Asia Woes Slowing Demand for U.S. Exports, Fed Says

WASHINGTON — Inflation remained absent from the U.S. economy in recent weeks, but the financial crisis in Asia is starting to slow the demand for American exports, the Federal Reserve Board said Wednesday.

“Business respondents report that price pressures remain neutral, on balance, as steady-to-declining commodity prices, productivity gains and increasing overseas competition appear to be offsetting any effects of wage gains,” the Fed said in its latest report on the U.S. economy.

“Asian financial turmoil and currency weakness have adversely affected demand for manufactured and agricultural exports,” the Fed said in its so-called beige book, a survey of economic conditions by its 12 district banks.

Economists had been predicting for weeks that the sharp devaluation of many Asian currencies would hurt the U.S. economy by reducing Asia’s demand for American products and commodities and by effectively slashing the price on Asian goods selling in the U.S.

Wednesday’s report, based on information collected before Nov. 24, is the first clear evidence that is happening.

However, Robert Parry, president of the Federal Reserve Bank of San Francisco, said, “We’re not likely to see a big effect on national growth from Asia’s financial problems,” though he said California and Washington, which have large exports to the Pacific Rim, could be hurt.

U.S. factories, meanwhile, continue to operate at a high level of productivity, and wage pressures persisted as low unemployment led to shortages of qualified workers in many industries. “Virtually all regions are experiencing tight labor markets,” the report said, “with some reporting increased wage pressures in specific industries and occupations with labor shortages.”

Railroad bottlenecks, caused in part by the merger of the Union Pacific and the Southern Pacific, continued to plague shippers in the West and South, the central bank said.

Auto sales were sluggish, with “inventories on the high side.” At the same time, though, retail sales outside the auto industry improved and the Fed described the overall pace of economic growth as moderate.

The board’s regional outlook is based on reports from the Fed’s 12 district banks and is published eight times a year. The latest edition was compiled by the Federal Reserve Bank of New York from information collected before Nov. 24.

Wednesday’s survey will be used when Fed policymakers meet Dec. 16 to discuss interest rates. Until Asia’s turmoil began spreading to world financial markets, most economists had been predicting the central bank would boost rates to slow the economy, thus preventing labor shortages from worsening and contributing to accelerated inflation. Of late, many have said the dampening impact of Asia’s problems could postpone any rate increase well into next year.

Separately on Wednesday, the Commerce Department said new-home sales slipped in October--for the second time in three months--but remained at a generally high level.

Single-family homes sold at a seasonally adjusted annual rate of 797,000, down 1.7% from September. In the West, home sales plunged 5.7% to an adjusted annual rate of 230,000.

Still, sales nationwide for the first 10 months of 1997 are running 6% ahead of the same period last year. And October marked the 22nd month of sales higher than 700,000, the longest such stretch since the late 1970s.

Economists said the robust job market is giving consumers plenty of income to buy homes, and low mortgage rates are keeping them affordable. Nevertheless, they’re expecting sales to level off next year, and construction firms have been conservative about building homes on speculation.

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New-Home Sales

Seasonally adjusted annual rate, in thousands of units:

Oct. ‘97: 797

Source: Commerce Department