Fed survey: Economy falters in several US regions
WASHINGTON – For the first time this year, the economy has slowed in several U.S. regions, burdened by high gas prices that have weakened consumer spending and crises in Japan that reduced manufacturing output.
All 12 of the Federal Reserve's bank regions grew this spring. But four regions endured slower growth in April and May compared with earlier this year, a Fed survey released Wednesday showed.
It was the weakest survey since fall, when two regions failed to grow at all. And it confirmed a slew of recent data that portray a national economy whose growth has faltered. Hiring has slowed, orders to factories have declined and home prices have fallen.
Still, many economists agree with comments Fed Chairman Ben Bernanke made Tuesday. Bernanke noted that the economy has weakened in recent weeks. But he suggested that the slowdown from high gas prices and Japan's crises is temporary and that growth should pick up later this year.
"The report is consistent with the softening in consumption and production seen in recent data," said Michael Gapen, senior U.S. economist at Barclays Capital. "We believe that the main factors constraining activity - higher energy prices and supply-chain disruptions - will be transitory."
The Fed's reports have generally brightened since it concluded that the economy slowed in all its districts in the fall of 2008, after the financial crisis erupted. By the spring of 2010, economic activity had accelerated in all 12 districts for the first time since the recession ended in June 2009.
Fears over Europe's debt crisis contributed to downbeat reports last summer and fall. But by the end of last year, economic growth had picked up, and all 12 districts showed improvement. They continued to do so — until Wednesday's report.
Fed banks in New York, Philadelphia, Atlanta and Chicago said growth weakened in those regions. By contrast, the Fed regions in Boston, Cleveland, Richmond, St. Louis, Minneapolis, Kansas City and San Francisco said growth there remained steady.
The Dallas region was the only one to report accelerating growth. That was mostly because of higher oil prices, which benefited its energy industry.
The report, known as the "Beige Book," is based on anecdotal information gathered by officials at the Fed regional banks. It is released eight times a year and provides a more in-the-trenches review of the economy than government statistics do. Wednesday's report covered the roughly seven weeks between April 5 and May 27.
Japan's March 11 earthquake and tsunami disrupted auto production and sales. That helps explain why manufacturing output grew more slowly in five districts. Many factories in the United States owned by Japanese automakers, including Toyota and Honda, rely on Japanese suppliers for electronic components and other parts. They've had to cut output because of shortages of those supplies.
Such production cuts, in turn, have reduced the flow of cars to dealers. Auto sales in the New York, Philadelphia and Cleveland districts have declined.
Looking ahead, several districts have turned less optimistic about manufacturing. Boston said some of its manufacturers think sales will slow in coming months. The Cleveland Fed said some companies are delaying large-scale projects.
But the Chicago and Atlanta banks said factories in their districts expect to expand output in the second half of the year, in part because of a likely rebound in auto production.
Retail sales declined in the Richmond and Boston districts and grew more slowly in the New York, Atlanta, Chicago, St. Louis and San Francisco regions. High gas prices were the main reason.
The New York Fed said a major retail chain and a large mall in upstate New York reported slower sales in May, after robust sales in April. Gas prices nationwide averaged nearly $4 a gallon in early May, before falling back.
Farms were damaged by flooding along the Mississippi River last month, which put millions of acres of cropland under water. And in the Dallas region, a drought harmed the wheat crop. Agricultural conditions were unfavorable across much of the nation, the report said.
Despite the slowdown reflected in Wednesday's report, it still pointed to an economy stronger than it was at times in 2010. Several Beige Books last year indicated that growth in some regions had slowed or even stalled.