US economy still in doldrums

WASHINGTON: The end of the Iraq war provided some boost to US business and consumer sentiment in recent weeks, but not enough to lift the economy out of its doldrums, the Federal Reserve said. 

“Although reports from the 12 Federal Reserve Districts indicated some signs of increased economic activity in April and May, conditions remained sluggish in most districts,” the Fed said in its latest beige book report, an anecdotal summary of economic conditions around the country. 

“The unwinding of war-related concerns appears to have provided some lift to business and consumer confidence, but most reports suggested that the effect has not been dramatic,” the report said. Nonetheless, no district said conditions had worsened since the last report in April, the Fed noted. 

Tim O’Neill, the chief economist at BMO Financial Group in Toronto, called the report’s tone “tentatively positive”. “Yes, there are some signs a more positive environment is emerging, but we still haven’t seen anything significant in any of the changes,” he said. 

The report also said there were few signs of imminent deflation, a general fall in prices usually accompanied by a severe slump in economic activity.  

“Anecdotal reports suggest that price pressures are mixed, with no widespread inflationary or deflationary pressures,” the report said. 

The comment could deal a blow to some analysts’ belief that the Fed’s worry about possible deflation may be enough in itself to prompt a rate cut.  

The US central bank’s Federal Open Market Committee is set to ponder interest rate policy on June 24–25. Financial markets have largely been expecting the Fed to cut short-term rates from their 41-year low of 1.25%. 

The latest beige book also returned to themes seen in previous versions – unimpressive spending by consumers, weak manufacturing activity and slack demand for workers. 

“Consumer spending remained lacklustre overall. Retail sales rebounded as the hostilities in Iraq subsided, but sales remained below the level of a year ago,” it said. 

Manufacturing was mixed while reports on the service sector showed “sluggish activity overall”. The lowest mortgage rates in decades helped residential construction, but commercial building was still weak. – Reuters  

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