Downturn Spares Few Areas of U.S.

As posted by: Wall Street Journal

Economic activity is weakening across the U.S., a new Federal Reserve survey shows, with few sectors or regions spared from the deepening downturn.

Through late last month, nearly every area of the U.S. reported tighter lending, declining sales and manufacturing, and softening labor and real-estate markets, according to the Fed's Beige Book survey of regional economic activity. Sectors such as agriculture and energy, which until recently were bright spots, began to dim as commodity prices declined.

The central bank's report Wednesday follows other signs that employers are shedding jobs at a quickening pace.

The Institute for Supply Management's service-sector index fell 7.1 points to 37.3, a new low for the 11-year-old index. The most troubling signal from the survey of executives came in a measure of employment, which plummeted to 31.3 from 41.5. Index readings below 50 indicate contraction.

"It's ugly out there," said Anthony Nieves, chairman of the ISM survey committee and a senior vice president for supply management at Hilton Hotels Corp. "It's not about doing away with the activities that were nice to have," Mr. Nieves said. "This is, how do we limp along until things get better? It looks like everyone is looking at all of 2009 as being this type of dismal economy."

A separate report prepared by payroll firm Automatic Data Processing Inc. and forecasting firm Macroeconomic Advisers estimated that nonfarm payrolls, excluding government jobs, declined by 250,000 in November. Thus far this year, ADP has shown smaller payroll losses than the Labor Department, raising worries about the official government number due Friday.

Many forecasters had projected the U.S. employment report for November will show a decline of far more than 300,000 jobs. Goldman Sachs economists yesterday downgraded their projections to a monthly drop of 400,000, from the previous estimate of 350,000, with the unemployment rate rising to 6.8% from 6.5%.

The Fed Beige Book found some employers reporting difficulty hiring certain skilled workers. But just about all others, including temporary-help firms, factories or retailers seeking seasonal workers, scaled back hiring. "Wage pressures were largely subdued," the report said.

Federal Reserve Bank of Richmond President Jeffrey Lacker said that "uncertainty about the outlook is greater than usual," but that the economy is still expected to "regain positive momentum sometime in 2009."

Since September, reports have indicated that "many households and firms are taking a 'wait and see' attitude, reducing or postponing nonessential outlays in response to a general sense of uncertainty about the potential meaning of these dramatic events for their own economic circumstances," Mr. Lacker said in remarks Wednesday to the Charlotte, N.C., Chamber of Commerce.

Stimulative monetary policy from the Fed, lower commodity prices and a lessening drag from the housing sector should return the economy to growth, he said.

Also on Wednesday, the Labor Department revised its estimate of third-quarter productivity growth slightly to 2.1% from a year earlier, up from its earlier 2% estimate, as the number of hours worked declined more sharply than previously estimated. On an annualized basis, productivity increased at a 1.3% rate in the third quarter from the second quarter, higher than the earlier 1.1% figure.

The report showed lower growth in labor costs as the job market weakened. Costs per unit of labor rose 1.4% in the third quarter from a year earlier, below the previous estimate of 2.3%.

"With the labor market weakening, this driver of inflation is likely to be even weaker over the next year or two," Goldman Sachs economists said in a note to clients.