Recession May Be Slowing In American And England According To FED And NIESR, Respectively
Jun 10, 2009 10 Comments ›› Erik Wong
WASHINGTON (AP) – The economy’s sharp downhill slide eased in the late spring and hopes for future business activity improved, suggesting that the worst of the recession has passed.
A Federal Reserve snapshot of economic conditions issued Wednesday found that five of the Fed’s 12 regions said that the “downward trend is showing signs of moderating.”
In addition, “several” regions said that their expectations of future business activity have improved, although they don’t see a “substantial increase” through the end of the year, according to the Fed report. In the last survey, several regions simply noted signs of some stability at low levels.
Altogether the assessments of businesses on the front lines of the economy appeared to be slightly better than those they provided in the previous report issued in mid-April.
Known as the the Beige Book, the Fed survey is consistent with observations made by Fed Chairman Ben Bernanke and other central bank officials that the recession, which started in December 2007 and is now the longest since World War II, is loosening its strong hold on the economy.
Many analysts predict the economy is sinking at a pace of between 1 percent to 3 percent in the current quarter. If they are right, that would mark a big moderation from the steep declines seen since last fall. The economy shrank at a pace of 6.3 percent in the final quarter of last year, the most in a quarter-century, then by 5.7 percent in the first three months of this year. It marked the worst six month performance in 50 years.
The survey’s findings will figure into discussions when Bernanke and his colleagues meet next on June 23-24. Economists have mixed opinions on whether the Fed will take additional action to bolser the economy at that time. Some believe the Fed will move to increase its purchases of government bonds in a bid to drive down rates on mortgages and other consumer debt. The goal: spur Americans to buy more, which would aid the economy.
The economy’s gross domestic product grew by 0.1pc in May following a similar increase in April, according to estimates released on Wednesday by the National Institute of Economic and Social Research (NIESR).
“The monthly figures are inevitably erratic but the picture is coherent with the broader picture of stabilisation which has emerged since we first suggested that output had stopped falling,” said Martin Weale, director at NIESR.
In the three months to the end of May, the pace of economic decline slowed, with GDP falling 0.9pc compared with a 1.5pc drop in the three months to the end of April, according to NIESR estimates.
The estimates from NIESR underline the fact that the recent flurry of data has shows signs of the economy stabilising. However, few economists are predicting a strong recovery with unemployment rising, the banking system still weak and consumer spending remaining subdued.
Paul Tucker, a deputy governor of the Bank of England, said yesterday that it will not be until the Autumn that it will be possible to gain a clearer picture of the economic outlook.
Mr Weale said the monthly figures pointed to “March as having been the trough of the depression”. According to NIESR, UK output has so far suffered a 4.8pc peak-to-trough fall since the onset of the downturn.
The NIESR figures were the latest sign that parts of the economy are staging a modest recovery, and coincided with data from the Office for National Statistics, which showed that UK manufacturing output increased by 0.2pc in March.
It was slightly better than economists expected and represented the second monthly rise in a row after the ONS revised up March’s figure from a fall of -0.1pc to an increase of 0.2pc.
It marked the first consecutive rise in output since January and February last year, and Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club described the data as “an indication that the momentum in the economy is upwards.”
The biggest rises in output came from the transport equipment sector and chemical industry.
Industrial output overall, which accounts for about 18pc of the economy and includes mining and electricity, gas and water supply, rose by 0.3pc in April. It was the first increase in 14 months and economists had predicted a 0.1pc fall.
“There are signs that the Government’s actions to support the economy through this difficult downturn are having an effect but there are absolutely no grounds for complacency,” said a spokesman for the Prime Minister.
Jonathan Loynes at Capital Economics said the data provided a “decent platform” for second quarter gross domestic product (GDP), which some economists are now saying could show flat or very slight growth, compared with the 1.9pc drop in the first quarter.
However, the British Chambers of Commerce attempted to rein in optimism, despite the modest increases illustrated in the ONS figures.
“By any longer-term perspective, manufacturing is in deep decline of more than 13pc compared with a year earlier,”said David Kern, chief economist at the BCC.
Separate ONS data showed the trade in goods and services deficit widened in April to £3bn from £2.7bn. Economists had expected the deficit to narrow to £2.4bn.
