The U.S. economy's slow growth has continued into the new year, the Federal Reserve's latest survey of economic conditions found. But few analysts or investors expect Fed officials to cut interest rates again when they meet in a policymaking session late this month.
The survey released yesterday, conducted by the Fed's 12 regional banks, found "subdued growth" in economic activity from mid-November through early January. The weakest report came from the Dallas Federal Reserve Bank, where regional growth "remained anemic."
"Reports on consumer spending were consistently weak" across the country, the report said, with holiday sales mostly at or below last year's levels.
Another sign of the uncertain path of the economy was a statement issued yesterday by a committee of private economists of the National Bureau of Economic Research, which is the accepted arbiter of when recessions begin and end. It declined once again to declare that the recession that began in March 2001 has come to an end. More time is needed to be sure that a renewed slump would "be a separate recession, not a continuation of a past one," the committee said. The group was particularly troubled by the loss of 181,000 jobs in November and December.
Fed Chairman Alan Greenspan has used the term "soft patch" to describe the slowing of economic growth that began last summer. Even though the Fed's target for overnight interest rates was already at a 40-year low of 1.75 percent, Greenspan and other officials decided in early November to reduce the target to 1.25 percent. At a policymaking session last month they left the target unchanged and are expected to do so again at the conclusion of a two-day Fed meeting Jan. 29.
According to yields on futures contracts covering overnight interest rates, only about 8 percent of investors expect a further cut in rates then. One reason is that recent public statements by several Fed officials have included no hint that they would like to cut again.
"It looks to me as if the recovery is reasonably well positioned to continue, moderately but steadily," Cathy E. Minehan, president of the Boston Federal Reserve Bank, told a Vermont audience last week. "We just need to have some patience."
A few days earlier, Minehan's counterpart at the Atlanta Fed, Jack Guynn, gave this view of the new year: "I expect that if consumer spending and housing hold up and business profitability continues to firm, there is every reason to believe that GDP will grow around 3 percent -- slightly better than last year." And that growth, he added, "ought to be more broad-based . . . and less concentrated in particular sectors like housing and autos."
As the summary of the Fed's survey of economic conditions makes clear, however, recent growth has not been as strong as Fed policymakers predict for later in the year. Growth in the final three months of last year, for instance, probably was at an annual rate of only about 1 percent -- and some analysts have said it could be close to zero.
The survey summary said that in addition to weak consumer spending over the holiday period, "providers of nonfinancial services saw little change in existing weak demand, and business travel remained slow."
It added: "Home sales and residential construction remained at high levels but slowed a bit in some areas, and the widespread overhang of commercial real estate persisted."