Thursday, August 10, 2000

Hot economy cooling, Fed says

Growth slower; analysts think rate hike unlikely

By Martin Crutsinger
The Associated Press

        WASHINGTON — There were growing signs that the red-hot U.S. economy began to slow in the late spring and early summer, the Federal Reserve reported Wednesday in its latest survey of business activity around the country.

        While the economy was in no danger of tipping into recession, the Fed survey found slower activity in consumer spending, manufacturing and construction in June and July.

        The conclusions were based on reports submitted by the Fed's 12 regional banks and intended for Fed policy-makers to use when they next meet Aug. 22. De spite signs of slowing in some parts of the country, other areas — such as the Cleveland district, which includes Cincinnati — appeared to be maintaining strength.

        The Cleveland district reported economic activity was “moderately strong” in July. Commercial construction remained brisk, while housing construction slowed. Bank lending corresponds to those trends.

        Consumers in the district continue to spend, but growth is moderating. Retailers reported lower inventories, and strong sales of women's and children's clothing. Auto dealers reported June sales were better than last year, but have declined in July.

        While the national economy actually accelerated in the spring rather than slow ing, most analysts think that more signs of softer activity in recent weeks will persuade the Fed to leave interest rates unchanged at the August meeting.

        In the past 14 months, the central bank has raised interest rates a total of six times in an effort to slow the economy enough to keep inflation under control, achieving what is often called a “soft landing” for the economy.

        The Fed's latest survey said, “Economic activity in all Federal Reserve districts continued to expand in June and July, but there were additional signs the expansion was moderating in some sectors and the majority of districts.”

        The survey said seven districts — Atlanta, Boston, Chicago, Dallas, New York, Richmond and San Francisco — reported “slowing econom ic growth” in their areas.

        Four other districts — Cleveland, Kansas City, Minneapolis and Philadelphia — reported basically unchanged growth rates while St. Louis actually saw signs that economic growth was accelerating.

        The evidence of weaker activity in consumer spending would indicate a slowdown in this key sector, which began in the spring, and was continuing as the July-September quarter started.

        Concerns about the direction the economy has taken were raised two weeks ago when the government reported that overall growth, as measured by the gross domestic product, actually accelerated in the April-June quarter, expanding at a robust 5.2 percent rate.

        However, consumer spending, which had been rising in the first three months of the year at the fastest pace in more than a decade, slowed in the second quarter, but this was offset by strong business investment and government spending.

        The GDP report had raised fears the Fed would raise interest rates at its Aug. 22 meeting.

        But last week, the Labor Department reported that unemployment held steady at 4 percent in July as payroll jobs actually fell, reflecting the elimination of thousands of temporary government census-taking jobs.

        That report and other indications of moderation have left analysts now thinking the central bank will be content to leave rates alone, not just at the August meeting but probably for the rest of the year.

        Enquirer reporter John J. Byczkowski contributed to this report.


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