Originally created 03/06/03

Economic activity remained subdued in January and February

WASHINGTON -- The Federal Reserve said Wednesday economic activity around the country remained subdued in January and February as concerns about a possible war in Iraq slowed spending by consumers and businesses.

Perhaps epitomizing the mood, the central bank noted a terrorism-related spurt in the sales of duct tape, plastic and other hardware goods.

The Fed's latest survey of business conditions, compiled from information received from its 12 regional banks, showed that most areas of the country had seen little pickup in activity since the last survey completed in early January.

The central bank said that business spending, the key missing ingredient in the economic recovery, continued to lag in the early part of the year.

"Business spending remained very soft as geopolitical concerns and uncertainty over the strength of demand continued to constrain spending and hiring plans," the Fed said in its latest survey, known as the "Beige Book" for the color of its cover.

The reports on economic conditions will be used by Fed policy-makers when they next meet to consider changing interest rates on March 18.

Most economists believe the Fed, which has pushed a key interest rate to a 41-year low, will leave rates unchanged at the meeting, preferring to wait and see whether the economy will regain momentum once the current uncertainty over a possible war in Iraq is resolved.

"Growth in economic activity remained subdued in January and February," the Fed report said. "Only a few districts reported any notable changes from the last Beige Book."

The report said that the Federal Reserve bank in Richmond, Va. reported that economic activity "grew modestly" over the past two months while Kansas City noted "some signs of strengthening."

However, the glimmers of improvement were few, and balanced against gloomier signs such as a report by the New York Fed that conditions had "generally weakened" over the past two months.

"Many reports indicated that geopolitical and economic uncertainties were constraining consumer and business spending and tempering near-term expectations," the Fed said.

The central bank found that consumer spending, which has been the one major force lifting the country out of the 2001 recession, was weak at the start of the year, reflecting in part a drop-off in demand for new autos, which along with housing has been bolstered by the Fed's low interest rates.

Sales over the President's Day weekend were also hurt by a major snowstorm in the Northeast that depressed buying in the New York, Philadelphia and Richmond Fed districts.

One bright spot for consumer demand was in the sale of items that the new Department of Homeland Security has suggested Americans should have on hand in the event of a terrorist attack.

"Terrorism fears boosted the sales of duct tape, plastic and other hardware goods in some regions," the Fed reported.


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