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EDITIONS
Wednesday, 27 November, 2002, 20:35 GMT
Fed warns of 'fragile' economy
Car production line
Auto sales were down in all US regions
The US economy continued to show only sluggish signs of growth in October and November, according to the country's central bank.

The Federal Reserve's so-called 'Beige Book' - an anecdotal survey of economic conditions across the US - reported weak auto sales, 'soft' manufacturing activity and a slowing commercial property market.

The findings were in stark contrast to upbeat economic data released earlier on Tuesday from the US Commerce Department and National Association of Purchasing Management (NAPM), which had hinted at a strong rebound in consumer and business spending.

Wall Street chose to believe in the latter, with all indexes reaching their highest levels for several months as optimism buoyed investors.

Beige view

The Beige Book was compiled by the Federal Reserve Bank of Philadelphia, after collecting reports from its 12 regional banks.

Data between late October and 18 November suggested lower auto sales in all regions with "varied" consumer spending.

The Fed said manufacturing activity "remained soft" in most areas, with limited spending on new equipment.

The suggestions painted a very different picture from that presented earlier in the day by the Commerce Department.

The Bulls

The department reported an unexpected rise of 2.8% in durable goods orders during October, the first rise in three months.

The figures were boosted by particularly strong demand for machinery and a 65% leap in communications equipment order.


There is a general feeling that economic growth is fragile and likely to remain so

Philadelphia Federal Reserve

Add to this the Chicago NAPM index's reading of a rise in business activity, and the markets' optimism is understandable.

The NAPM index rose from 45.9 in October to 54.3 in November. A reading above 50 indicates growth.

The positive figures cheered markets across Wall Street, with the Dow Jones index of leading shares up to a three-month high of 8,927 by mid-afternoon.

"All the data we've seen is consistent with the idea that the economy has seen the worst part of the soft patch," said Alan Ruskin, director of research at 4Cast in New York.

Caution

The Federal Reserve's view was more muted.

It said:"In general, manufacturers have been producing below capacity and they have been implementing cost-reduction measures to maintain profitability."

The bank also cautioned that lending remained "lacklustre" in all areas expect residential property, which has been buoyed by low interest rates.

But the Fed said the commercial property market was experiencing rising vacancies, lower rents and a slowdown in building projects.

"There is a general feeling that economic growth is fragile and likely to remain so," it added.


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

27 Nov 02 | Business
26 Nov 02 | Business
15 Nov 02 | Business
07 Nov 02 | Business
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