Economy Shows Signs of Slowing

WASHINGTON (AP) â€” The economy showed further signs of slowing in November with weakness in auto sales, manufacturing and construction, the Federal Reserve said Wednesday. <br><br>In its latest survey

Wednesday, December 6th 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” The economy showed further signs of slowing in November with weakness in auto sales, manufacturing and construction, the Federal Reserve said Wednesday.

In its latest survey of business conditions around the country, the Fed reported ``further evidence of slowing in economic growth.''

It said eight districts â€” Boston, Cleveland, Richmond, Chicago, St. Louis, Kansas City, Dallas and San Francisco â€” were seeing signs of a slowdown while New York, Philadelphia, Atlanta and Minneapolis reported ``moderate, steady growth.''

The Fed survey, known as the beige book for the color of its cover, will be used when the central bank meets Dec. 19 to determine the next move on interest rates.

Federal Reserve Chairman Alan Greenspan sparked a huge rally on Wall Street on Tuesday when he said that the U.S. economy had slowed ``appreciably.''

His remarks were seen as signaling that the Fed saw no need to raise interest rates further to fight inflation and instead would be ready to cut rates if it appeared that growth was slowing so much that the risks of a recession were increasing.

Financial markets are not expecting the Fed to cut interest rates at its December meeting, but they do believe the Fed will move its policy statement to neutral and away from the position it has been for almost two years of leaning toward higher rates.

Markets gave back some of their gains on Wednesday with the Dow Jones industrial average off 190 points in midafternoon trading.

The Fed's beige book said that while labor markets remained tight around the country, wage growth had continued generally to be moderate. It did note ``widespread reports of increased costs for employee health benefits.''

Meanwhile, the Labor Department released a revised estimate showing that productivity, the key to rising living standards, rose at a sold annual rate of 3.3 percent. That figure was slightly lower than an estimate a month ago that productivity was rising at a 3.8 percent annual rate.

In a potentially worrisome development, the department said unit labor costs, a key measure of wage pressures, rose at a 2.9 percent annual rate in the third quarter, the fastest pace since a 4.3 percent jump in the April-June quarter of 1999. The new third-quarter figure represented an upward revision from an original estimate of a 2.5 percent increase in labor costs.

Worker productivity, measured by the amount of output per hour of work, is the key to improvements in the standard of living. As long as workers are becoming more efficient, their employers can afford to pay them more without having to boost the cost of their products.

Productivity rose for all of 1999 by 2.9 percent following a 2.6 percent gain in 1998. Both increases were more than double the average annual gains for the two decades following 1973, when anemic productivity gains were considered one of the biggest problems facing the U.S. economy.

The 2.9 percent jump in unit labor costs for the July-September quarter followed a 0.2 percent decline in the second quarter of this year. While the 2.9 percent increase would be cause for concern if it continued, analysts noted that over the past year labor costs were up a barely discernible 0.2 percent.

For productivity, the 3.3 percent rate of increase in the third quarter followed a 6.1 percent surge in the second quarter. Over the past year, productivity for nonfarm businesses rose by a solid 4.8 percent.

The boom in productivity has prompted many economists to proclaim a new era for the economy in which significant investments in high-technology industries such as computers and telecommunications are leading to big payoffs in terms of prosperity. However, skeptics contend that the productivity increases of recent years are a result of the strong economic growth and will fade away once growth returns to lower levels.

Greenspan has been a major proponent of the ``new economy'' theory. In his speech Tuesday, he said the recent shakeout in dot.com companies did not necessarily mean that high-tech investments won't continue ``to serve as an engine of strong productivity growth in the years ahead.''

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On the Net:

Bureau of Labor statistics site: http://www.stats.bls.gov/lprhome.htm

Federal Reserve: http://www.federalreserve.gov