Fed's Beige Book Finds Economic Weakness

WASHINGTON – Orders to U.S. factories registered their first increase of the year in March, thanks to stronger demand for transportation equipment. But the Federal Reserve's latest snapshot of economic conditions showed weakness throughout the economy in March and early April.

The Fed's survey, based on information from its 12 regional banks and collected before April 23, said that ``almost all districts report a slow pace of economic activity.''

The survey, released Wednesday, will be used by policy-makers at their next meeting on May 15 to set interest rates. Economists believe the central bank at that time will cut rates for a fifth time this year at that time.

The survey said that retail sales were weak in March and while they strengthened in April, most Fed districts expected ``only small gains at best'' in the coming months.

Consumer spending accounts for two-thirds of all economic activity and has been a main force propping up the struggling economy.

Manufacturers, which have been bearing the brunt of the slowdown, have seen activity continue to weaken, the Fed said.

``The high-tech and telecommunications industries are experiencing a pronounced slowdown,'' the survey said.

Despite sharply higher energy costs, retail prices were steady in most Fed districts, except for the Richmond, Va., region, where they have been rising at a quicker pace in recent weeks, the survey said.

In the other report, the Commerce Department said factory orders increased by a bigger-than-expected 1.8 percent to a seasonally adjusted $370.5 billion. Many analysts were predicting a 1.5 percent rise.

The advance followed a 0.1 percent drop in factory orders in February, according to revised figures, a better showing than the 0.4 percent decline previously reported. Factory orders fell by 4.3 percent in January.

On Wall Street, stocks were higher in early afternoon dealings. The Dow Jones industrial average was up 6 points, while the Nasdaq was up 54 points.

The economic slowdown has hit the manufacturing sector hardest, causing companies to cut production, trim jobs and reduce work hours to cope with flagging demand.

Seeking to ward off recession, the Federal Reserve has slashed interest rates four times this year, totaling 2 percentage points. The reductions lower borrowing costs and are aimed at generating spending by businesses and consumers, thus boosting economic growth.

The economy grew at an annual rate of 2 percent in the first three months of this year, twice as fast as many economists had expected and double the 1 percent rate of growth registered in the fourth quarter. The stronger-than-expected first quarter performance eased recession fears.

All the strength in March factory orders came from a whopping 24.8 percent increase in orders for transportation equipment, which includes everything from cars and airplanes to ships and military tanks.

The government said gains were widespread but orders for ships and tanks led the way.

In February, orders for transportation products dipped by 0.3 percent.

Because the transportation category includes such costly items for which demand can swing widely from month to month, economists often look at another figure, which excludes transportation orders, to gauge the health of the manufacturing sector.

Excluding transportation equipment, overall factory orders fell 1.2 percent in March, the fourth straight monthly decline.

``It's not the end of the slowdown yet,'' said National Association of Manufacturers economist Gordon Richards. ``The overall picture is thus ambiguous, with patches of strength and weakness.'' Still, Gordon was hopeful for stronger growth this summer.

Orders for electronics and electrical equipment, including communications equipment and household appliances, decreased by 5.5 percent in March, following a 6.4 percent rise the month before.

Industrial machinery, which includes computers and machine tools, saw orders fall by 2.8 percent, on top of a 3.3 percent drop in February.

Orders for primary metals, the category that includes steel, declined by 2 percent in March, after a 1.2 percent drop. The category has posted decreases for six straight months.

Shipments, a good barometer of current demand, however, rose 0.4 percent in March, registering the first increase since August 2000. In February, shipments fell by 0.4 percent.