Asian crisis hits U.S. manufacturing, farming, Fed says

Asian crisis hits U.S. manufacturing, farming, Fed says

WASHINGTON (AP): The Asian economic crisis is taking a toll on American manufacturers and farmers, but strong consumer demand is helping to keep the overall economy steaming ahead, the Federal Reserve said Wednesday.

The Fed found widespread evidence that Asia's troubles were cutting into demand for American manufactured goods and depressing the prices of many farm commodities.

But even with these adverse effects, the 12 Fed districts "generally indicate a high level of economic activity," the central bank said in its latest snapshot of economic conditions around the country.

The report is used by Fed policy-makers to determine whether to change interest rates.

Their next meeting is scheduled for Aug. 18 and economists believe the central bank will leave policy unchanged because of the uncertainties created by Asia and the volatile U.S. stock market.

The latest report said that economic activity had been depressed in the second quarter, not only by Asia but also by the General Motors strike, which was settled last week.

It said the Atlanta, Chicago, Richmond, New York and St. Louis districts had all reported declines in manufacturing employment due to the GM strike with Asia's impact widespread as well.

"Weakness in Asia and increased low-cost imports (from that region) continued to depress activity for a variety of U.S. products," the Fed survey found. "Manufacturers reported that sales and orders for apparel and textiles, computing equipment, electronic components, industrial machinery, paper and wood products fell in many districts."

The Asian impact on the farm sector has been evident in falling prices for many crops as recessions in many nations in that part of the world have contributed to lower demand.

"Price declines for some commodities have been so large that producers cannot cover costs," the report said.

Adding to farmers' troubles from Asia, the central bank noted severe droughts across the South that destroyed crops and damaged pasture land for cattle.

But offsetting these weaknesses, the Fed reported that consumer demand has remained strong and low mortgage rates have contributed to a boom in housing sales and construction.

Federal Reserve Chairman Alan Greenspan, delivering the central bank's midyear report to Congress last month, stressed that even with the depressing effects of the Asian crisis on the U.S. economy, the central bank was less concerned with the threat of a recession than the possibility that tight labor markets could push inflation higher.

The latest economic report seemed to underscore worries on the inflation front, noting that all regions of the country were reporting tight labor markets.

"Labor shortages were broad-based and some skilled workers were in especially short supply," the central bank said.

The central bank has not changed interest rates since March 1997. The Fed's benchmark federal funds rate, the interest that banks charge each other on overnight loans, has been at 5.5 percent since then.

Most analysts believe that stable inflation so far this year will allow the Fed to remain on hold until more is known about Asia's impact on the U.S. economy.