Tags: fed | beige | book | housing

Fed Beige Book: Economy Grows ‘Modestly’ as Housing Improves

Wednesday, 10 Oct 2012 02:18 PM

 

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The Federal Reserve said the U.S. economy was expanding “modestly” last month, supported by improvements in housing and auto sales, even as the labor market showed little change.

“Consumer spending was generally reported to be flat to up slightly since the last report,” the Fed said in its Beige Book business survey, which is based on accounts from the 12 district Fed banks.

Conditions in manufacturing were “somewhat improved,” according to the report, which provides anecdotal evidence on the health of the economy two weeks before the Federal Open Market Committee meets in Washington on Oct. 23-24.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

The Beige Book provides support for Fed Chairman Ben S. Bernanke’s view that economic growth isn’t strong enough to bring about a quick healing of the labor market. A Labor Department report last week showed that while the unemployment rate unexpectedly declined in September, payroll growth slowed.

The Fed on Sept. 13 announced a third round of quantitative easing, with purchases of $40 billion a month of mortgage debt, and said its benchmark interest rate was likely to stay low through the middle of 2015.

While “employment conditions were little changed since the last report,” several districts reported shortages of highly skilled workers, the Beige Book said.

The New York district reported economic activity had “leveled off” and Kansas City indicated “some slowing in the pace of growth.” The Fed said that “in general, other districts reported that growth continued at a modest pace.”

Six Districts

The Fed’s previous Beige Book report said six districts reported “modest” growth, while three called it “moderate.” The Philadelphia and Richmond Feds said growth was slow in most industries while manufacturing declined. The Boston Fed cited “some slowdown.”

The unemployment rate in the U.S. fell to 7.8 percent in September, the lowest since January 2009, according to the Bureau of Labor Statistics’ survey of households. A separate survey of employers showed the economy added 114,000 workers.

Boston, Cleveland, Atlanta, Minneapolis and Dallas said employment was “flat or up slightly, with stagnant demand and uncertainty related to the upcoming presidential election, U.S. fiscal policy, and European debt issues cited by some as a restraining hiring.”

The Beige Book contains information collected on or before Sept. 28 and summarized by the New York Fed.

The report gives policy makers information on the economy before some key government reports issued after a longer lag. For example, the Commerce Department plans to release an estimate of third quarter growth on Oct. 26, after the FOMC meeting.

Growth Slows

The economic expansion in the second quarter slowed to 1.3 percent, from 2 percent in the first quarter and 4.1 percent in the fourth quarter of last year.

The U.S. economy in recent weeks has shown signs of strengthening. Manufacturing expanded in September after three months of contraction, according to the Institute for Supply Management’s factory index. The index rose to 51.5 last month from 49.6 in August, with readings above 50 indicating expansion.

Total U.S. auto sales also outpaced analyst estimates last month, with vehicles selling at an annualized rate of 14.9 million in September, above an estimated 14.5 million.

Still, many companies have been reluctant to invest in the prospect of a stronger expansion. Shipments of nondefense capital equipment excluding airplanes, a proxy for business investment, fell 0.9 percent in August after decreasing 1.1 percent in July, according to Commerce Department figures.

Fiscal Cliff

A pullback in business investment fanned concerns companies will begin to pare hiring in anticipation of more than $600 billion in government spending cuts and tax increases, known as the fiscal cliff, at the start of 2013.

Labor Department data so far has shown payrolls continuing to grow even as the Congressional Budget Office has warned the economy will fall into recession if Congress allows the fiscal squeeze to go ahead.

“In the U.S. today, the big question is the economy generally and the fiscal cliff in particular,” said Arne Sorenson, president and chief executive officer of the Bethesda, Maryland-based hotel chain Marriott International Inc.

“Despite our just outside the Beltway headquarters, we are by no means well positioned to opine on how our leaders in Washington are likely to deal with these complex issues,” she said.

The Fed last month cited risks to the economic growth from the fiscal cliff, a slowdown in global growth or a worsening of the debt crisis in Europe.

Still, stocks have rallied as central banks around the world turned to economic stimulus. The Fed announced last month that it will purchase $40 billion of mortgage-backed securities each month until the labor market improves.

As of yesterday, the Standard & Poor’s 500 Index climbed 14.6 percent this year. Fed purchases of housing debt have helped drive the national average 30-year mortgage to 3.36 percent, the lowest on record in a Freddie Mac index.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

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