War fears burden US economy

War fears burden US economy

"Very harsh" weather pushed fuel prices higher

Fears over war against Iraq, coupled with poor weather and rising energy costs, saw the US economy struggle at the start of 2003, an influential report has said.

The Federal Reserve has, in its latest round-up of reports from regional offices, warned of "subdued" growth in economic activity in the first two months of the year.

"Many reports indicated that geopolitical and economic uncertainties were constraining consumer and business spending and tempering near-term expectations," the Fed, the US central bank, said.

But concerns over global instability had at least stimulated one sector - suppliers of home protection goods, Wednesday's survey added.

"Terrorism fears boosted the sales of duct tape, plastic, and other hardware goods in some regions."

Americans also indulged the emotion of love, with Valentine's Day presents "selling well", the document said.

Travel and tourism was also firm, with Florida ports seeing "continued strength" in cruise passengers, and Rocky Mountains ski resorts enjoying "solid" trade.

Petrol prices soar

But Wednesday's survey - known as the "beige book report" because of the colour of its cover - revealed that cold weather had hit activity in other parts of the US.

One Chicago contact suggested that small freight hauliers may be driven into bankruptcy by very high diesel fuel prices

Federal Reserve

Transport costs had risen, raw material prices increased and fuel surcharges been imposed as "very harsh" conditions hit in particular the east of the country.

In Dallas, petrol prices reached "their highest February level on record", the survey said.

"One Chicago contact suggested that small freight hauliers may be driven into bankruptcy by very high diesel fuel prices," the document added.

Farmers, however, saw land prices increase at their fastest annual rate since 1997, as the decline in the value of the dollar made agricultural exports more competitive.

Share reaction

In commerce, the survey also warned that business spending has been "very soft", while factory activity has remained "weak or lacklustre" in most areas of the US.

But the comments failed to spook investors, with the Dow Jones Industrial Average share index closing up 70.73 points, or 0.9%, at 7,775.60.

The beige book, published eight times a year, is a summary of reports from the Fed's 12 regional offices.