Fed: Housing, credit woes slow economy

By JEANNINE AVERSA AP Economics Writer
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Multimedia Bios: Key Players on the Fed
WASHINGTON (AP) -- The economy logged slower growth in the early fall as troubles in the housing and credit markets weighed on companies and individuals alike, the Federal Reserve reported Wednesday.
The Fed's fresh snapshot showed that business activity around the country was more subdued but the report didn't suggest that such activity is in danger of collapsing.
"Economic activity continued to expand in all districts in September and early October but the pace of growth decelerated since August," the Fed survey said.
Spending by individuals was uneven and suggests growth was slower in the early fall, the Fed said. "The manufacturing and service sectors continued to expand, but growth weakened - mostly for products and services related to home construction and real-estate transactions," the Fed observed.
To keep the economy expanding, it is vital that companies and people spend and invest at a sufficient pace. The big worry has been that they'll cut back sharply, sending the economy into a tailspin.
The Fed report detected that businesses feel more unsure about the economy's prospects.
"Contacts in a number of industries indicated a higher-than-usual degree of uncertainty about the outlook for economic activity," the Fed survey found.
"Many real-estate contacts expect housing markets to remain subdued for several months," the Fed said. "At firms without direct ties to real estate and construction, contacts are still wary that credit tightening and slowing construction might slow activity in their industry, but there is cautious optimism because few see much evidence of such spillovers at this time."
Federal Reserve Chairman Ben Bernanke, in remarks earlier this week, warned the housing slump will be a "significant drag" on economic growth into next year.
Yet, for all the problems the country has had to cope with, the economic performance so far this year "has been reasonably good," Bernanke said.
The ultimate implications of the credit crunch on the broader economy, however, remain "uncertain," the Fed chief said.
Against that backdrop, economists have mixed opinions about the Fed's next move. Bernanke and his central bank colleagues meet next on Oct. 30-31.
Some analysts think the Fed will leave rates alone, given recent government reports showing that the job market is still sturdy and shoppers are ringing up decent sales at retailers. Others, however, think another rate cut will be ordered to bolster economic growth.
The Fed survey suggested that the nation's employment climate is still in pretty good shape, although "job growth has eased in some regions."
Earlier this month, the Labor Department reported that job creation rebounded in September. Employers boosted payrolls by 110,000, the most in four months. Wages grew solidly. The unemployment rate did creep up to 4.7 percent last month, but that rate is still considered low by historical standards.
The still-good employment situation, coupled with wage gains, has helped to cushion people from the bad effects of the worst housing slump in 16 years and a jarring credit crisis.
Harder to get credit can make it difficult for people to finance big-ticket purchases such as homes and cars, and for businesses to expand operations and hiring.
The Fed survey said "lenders in many districts tightened credit standards, including for consumers and all types of real estate. Consumer lending grew more slowing in most districts. Lending for home mortgages, equity lines and refinancing continued to soften or decline in most districts. Overall business lending was up, but tightening lending standards were applied, particularly for real estate."
The survey was based on information that the Fed's 12 regional banks collected before Oct. 5.
The housing slump deepened, the Fed reported indicated. In some instances, buyers could no longer secure financing or were unable to sell their current homes, the Fed said.
Facing a glut of unsold homes, new-home construction fell 10.2 percent in September to a pace of 1.191 million units. That was the slowest building pace since March 1993, the Commerce Department reported Wednesday.
The commercial real-estate market - for such things as office buildings, stores and other structures - remained solid, the Fed said. However, some reports suggested that "developers are becoming more cautious - in some cases shelving or canceling projects."
On the inflation front, the Fed said high prices were reported for food, energy and raw materials.
Companies, however, have been somewhat limited in passing along all of their increased costs to customers. "Competitive pressures are restraining retail price increases in many instances," the Fed noted.
The Labor Department on Wednesday reported that consumer prices rose 0.3 percent in September, pushed up by more expensive food and energy costs.