Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, January 23, 1992 TAG: 9201230130
SECTION: BUSINESS PAGE: B5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
FED SEES SILVER LINING SURVEY FINDS ECONOMY MIRED, BUT HOME BUILDING'S UP
Economic weakness pervaded virtually every part of the country as the year began, with retailers, factory owners and bankers all complaining about the sluggish state of business activity, the Federal Reserve said Wednesday.The Fed's latest survey of business conditions depicted an economy mired in stagnation with little suggestion of a rebound outside of some modest gains in housing sales.
The central bank did hold out the prospect of better days ahead, noting that "business and banking contacts generally anticipate that economic conditions will improve by midyear."
But for now, the survey of its 12 regional banks noted production cutbacks in a number of industries in the face of falling demand, an overhang of unsold goods at many retail stores following a disappointing Christmas season, and little demand for new loans at banks outside of a rush to refinance old mortgages.
A One of the few bright spots in the survey was a slight upturn in housing sales and construction activity in many parts of the country in December as first-time home buyers were lured into the market by the lowest mortgage rates in nearly two decades.
For the Fed's fifth region, based in Richmond, the banks said economic activity was mixed in late December and early January, while confidence about the economic outlook rose. Retail sales were generally flat and manufacturing activity declined, the economists said, but both retailers and manufacturers were more optimistic about their prospects over the next six months than they had been in the last survey. Lower mortgage rates lifted home sales in some areas and spurred refinancing activity and inquiries by prospective home buyers throughout most of the district, the report said.
The optimism seemed to be bolstered by a separate report Wednesday that showed new construction of homes and apartments jumped 2.6 percent in December to a seasonally adjusted annual rate of 1.103 million units, the fastest pace in 13 months. Building-permit applications, often a good sign of future activity, improved even more in December, rising by 5.8 percent.
Housing is the sector of the economy most sensitive to changes in interest rates and often a revival in that industry is an early sign of economic recovery generally.
Robert Reischauer, director of the Congressional Budget Office, on Wednesday predicted the economy, after suffering a drop in output in the fourth quarter, will strengthen gradually throughout 1992. He cautioned lawmakers against enacting anti-recession tax cuts that would cause long-run damage by widening the federal deficit.
The Fed's latest report will guide policymakers when they meet Feb. 4 and 5 to map interest rate policies.
"The Fed survey shows that almost every one of the Fed districts is caught in the same flat, uninspiring performance," said David Jones, an economist at Aubrey G. Lanston & Co. "But I think the Fed anticipated this report and has decided to wait things out for awhile."
The Fed last cut interest rates on Dec. 20 when it slashed its discount rate, the interest it charges on bank loans, by a full percentage point to 3.5 percent, the lowest it has been in 27 years.
The Fed survey said that the Atlanta, Cleveland, Kansas City, Minneapolis and Dallas districts reported modest gains in sales of small-ticket items but generally reported weakness in such big-ticket purchases as cars and appliances.
"Retailers and auto dealers generally expect sales to recover in 1992, but not until the second half of the year," the Fed reported.
"Factory activity faltered in most districts through early 1992," the Fed reported, with increased weakness both in orders and output.