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Sluggish economy fails to unnerve Fed

The U.S. economy continues to weaken but apparently not to the point that would call for energetic relaxation of interest rates, a Federal Reserve survey indicated Wednesday. Although the general appraisal of the economy was a little worse than in the preceding report, published Sept. 19, the survey had a more ominous tone.

The report cited the forced renegotiation of contracts, squeezed profit margins and a virtual lack of financing for speculative real estate ventures.

"Economic activity appears to have grown slowly in most Federal Reserve districts since early August but seems to have declined somewhat in others," a summary of the survey stated. It called retail sales "slug-gish or down in most of the country," while manufacturing was "mixed to weaker."

In September, economic activity was said to have been "expanding more slowly or declining in most" of the 12 Fed districts.

The survey is conducted to aid deliberations of the Federal Reserve's Open Market Committee, the central bank's main instrument for setting monetary policy.

The committee meets eight times a year, with the next session Nov. 13.

After Congress reached agreement on a deficit-reduction package last weekend, the Fed cut by a quarter-point, to 7.75 percent, the short-term interest rate over which it had the most control.

Alan Greenspan, the Fed chairman, has been reported as having urged consideration of a larger cut in rates should the economy weaken further. But he has suggested publicly that he is not eager to do so in the absence

of "a cumulative unwinding" of the economy.

Robert T. McGee, an economist at the Tokai Bank in New York, called Wednesday's report a "somber contrast" to Tuesday's Commerce Department report of a 1.8 percent third-quarter growth in the gross national product.

However, the Fed survey did reveal considerable strength in exports, a relatively robust agricultural sector and some gains in manufacturing in the Midwest.

The survey, assembled by the Federal Reserve Bank of Richmond from data collected by the districts before Oct. 19, suggested that the weakness described in the survey published in mid-September had spread beyond the Northeast and Mid-Atlantic areas and had intensified.

All the districts except Chicago, for example, reported that sales grew more slowly or fell in the latest period, with retail workers being laid off in some places and managers in most districts "generally pessimistic" about sales prospects.

The Boston bank said "all respondents" indicated they were trimming inventories or jobs or deferring capital projects.

The New York district reported a second straight month of year-over-year declines in retail sales, while the Philadelphia bank said fall sales were lackluster.

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