laurence Meyer took issue with critics who contended that the central bank may be making a mistake by continuing to reduce rates so aggressively now that they are so low.
He said worries that the Fed could run out of ammunition are wrong and it would be misguided for the central bank to hold back on rate cuts simply because rates have already been pushed to such low levels.
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