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Fed reports more weakness
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January 16, 2002: 2:17 p.m. ET
Beige Book report shows struggling retail sales, housing, job market.
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NEW YORK (CNN/Money) - The U.S. economy continued to show signs of weakness between late November and early January, the Federal Reserve said Wednesday in its periodic Beige Book report of economic conditions.
The report, published eight times a year and named for the color of its cover, is a compilation of anecdotal information from the 12 Federal Reserve banks around the country. The latest report found that, while manufacturing showed signs of stabilization in recent weeks, retail sales, the usually resilient housing market and the labor market have suffered.
"Reports from the Federal Reserve Districts suggest that economic activity generally remained weak from late November through early January," the report said.
"Many Districts indicate that their contacts believe a recovery will begin by mid-year or earlier, but the timing and strength are uncertain," the report added.
The report reinforces the cautious statements made in recent days by Fed Chairman Alan Greenspan and other Fed officials about the state of the economy, which has been in recession since March, according to the National Bureau of Economic Research.
"The Beige Book is really reflecting Greenspan's message," said Brown Brothers Harriman economist Lara Rhame, "which is that we're getting mixed data, but they're still pointing to downside risks."
Though there have been recent signs of resilient consumer spending and a bottom for the long-suffering manufacturing sector, it's still too early to say a recovery is in full swing, Greenspan and his colleagues have said.
Speaking in Denver on Wednesday, Fed Vice Chairman Roger Ferguson reiterated the cautious theme, saying that, while stimulative Fed policy should help fuel a recovery this year, "the contours of the upturn are uncertain."
To keep consumers spending and set the stage for a recovery, the Fed cut its target for short-term interest rates 11 times in 2001 to levels not seen since 1961.
Economists are divided about whether or not the Fed will cut again after its next policy meeting, scheduled for Jan. 29-30. But Greenspan's cautious tone helped convince many that another quarter-percentage-point cut, taking the central bank's target for the federal funds rate to 1.50 percent, was on the way.
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According to the report, not only was the labor market still weak -- not a surprise, considering the unemployment rate rose to 5.8 percent in December -- but employers were delaying or cutting pay raises and bonuses and asking workers to take on more of the cost of their benefits. In other words, even people who keep their jobs may be taking a hit in income.
"[Policy makers'] concern is that we're still only forming a bottom and that the process is still very fragile," Rhame said. "Their concern is not for data in December and November...They're concerned about January, February and March, which will show continuing job losses, less spending and less income."
More hopefully, businesses seemed to be paring back their inventories of unsold goods, paving the way for increased production in the future.
Still, as Fed Vice Chairman Ferguson pointed out, businesses won't start making new goods in great numbers until they're sure someone wants to buy them.
"When firms are confident that demand is going to pick up, the accompanying inventory re-stocking needed to meet that demand will lead to further production gains, which will provide a real jump-start to the recovery," he said. 
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