Recession Deepening Across Regions, Industries, Fed Says
Thursday, March 5, 2009
The U.S. recession is dragging down almost every industry in almost every part of the country and businesses do not expect conditions to improve until late this year at the earliest, according to a Federal Reserve report released yesterday.
The grim prognosis came amid new signs of deterioration in both the service sector and the job market in February. Nonetheless, the U.S. stock market yesterday leaped 2.4 percent, as measured by the Standard & Poor's 500-stock index, buoyed by reports that China would move to further stimulate its economy. Investors also viewed favorably newly announced details of the Obama administration's plan to prevent foreclosures. The surge on the market snapped a five-day slide.
"Bad news is not surprising anymore," said Eugenio Aleman, a senior economist at Wells Fargo. "Markets already know how bad things are."
The Fed's "beige book," a compilation of anecdotal reports from businesses around the country, underlined how difficult it has become to find bright spots in the economy. Consumer spending in recent weeks remained "very weak on balance," though in some places not quite as bad as it was during the dismal holiday season. Travel "continued to fall in most areas."
Demand fell for business consultants and law firms, except where there was a need for bankruptcy lawyers. Demand for furniture, appliances and other major household items remained "quite depressed," and sales of autos remained "exceptionally sluggish," according to the beige book, which is published eight times a year.
On the West Coast, there were "extensive layoffs and restaurant closures" in the tourism industry. Manufacturing fell across the nation. Health-care providers reported fewer patients in many parts of the country, as people declined elective procedures.
Looking ahead, businesses described the prospects for near-term improvement as poor, "with a significant pickup not expected before late 2009 or early 2010," the beige book said.
Some industries reported better news. Discount retail chains, for instance, had some improved sales as consumers shifted their spending toward necessities. Pharmaceutical companies in New England reported double-digit gains in sales; pharmaceutical firms also reported hiring temporary staff in the district stretching from Maryland to South Carolina.
The other silver lining in the report was evidence that prices are dropping, a reflection of lower costs for energy and raw materials.
The beige book is issued shortly before each meeting of Federal Reserve policymakers and is meant to help inform their decisions. It is based on phone calls to businesses across the country and across industries, with the names of the participants not disclosed.
Also yesterday, the Institute for Supply Management reported that the service sector contracted at an even faster rate than it had in January. Non-manufacturing businesses were a relative source of strength for the first part of 2008 but now are contracting rapidly, if not as quickly as the nation's manufacturing industry.
Meanwhile, private employers cut 697,000 jobs from their payrolls last month, according to the payroll processing firm ADP, an indication that the free fall in the labor market is accelerating.
The new data offer a preview of the crucial Labor Department report on the nation's unemployment rate, due tomorrow. The ADP report suggests that the scope of job losses will be enormous; forecasters surveyed by Bloomberg News expect the unemployment rate to rise to 7.9 percent, from 7.6 percent in January, and many economists believe the rate will top 8 percent, a level not seen since 1984.
"The jobs situation is dismal," said Aleman, of Wells Fargo. "The fiscal package hasn't produced any effect, and we don't expect much effect during the rest of this year. The markets may just have to write off 2009."