Oct 24, 2002 3 min read

By Martin Crutsinger AP Economics Writer

WASHINGTON (AP) – The United States was struggling with a “sluggish” economy over the past two months with weak retail sales, tough times in manufacturing and a lackluster job market, the Federal Reserve reported Wednesday.

The Fed, releasing the findings of surveys done by its 12 regional banks, found an economy performing at sub-par levels as the country continues to struggle to mount a sustainable rebound from last year’s recession.

The Fed’s new survey clearly left the door open to further cuts in interest rates when Fed policy-makers next meet on Nov. 6, the day after Election Day.

The Fed has left a key interest rate at a 40-year low of 1.75 percent all this year, since an 11th rate cut last December, when the Fed was aggressively lowering borrowing costs in an effort to combat the country’s first recession in a decade and the economic shocks from the terrorist attacks.

So far this year, the economy has grown in fits and starts with strong consumer spending for new homes and autos offset by a number of uncertainties, ranging from what a possible war in Iraq will do to oil prices, to what the plunge in stock prices will do to already weak consumer and business confidence.

Some analysts believe the Fed will cut rates for a 12th time at the November meeting to make sure that falling consumer confidence and worries about a possible war with Iraq don’t push the country into another recession, the feared “double-dip.”

Two Fed policy-makers cast rare dissents at the last meeting on Sept. 24, arguing that the majority decision to leave rates unchanged was wrong in light of growing signs of weakness.

However, some analysts remain unconvinced that the Fed will move to reduce rates in November. Many believe the central bank will be content to continue remaining on the sideline, preserving its ammunition in case it is needed should a possible war with Iraq further destabilize the U.S. economy.

In its latest survey, known as the “Beige Book” for the color of its cover, the Fed said, “Most districts reported that economic activity remained sluggish in September and early October.”

The survey found that retail sales were weak in many districts with auto sales cooling off after a surge earlier this year triggered by attractive financing deals that automakers have been able to offer because the Fed has kept interest rates at such low levels.

The Chicago, Dallas, Kansas City and San Francisco districts all reported that retail sales had slowed in the past two months.

The Fed survey found that manufacturing, which has been the hardest hit sector of the economy for more than two years, continued to face tough times with various districts using such words as “tough,” “stagnant” and “sluggish” to describe manufacturing conditions.

Richmond reported that shipments, new orders, factory operating rates and manufacturing employment all declined during the survey period while Dallas and Chicago reported weak demand.

Overall, the Fed survey found that the job market remained “lackluster, with only a few reports of increased hiring.”

Because of the weak labor markets, wage pressures were found to be subdued and inflation overall was reported as stable, a development that would give the Fed room to cut interest rates further without worrying that it was sowing the seeds for price pressures down the road.

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