Updated from 1:02 p.m. EDT
Twelve months after the Sept. 11 terrorist attacks turned a mild recession into an extended downturn, the U.S. economy is recovering only sporadically, with the industries worst hit by the attacks still a long way from vibrancy, a new
"District reports suggest that the growth of economic activity has slowed in recent weeks, with a good deal of variation across sectors," the Fed's beige book report said. "Most districts indicated slow and uneven economic growth, with mixed or scattered experiences across sectors of the economy."
The report, an anecdotal survey of business, economists and market experts in 12 regional bank districts, comes amid mixed signals for the economy. While the unemployment rate fell to a five-month low in August, the economy is adding few new jobs and service and retail sectors remain weak.
Retail sales, according to the Fed's survey, have lately been mixed, although seven districts reported strong sales of home furnishings or appliances. On the whole, clothing sales were poor.
Manufacturing activity was sluggish, the beige book said. However, there was a fair amount of variation, by industry and region, according to the survey. Some districts showed weakness in high-tech and building materials industries, while others reported strength in the auto and steel industries.
The report said there was little or no gain in employment in July and August, although three districts noted that demand for temporary workers, an early indicator of a labor market recovery, had strengthened.
On the anniversary of the terrorist attacks, the Fed noted fragility in sectors directly affected by them. "The report reveals the lingering problems of Sept. 11," said John Lonski, an economist at Moody's Investor Service, "such as the uneven performance of tourism and the weakness in commercial travel."
Tourism in July and August was below year-ago levels in most regions. The New York district reported business travel remains at low levels, hurting the region's air traffic and hotel occupancy.
To be sure, the economy has come a long way toward recovery since Sept. 11. At the peak of the most recent economic recession, in the second quarter of 2001, gross domestic product shrank 1.6%. By contrast, it grew 5% in the first quarter of 2002 and increased 1.1% in the second quarter of this year.
White House economic advisor Larry Lindsey said Wednesday, after a tour of the Chicago Board of Trade trading floor, that he expected good economic growth in the third quarter.
"What's facilitated the unfolding economic recovery is aggressive monetary policy," said Lonski. Since the tragedy, the Fed has lowered interest rates 175 basis points to maintain liquidity in the economy. As a result, interest rates now stand at 1.75%, their lowest level in more than 40 years.
A year ago, Fed Chairman Greenspan attempted to forecast the impact of Sept. 11 on the economy.
"The terrorism of Sept. 11 will doubtless have significant effects on the U.S. economy over the short term," Greenspan said in a speech before Congress last year. "But as we struggle to make sense of our profound loss and its immediate consequences for the economy, we must not lose sight of our longer-run prospects, which have not been significantly diminished by these terrible events."
In many ways, his prediction was accurate. Consumer spending has stayed relatively robust. Existing-home sales fell 8.7% in the month after the attacks, as Americans were still dealing with the shock of the events. But they rebounded to reach record levels in January and have held on later in the year.
While consumer confidence fell sharply after the attacks, it has rebounded since that time. And though the manufacturing economy remains lackluster, it has been expanding rather than contracting.
Business spending, which led the U.S. into recession in the first place, is still feeble, however. "Companies are proceeding cautiously," said Lonski. "Adding to their caution are fears of new terror. A confrontation with Iraq that goes poorly could trigger a double-dip recession in the economy."
President Bush's speech about Iraq before the United Nations on Thursday will be eyed very closely.