The economy is showing signs of stabilizing in broad swaths of the country, the Federal Reserve reported Wednesday, suggesting the bottom may be near in this long, painful recession that has erased millions of jobs and billions of dollars in wealth.
A Federal Reserve snapshot of economic conditions found most of the Fed's 12 regions indicated either that the recession was easing or that economic activity had "begun to stabilize, albeit at a low level." However, the Fed region that includes Minnesota reported a deepening contraction, perhaps because it didn't fall as hard as some of the other regions to begin with.
The Fed's report, coming on the heels of the first uptick in home prices in three years, is adding to evidence the economy may emerge from the recession later this year.
The Minneapolis Fed, which covers Minnesota, North Dakota, South Dakota and upper Michigan, showed decreases in retail spending, tourism, services, residential construction, agriculture, mining and manufacturing during the past seven weeks. Labor markets also slackened, some prices slid and wage increases were only moderate.
Art Rolnick, senior vice president of the Federal Reserve Bank of Minneapolis, acknowledged his region's sluggish results, but noted the Midwest never fell as hard as other economies around the country. While Minnesota's unemployment rate jumped in June to 8.4 percent, Michigan's unemployment rate has long been in the double digits, hitting roughly 14 percent due to the decline in Detroit's once-robust auto industry.
Rolnick said he expects to see signs of economic recovery in Minnesota in the third quarter, "with manufacturing leading the way." He noted recent housing and export numbers are already showing some promise.
In Wednesday's report, four Fed regions -- New York, Cleveland, Kansas City and San Francisco -- pointed to "signs of stabilization," the survey said. Two regions -- Chicago and St. Louis -- reported the pace of economic decline appeared to be "moderating."
Five other regions -- Boston, Philadelphia, Richmond, Atlanta and Dallas -- described activity as "slow," "subdued" or "weak."
Nothing in Wednesday's report was a surprise, Rolnick said. He said the performance of the region that includes Minnesota was hampered by lackluster housing, manufacturing and export sectors, as well as consumers who failed to "quickly spend our way out of this economic downturn."
And no wonder: Job cuts continue to frighten consumers. The University of Minnesota recently said it will lay off 370 workers and cut 830 jobs through attrition. A Minnesota trucking company with 200 employees said it will close in August. A Minnesota-based regional airline told the Fed it plans to furlough 110 pilots. And a health insurance company reported plans to lay off 100 workers.
The Minneapolis Fed report noted one major retailer whose sales fell 6 percent in June, and a major hair salon that saw sales fall 4 percent.
The Fed did see signs of improvement, though. Its business survey found a "diversified manufacturer" that reported sales had stabilized after customers drew down inventories earlier in the year. Some manufacturing analysts said they believed the company may have been 3M, which recently surprised Wall Street with stronger than expected second quarter results.
The Fed's report noted the Ninth District's commercial construction sector was already "stable at low levels" and its energy and residential real estate sectors saw "moderate increases." For example, closed home sales in the Minneapolis-St. Paul area increased 20 percent in June from a year earlier. However, the dollar volume of the sales was flat, as median sale prices fell more than 15 percent.
Auto sales grew slightly in June and July, and repair and auto parts businesses reported an increase in activity. The report cited two auto dealers in Minnesota and one in northwestern Wisconsin with nice sales increases. At the same time, one western Montana auto dealer reported that sales fell 50 percent from the past two years.
Ernie Goss, an economist at Creighton University who conducts his own surveys of Midwestern business conditions, said the Fed's latest survey results were largely known by economists across the nation.
The economy will continue to bump along with growth in one pocket and losses in another for a while, Goss said. Recovery will not happen overnight, he said, adding that housing, biofuels, manufacturing, exports and banking will continue to be important sectors to watch for the entire Midwest region.
Dee DePass • 612-673-7725