March 7, 2007 / 9:58 PM / 13 years ago

Fed spies signs of slower growth

WASHINGTON (Reuters) - U.S. growth slowed in some parts of the country last month and private employers hired fewer people than expected, according to reports on Wednesday that chime with other weak signals from the economy.

Shipping containers arrive at Port Newark in a file photo. Several U.S. regions noted slower economic growth in the last weeks of February but price pressures remained little changed despite tight labor markets, the Federal Reserve said on Wednesday. REUTERS/Chip East

The U.S. Federal Reserve said that while the housing market may have turned the corner and inflation risks had not increased, output in some regions was cooling.

“Most Federal Reserve districts reported modest expansion in economic activity since the last report, but several districts noted some slowing,” the Fed said in its Beige Book summary of economic conditions.

But alongside the Beige Book, which is based on reports by the 12 regional Federal Reserve banks, Chicago Fed President Michael Moskow said growth remained strong and it was “much too early to say inflation is no longer a concern.”

“I expect the economy to continue to operate at a high level relative to its potential, which could eventually lead to the emergence of increased inflationary pressures,” he told the Jewish United Fund in a speech in Chicago.

The Beige Book was compiled on this occasion by the Kansas City Fed from data collected on or before February 26, or the day before steep stock market losses last week.

Investors took fright at the convergence of several factors, including problems in the U.S. subprime mortgage market and declining business spending which could challenge Fed hopes for a gradual recovery in growth this year.

Analysts said the emphasis the Beige Book placed on a slowdown did lend the report a slightly dovish slant, but felt it still backed up hopes for a steady recovery.

“Despite the slightly downbeat tone of the first paragraph, the details of the report were solid on balance,” said Dean Maki, U.S. economist at Barclays Capital in New York.

He was reassured by the report’s focus on steady retail sales, still strong demand for services, and growing manufacturing.

Policy-makers expect the economy to slowly pick up after losing steam in the fourth quarter as housing cooled. The Beige Book nodded to hopes that this sector might finally be on the mend, while softness among manufacturers remained confined to autos and products linked to residential construction.

“Almost all districts reported that housing markets remained weak, but signs of stabilization were noted in several districts. In contrast to the housing sector, commercial real estate markets continued firm or remained solid,” it said.

A separate consumer credit report from the Fed showed that demand for big-ticket items like cars and holidays had remained strong in January, despite slacker credit card spending.

Consumer credit rose at a 3.2 percent annual rate in January to $2.411 trillion versus December’s increase of 2.51 percent, or $5.01 billion, the Fed said.

U.S. chief executives were also more upbeat, according to a Business Roundtable quarterly survey. This calculates an index of CEO optimism for the economy over the next six months and it rose solidly to 84.9 in March from 81.9 in December, which had been the lowest reading since 2003.

But regarding job conditions, another key gauge of economic health, a survey by private employment service ADP added to the mixed picture with its finding that U.S. firms probably added just 57,000 jobs last month, barely half the 100,000 forecast.

The report potentially heralds a weaker reading on February’s employment report, due to be released by the Labor Department on Friday. Economists polled by Reuters expect 100,000 new jobs were created, versus 111,000 in January.

The U.S. central bank is on alert for inflation pressures amid tight labor markets. But the Beige Book revealed little additional concern, even though most of the districts felt that skilled and professional workers remained in short supply.

“With rising demand for many types of workers, wage pressures increased slightly in several Districts, although pay increases generally remained moderate overall. Most Districts characterized price pressures as little changed,” it said.

Policy-makers take the Beige Book into account when they meet to consider changing interest rates. Their next gathering concludes on March 21 and investors bet they will leave interest rates unchanged at 5.25 percent.

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