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The Fed faces tough choices
By Jeannine Aversa
Associated Press
Jul 24, 2008
WASHINGTON - The nation slogged through slower economic growth and rising prices during the early summer, delivering a double whammy to individuals and businesses alike, according to a report yesterday from the Federal Reserve. The new snapshot of business conditions underscored the challenges confronting Federal Reserve Chairman Ben S. Bernanke and his colleagues as they try to get the economy back on track.
For now, many economists predict the Fed will probably leave a key interest rate alone when it meets next on Aug. 5 - given all the economic crosscurrents. Boosting rates to fend off inflation would hurt the fragile economy and the already crippled housing market. On the other hand, the Fed is not inclined to lower rates because that would aggravate inflation.
The report "supports our notion that the Fed is firmly stuck on the horns" of a policy dilemma, said T.J. Marta, a fixed-income strategist at RBC Capital Markets.
Growth and inflation barometers turned worse in the summer, according to the Fed report.
"It was decidedly downbeat," Joel Naroff, president of Naroff Economic Advisors in Holland, Pa., said of the report. "The economy remains in trouble."
Information from the Fed's 12 regional banks around the country suggested that "the pace of economic activity slowed somewhat," the Fed reported.
In the Philadelphia area, "business conditions . . . weakened somewhat from June to July," the report said. It said area manufacturers expected in shipments and orders over the next six months, but retailers, including auto dealers, see no sales improvement soon.
Consumer spending - the economy's lifeblood - was reported as "sluggish or slowing" in nearly all the Fed regions nationwide, although the government's tax rebate checks spurred sales for some items, especially electronics. Sales at many other stores, particularly for housing-related goods, were typically characterized as "weak or falling," however.
Looking ahead, "the outlook for retail activity was also generally downbeat," the Fed report said.
Businesses continued to be hit by rising prices for fuel, metals, food and chemicals, among other things. Many Fed regions said manufacturers planned to raise prices to customers as a way of coping with the higher production costs.
The Philadelphia View
Highlights from yesterday's Federal Reserve report on the region's economy in late June and early July.
Overall business activity weakened with no sector reporting any significant hope for a quick rebound.
Discount retailers posted gains, but most others did not. Restaurants have been crimped by less enthusiastic consumers, and vacation spending does not seem robust. Auto dealers said sales trended down.
Manufacturers said "the outlook has become less clear and capital expansion plans remain limited."
Banks tightened credit standards. Some curtailed lending to retailers and real estate firms. Others said they limited new home-equity lending or reduced credit available under home-equity lines.
Real estate sales were slowed by uncertainty over the economy and home prices. - Bob Fernandez
Copyright 2008
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