WASHINGTON, April 23 (UPI) -- The U.S. economy continued to sputter in March and the first two weeks of April, in part as a result of the Iraq war, the Federal Reserve reported Wednesday.
In its regular assessment of economic growth nationwide, the Fed said in its beige book, so called because of the color of the report's cover, that consumer spending and business expenditure were sluggish. The manufacturing sector remained lackluster.
"The onset of the war with Iraq appeared to have some effect on sales and spending," the Fed said. It added, however, that "it is too early to ascertain the full effect of the war on both consumer and business confidence."
It was clear, however, that the economy remained sluggish and consumers remained concerned about the job market as spending was subdued.
"Although some of the weakness is attributable to Easter falling later this year, the onset of military action in Iraq and poor weather also had negative effects on March sales figures in most districts. Atlanta and San Francisco, however, noted that March sales were near year-ago levels and largely stable on net respectively," the Fed said.
Even car sales, which had been key to supporting consumer spending, were varied across the nation.
"The Cleveland, Richmond (Va.), Chicago, St. Louis, Dallas, and San Francisco auto markets saw some rebound in March after slowing in February. Philadelphia, Atlanta, Minneapolis, and Kansas City, on the other hand, reported faltering auto sales in March, although Minneapolis and Kansas City saw some recovery in auto sales in early April in response to manufacturers' incentives," the Fed said.
Spending on travel and tourism was hit by the outbreak of the severe acute respiratory syndrome, particularly in the West Coast. The Federal Reserve Banks of San Francisco and Dallas reported that SARS, coupled with the war, hurt international travel.
As for real estate, commercial construction was "sluggish," even though activity in the residential sector "remained strong," the Fed said. The housing sector, together with the automobile sector, has been one of the few bright spots in the economy since the stock market tumbled in March 2001.
Home lending has also been strong, as homeowners have rushed to take advantage of lower interest rates, and the Fed reported that refinancing activity remained strong in all districts, even though consumer and commercial lending remained largely flat.
But even homebuilders have started seeing some softening in their industry, with demand for higher-end homes easing in the New York and Atlanta districts.
As for commercial development, the Fed said, "weakness in construction activity persisted as none of the districts reported solid improvements in the industry."
Given the mixed signals in the economy, "the Fed will wait and see if economic weakness continues following the end of the war," said GKST Economics' chief economist Brian Wesbury.
"However, because the war did not end until mid-April, the Fed will have very little post-war data available for its May 6 meeting. This means that any near-term rate cuts are highly unlikely," he added.
