Fed: Economy has weakened further
The country’s economic health deteriorated further in the early spring as shoppers buckled under the strains of the housing and credit debacles and a weaker employment climate.
Manufacturers and other businesses, meanwhile, were walloped by zooming prices for energy and other raw materials. However, their ability to jack up retail prices to customers was mixed, with some companies restrained by competitive pressures, according to the Federal Reserve’s new snapshot of nationwide economic conditions released Wednesday.
"Economic conditions have weakened," the Fed report stated.
Many analysts believe the economy has fallen into a recession, predicting that economic activity contracted in the first three months of this year and is still ebbing now.
Even Fed Chairman Ben Bernanke recently acknowledged for the first time that a recession was possible. That was a rare utterance of the "r" word for a Fed chief. The government later this month will report on the economy’s first-quarter performance.
The report underscored the challenges facing Bernanke and his colleagues as they fight to keep the economy from sinking into a deep recession, while at the same time avoiding a flare-up of inflation. The report will figure prominently when the Fed meets next on April 29-30 to decide its next move on interest rates.
The Fed, which has been cutting rates since last September to bolster the economy, turned much more forceful in January, when conditions took another turn for the worse. Many economists believe the Fed will lower rates yet again at the April meeting to help shore things up.
Even with the rate reductions, though, consumers have turned more cautious, the Fed report suggested. Consumers are major shapers of the economy because their spending accounts for such a big chunk of overall economic activity.
"Consumer spending was characterized as softening across most of the country, with some districts reporting year-over-year declines in retail and or auto sales," the Fed report said creditreport paydayloan.
Merchants - other than auto dealers - reported that sales were "sluggish or declining" in 10 of the Fed’s 12 regions, the report said. With inventories of unsold goods starting to pile up, retailers in the Richmond, Va., and San Francisco regions have canceled orders, the report noted.
Lofty energy prices are squeezing businesses’ profits and pinching consumers, leaving them with less money to spend on other things. That is putting a damper on economic growth and also adding to inflation pressures.
Oil prices, which recently hit a record of close to $115 a barrel, eased a bit on Wednesday. Gasoline prices have soared, too, marching towards $4 a gallon.
Businesses are having to cope with higher prices for food products, fuel and energy products and many raw materials, the Fed report said.
"Most manufacturers have or are planning to increase prices" in response to such rising costs, the Fed said. However, the response of companies in the service sector has been more mixed, the Fed said, "in part due to differences in competitive pressures."
Overall, though, most of the Fed’s regions reported "little change in retail price inflation," the Fed report said, suggesting that producers - and their profits - are especially getting hit by rising energy and raw material prices.
The government reported on Wednesday that consumer prices went up by a relatively modest 0.3% in March. Producer, or wholesale, prices, meanwhile rose a lot faster - by a whopping 1.1%.