Central bank says economy losing speed

Against the backdrop of such uncertainty about how forces will play out with consumers and businesses, Kohn once again said Federal Reserve policymakers must remain “nimble.”

Wall Street viewed Kohn’s comments as hinting that another rate cut could be forthcoming.

The Fed has sliced interest rates twice this year — in September and late October — to keep the housing collapse and credit crunch from throwing the economy into a recession. Fed policymakers at the October meeting signaled that further rate reductions may not be needed. Since then, however, financial markets have suffered through another period of turmoil.

Besides “relatively soft” spending at the nation’s retailers, the Fed survey said manufacturing production was mixed. Demand was weak for products related to housing but was solid in other areas, including information technology equipment and machinery used in the energy sector and mining industries.

In a separate report from the Commerce Department, orders for costly manufactured goods dropped 0.4 percent in October. It was the third straight decline.

On the inflation front, the Fed report said expensive energy and food put “significant” pressure on the prices of products and services that rely heavily on these materials. But most other prices were largely stable or down a bit, the Fed said. That suggested that high energy and food prices aren’t spreading inflation through the economy.

National employment conditions are still mostly good, although construction and other jobs have taken a hit. In general, increases in workers’ wages were moderate. The positive forces of job creation and wage growth are helping to offset some of the negative forces of weaker home values and harder-to-get credit.

“Demand for residential real estate remained quite depressed, with only a few tentative and scattered signs of stabilization amid the ongoing slowdown,” the Fed survey said. Builders continued to shelve projects and lay off workers in many areas. The number of unsold homes continued to mount. Builders and others in the business “generally do not expect a significant pickup in homebuilding until well into next year at the earliest,” the Fed said.

The National Association of Realtors reported sales of previously owned homes fell 1.2 percent in October, the eighth month in a row of declining sales. The median price of a home sold last month declined to $207,800, a drop of 5.1 percent from a year ago. It was the biggest annual decline on record.

The Fed survey was based on information that the Fed’s 12 regional banks collected before Nov. 16 and is consistent with the view that economic growth will slow sharply in the October-to-December quarter. The economy is expected to log growth at a 1.5 percent pace or less in the final three months of this year.

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