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Fed Says US Economy Still Weak
The US economy was still weak in the last two months as retail sales were sluggish and manufacturing's weakness spilled over to other sectors, the Federal Reserve said Wednesday.
"Reports from most Federal Reserve Districts point to slow growth or lateral movement in economic activity in June and July," the Fed said in its latest economic survey known as Beige Book for the color of its cover.
The report, which was based on information collected before July 30, will be used when the central bank next meets on August 21 to determine interest rates. Many economists are projecting the Fed will make another quarter-point cut in rates, the seventh rate reduction in a row.
During the last two months, retail sales generally were sluggish and frequently below expectations, despite substantial discounting on a wide range of consumer goods, the Fed said.
Manufacturing, which has been hardest hit by the yearlong economic slowdown, was continuing to suffer with spreading softness overseas adding to the weakness in U.S. demand.
"Sustained weakness in the manufacturing sector spilled over to other businesses, with many Districts indicating declines in demand for office space and trucking and shipping services," the Fed said.
The Fed found some glimmers of strength, noting that housing sales remained at generally high levels, reflecting the spur from low mortgage rates.
The weak economy was also helping to keep inflation in check while rising unemployment levels were easing wage pressures in most parts of the country.
"In general, however, declining input costs and stiff domestic and foreign competition continued to restrain consumer prices," the Fed said.
The U.S. economy grew by only 0.7 percent in the second quarter of this year, the slowest pace in 8 years.
The Bush administration and most analysts are counting on the impact of the Fed's aggressive cuts in interest rates plus the government's tax cuts to jump-start the economy later this year.
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