The worst blackout in U.S. history seems to have had only a limited impact on the economy, which flashed more growth signals in July and August.
The Federal Reserve’s latest snapshot of economic conditions around the country, released Wednesday, said that although five of the Fed’s 12 districts New York, Cleveland, Atlanta, Chicago and Dallas noted that business was affected by the mid-August power outage, “the effects were generally small.”
“Even where firms were closed for several days,” the Fed survey said, the affected businesses “are not anticipating difficulties in making up for lost production or shipments.”
On the economy as a whole, the Fed’s survey said that progress was being made.
Reports from the Fed’s districts “indicate that the economy continued to improve in July and August,” the report said. “In some districts, improvement occurred in selected sectors and in others it was broad-based.”
Even in the Dallas district, where activity remains generally weak, business contacts were more optimistic about the economic outlook, the Fed survey pointed out.
The regular survey of business conditions, based on information collected before Aug. 25, will help Fed policy-makers when they meet on Sept. 16 to set interest rates.
Amid growing signs of an economic rebound, economists believe the Federal Reserve will probably hold a key short-term interest rate at a 45-year low of 1 percent at that meeting.
“All the different bits and pieces seem to add up to a pretty positive story for this quarter,” said Bill Cheney, chief economist at John Hancock. “The report supports the view that the recovery is picking up some speed.”
In other economic news, construction spending rose a modest 0.2 percent in July from June to a seasonally adjusted annual rate of $879.8 billion, the highest level since January, the Commerce Department said.
Although July’s increase wasn’t as big as the 0.5 percent rise that economists were predicting, June’s performance was better than the government previously estimated. Revised figures show that construction spending went up by a brisk 0.7 percent in June from May, compared with the 0.3 percent advance first estimated.
On Wall Street, stocks moved higher. The Dow Jones industrials gained 45.19 points to close at 9,568.46.
Other recent economic reports also suggest the economy is healing and on track to rebound in the second half of this year. Consumers are spending, manufacturing appears on the mend and businesses are slowly boosting investment although they are cautious about hiring.
In the Fed’s survey, 10 of the Fed’s 12 districts reported increases in manufacturing activity. The exceptions: Dallas, which showed little change, and Richmond, where factory activity weakened.
“Manufacturers generally expect that their production volumes will increase somewhat during the remainder of 2003,” the Fed survey said. The factory sector has lost millions of jobs in the last three years, a sore spot for President Bush as he heads into the 2004 presidential election season.
The Fed survey hinted at pockets of relief. “Manufacturing labor demand appears to be firming,” the survey said. “A majority of districts indicate scattered reports or projections of longer work hours and selective hiring, and several report that layoffs are becoming less frequent.”
Most Fed districts, meanwhile, said that retail sales improved at least modestly in July and August, the survey said. Many districts said demand for back-to-school merchandise was strong. Home furnishing sales were up in some areas and appliance sales improved in New York, St. Louis and San Francisco.
In New York, retail sales exceeded expectations in July, but sales were mixed in August with the blackout having adverse effects on some stores, the Fed said.
Some economists believe economic growth in the final six months of this year will be in the range of around 3.5 percent to just over 4 percent. Others think it will be closer to a 5 percent pace. Economists hope that near rock-bottom short-term interest rates, along with Bush’s third tax cut, will motivate consumers and businesses to spend and invest more, thus lifting economic growth.