Fed survey reveals sluggish U.S. economic activity

WASHINGTON, MAY 3. The U.S. economy continued to be sluggish in the spring, dragged down by lacklustre retail sales and weak manufacturing, the Federal Reserve said on Wednesday. Offering hope for a rebound down the road, orders to factories posted their first gain for the year.

In its latest snapshot of economic conditions around the country, the Fed reported ``a slow pace of economic activity in March and early April.'' The survey, based on information supplied by the Fed's 12 regional banks, will be used by Fed policymakers at their next meeting on May 15 to set interest rates.

Seeking to stave off recession, the central bank has slashed interest rates four times this year, totalling two percentage points, in an effort to rejuvenate economic growth. Many economists believe another rate cut will come at the May meeting.

Consumer spending accounts for two-thirds of all economic activity and has been a main force propping up the struggling economy. Some economists worry that consumer spending may weaken in the coming months based on expectations that the nation's unemployment rate, now at 4.3 per cent, will continue to rise.

In Boston, Kansas City, Philadelphia and St. Louis districts, ``big-ticket items - such as jewellery, appliances and electronics - have been slow movers,'' the survey said.

Apparel sales and seasonal merchandise were weak in both the Chicago and New York districts, but were brisk in the Cleveland and Philadelphia districts. Manufacturing, which has been hardest hit by the slowdown, has seen activity continue to weaken, the Fed noted. ``The high-tech and telecommunications industries are experiencing a pronounced slowdown,'' the survey said.

Despite sharply higher energy costs, the Fed said consumer prices were largely steady. Wage pressures also abated. Analysts said the Fed has room to continue lowering rates because inflation is not a current risk to the economy.

In another report, the Commerce Department said factory orders increased by 1.8 per cent in March. Factory orders fell by 4.3 per cent in January and 0.1 per cent in February. All the strength in March factory orders came from a whopping 24.8 per cent increase in orders for transportation equipment, which includes everything from cars and airplanes to ships and military tanks.

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 per cent in March, the fourth straight monthly decline.

The National Association of Manufacturers economist Mr. Gordon Richards said the slowdown was not over but called the March rise in factory orders a welcome sign. ``We may still see a couple of weak months in April and May,'' he said. ``But we should see a return to stronger growth sometime this summer.''

Orders for electronics and electrical equipment, including communications equipment and household appliances, decreased by 5.5 per cent in March. Industrial machinery, which includes computers and machine tools, saw orders fall by 2.8 per cent. Shipments, a good barometer of current demand, however, rose 0.4 per cent in March, registering the first increase since August 2000. The Fed's survey also said that housing and construction activity have remained steady helped out by low mortgage and interest rates.

- AP

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