The Federal Reserve found economic conditions around the country worsened in June and early July while the Commerce Department said orders for big-ticket manufactured goods rose by only a 0.7 percent rise last month. They were the latest signals the economy was slowing in the early summer.
The Fed’s survey, compiled from reports from its 12 regional bank districts, showed that retail sales, especially for autos, weakened over the last two months. That followed a big jump in consumer activity in the early spring.
Meanwhile, the Commerce Department reported that orders to American factories for big-ticket durable goods eked out a small 0.7 percent gain in June, reflecting a surge in orders for military aircraft, following declines in April and May.
The two new reports were the latest evidence of what Federal Reserve Chairman Alan Greenspan told Congress last week was a “soft patch” developing in the economy in June. However, Greenspan indicated he believed the slowdown would be temporary, based on a rebound in hiring that could bolster consumer spending in the months ahead.
Private economists generally agree, although they caution that the next few months will determine whether the current recovery regains altitude or whether the slowdown worsens.
“The economy’s still growing, but not nearly at the pace it had been,” said Joel Naroff, chief economist at Naroff Economic Advisors.
Naroff said it was still unclear whether the string of weaker-than-expected economic reports in June signaled a pause before another rebound or — more ominously — signaled “that the expansion is faltering.”
The Fed’s new report will be used when central bank policy-makers meet on Aug. 10 to decide whether to raise interest rates to ensure that inflation does not get out of hand.
A late buying surge helped push the Dow Jones industrial average up 31.93 points Wednesday, to 10,117.07. It was a dramatic recovery of 123 points from the Dow’s low for the day. Also of concern to investors was the prospect of future inflation problems as oil futures climbed to a 21-year high of $43 per barrel.
The new Fed survey found that wholesale prices, especially of such commodities as energy, steel and cement, were rising but that little of those price increases outside of energy were passed on to consumers.
Because consumer prices outside of energy have remained moderate, most analysts believe the Fed will stick to its plan to raise rates at a moderate pace in coming months. They are forecasting another quarter-point increase in the federal funds rate at the August meeting.
The Fed raised the funds rate, the rate that banks charge each other, from 1 percent to 1.25 percent on June 30, the first increase in four years.
The Fed survey depicted an economy that was continuing to rebound from a sustained period of sluggishness that included the 2001 recession and weak unemployment growth that lasted until mid-2003.
However, the Fed report found, as have other indicators, that activity slowed a bit in the late spring.
“Several districts reported that the rate of growth moderated,” the Fed survey said, listing New York, Cleveland, Richmond, Kansas City and San Francisco, in particular, as regions that detected a slowdown in activity.
Much of the weakness was attributed to a slowing in consumer spending, particularly on autos. However, the Fed report found “pockets of weakness” in manufacturing as well.
The Fed survey depicted travel and tourism, hit hard after the 2001 terrorist attacks, as “strong” and said that residential construction remained healthy, despite mortgage rate increases after four-decade lows.
The June gain in orders for durable goods, items expected to last three or more years, followed declines of 0.9 percent in May and 2.7 percent in April. The drop in May had originally been reported as an even sharper 1.8 percent fall. Orders last rose in March, when they surged ahead by 5.9 percent.
The biggest orders increase went to transportation equipment, everything from cars to airplanes, which rose by $2.2 billion to $55.5 billion, an advance of 4.2 percent, reflecting strength in defense aircraft and parts. Excluding demand for military goods, new orders would have fallen by 0.4 percent last month, following even bigger declines of 0.6 percent in non-defense goods in May and 2.1 percent in April.
Orders for non-defense capital goods were up 1.1 percent in June, following two months of declines. This category is closely watched because it hints at business plans to expand and modernize.
In the transportation category, demand for motor vehicles and parts rose by 1.3 percent but the biggest increase came in a 79.1 percent jump in orders for defense aircraft and parts.
