NEW YORK (CNNfn) - U.S. economic activity was little changed and in many cases slowing down in April and May, according to the Federal Reserve's periodic "beige book" report, issued Wednesday, and the Fed vice chairman said the economy would get worse before it got better.|
The Fed report, a compilation of anecdotal evidence about the economy's health in April and May, said retail sales and tourism were slow to flat, manufacturing activity either fell or remained weak, commercial real estate markets softened and new construction leveled off.
"Most districts report that economic activity was little changed or decelerating in April and May," said the report, named for the color of its cover.
Meanwhile, Fed Vice Chairman Roger Ferguson told the Senate Banking Committee that U.S. consumer spending, which makes up two-thirds of the U.S. economy, is on shaky ground, given rising unemployment levels.
"It is my sense that we have not yet reached bottom, or at the least it is too early to declare we have reached bottom," Ferguson said at a hearing on his reappointment to the Fed Board of Governors.
"At this stage, consumption has held up reasonably well," he said. "(H)owever, there is a risk that -- with what I describe as a drumbeat of layoff announcements and unemployment gradually rising -- consumers may decide they want to pull in their horns a bit."
Earlier Wednesday, the government reported that U.S. retail sales slowed to a crawl in May from a robust pace in April, though continued gains implied consumers still were helping push economic growth ahead.
Still, the Fed will watch consumer spending closely to see if a rash of job cuts in recent months, spurred by the economic slowdown, will have any effect on consumer sentiment.
Weighing another rate cut
The information in the beige book, as well as consumer spending data, will be used by the Fed's policy-setting Federal Open Market Committee when it next meets June 26-27 to plot interest-rate strategy.
The Fed already has slashed rates by 2-1/2 percentage points since January in an effort to keep the economy from edging into recession. Many analysts expect another, possibly smaller, rate cut at the conclusion of the June meeting.
Click here for more on the Fed
In good news for analysts hoping for another rate cut, the report found scant signs of inflation and said there was some easing in labor markets for most occupations. "Wage and price increases are moderate," the Fed said, aside from "significant" pickups in energy and health-care costs.
In his remarks to the Senate, Ferguson agreed inflation was contained, suggesting the threat of higher prices is not strong enough to stop him from voting for further interest rate cuts.
"I do not currently expect it (inflation) given the weakness in the economy," he said, "but one can never be complacent about it."
Some good news
"The one bright spot is the continued growth in energy exploration," the Fed said in Wednesday's report, after citing stagnation in mining and a slower pace of agricultural activity.
The report, which was based on information gathered before June 4, also found that most of the Fed's 12 regions reported declining or weak manufacturing activity.
Many analysts say the nation's manufacturing industries are already in recession, battling to sell off excess inventories. The beige book said the Chicago Fed reported many companies in the Midwest believed "the worst of high inventory levels is over."
- from staff and wire reports