The US Federal Reserve said consumer spending rose slightly last month and the economy maintained its expansion, even as companies reported more doubt about the strength of the recovery.
“Overall economic activity continued to expand in September, although many districts described the pace of growth as ‘modest’ or ‘slight,’” the Fed said in its Beige Book survey released today in Washington. “Contacts generally noted weaker or less certain outlooks for business conditions.”
Chairman Ben S. Bernanke early this month told a congressional committee that the two-year-old recovery is “close to faltering,” while repeating his forecast for a pickup in growth. Last month, the Fed announced a plan to spur the economy with lower borrowing costs by replacing $US400 billion of short-term Treasury securities in its portfolio with longer- term bonds.
The Fed’s anecdotal summary of economic performance said the recovery was fueled by consumer spending that was “up slightly,” business spending that “increased somewhat” and manufacturing that rose as many districts reported a boost to automobile production.
The Fed’s regional banks in Atlanta, New York, Minneapolis and Dallas said growth in their regions was modest, while Chicago said the economy had “picked up some” and Philadelphia described conditions as “mixed, with more positive sectors than negative ones compared with the previous” report. The Richmond Fed said conditions were “weak or weakening in most sectors.”
Precedes FOMC Meeting
The Beige Book survey, released two weeks before each policy meeting, is based on information gathered by officials at the Fed’s 12 regional banks. Today’s report covers information collected on or before Oct. 7 and was compiled by staff at the Chicago Fed.
“We probably avoided this recession scare that we’ve been having since August,” St. Louis Fed President James Bullard said today in a radio interview in St. Louis on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. Recent economic reports have “surprised on the upside” and support the Fed’s view, expressed in its September statement, that there will be “some pickup in the pace of recovery over coming quarters,” he said.
The Standard & Poor’s 500 Index slid 1.1 per cent to 1,211.43 as of 2:34 p.m. in New York, while the yield on the 10- year Treasury note declined three basis points to 2.15 per cent. A basis point is 0.01 per centage point.
Retail sales rose
Employers added 103,000 jobs in September, up from a gain of 57,000 the month before. Retail sales last month rose by the most in seven months, and factory production climbed.
The Fed said conditions in the labor market were “little changed, on balance, in September” and that several districts saw “only limited and selective demand for new hires.”
Fed banks in Cleveland, Richmond, Atlanta, Chicago and Kansas City all noted that industries such as manufacturing, transportation and energy were “experiencing difficulties in finding appropriately skilled or qualified labor.”
The economy probably expanded at a 2 per cent annual pace in the third quarter, according to the median forecast in a Bloomberg News survey of economists taken from Oct. 5 to Oct. 11. That compares with growth of 1.3 per cent in the second quarter and 0.4 per cent in the first three months of the year.
Housing starts climbed 15 per cent to a 658,000 annual rate, the most since April 2010, Commerce Department figures showed today in Washington. Construction of new multifamily dwellings surged to the highest since October 2008.
A few districts reported “slight improvements in construction and real estate activity; nonetheless, overall conditions for both residential and commercial real estate remained weak,” the Fed said. Manufacturing and transportation “increased on balance” while consumer spending rose “slightly,” boosted by auto sales and tourism.
“The US has a long-term issue with unemployment that for the average consumer is going to remain challenging,” Blake Jorgensen, chief financial officer for Levi Strauss & Co., said in a telephone interview last week from San Francisco, where the closely held company is based.
The Boston, Richmond, Atlanta, and Chicago Fed districts said that further hiring was “being restrained by elevated uncertainty or lower expectations for their future growth.”
President Barack Obama is working to pass some components of a $US447 billion package intended to create jobs and lower an unemployment that has been stuck near 9 per cent since April 2009.
Demanding a vote
Senate Majority Leader Harry Reid is demanding a vote on the first piece of the broken-up jobs package, providing $US35 billion in aid to cash-strapped state governments. The Nevada Democrat said it would help save the jobs of teachers, firefighters and other public-sector workers. Reid would pay for it with a half-per cent surtax on individuals with annual income of $US1 million or more.
Republicans, who have a majority in the House and enough votes in the Senate to block legislation, have rejected raising taxes to pay for the plan. They also object to additional spending when the nation’s budget deficit was $US1.3 trillion in the fiscal year that ended Sept. 30, the third consecutive year that the shortfall has exceeded $US1 trillion.
Financial activity weakened in the money centers of Chicago, which reported tighter financial conditions, and New York, which said securities industry activity was “noticeably weaker.”
In agricultural areas, crop conditions at harvest were “less favorable than a year ago.”
The previous Beige Book, released Sept. 7, said that the economy grew at a slower pace in some regions of the country as shoppers limited their spending and factories curbed production. The report said that activity expanded “at a modest pace, though some districts noted mixed or weakening activity.”
The US economy has been roiled this year by international shocks, including the earthquake and tsunami in Japan that disrupted global supply chains, a surge in oil prices exacerbated by political upheaval in the Middle East, and the sovereign-debt crisis in Europe.
“As this year has unfolded and the effects of these temporary factors have ebbed, it has become apparent that there are more persistent factors impeding growth in this recovery,” Richmond Fed President Jeffrey Lacker said in an Oct. 17 speech in Salisbury, Maryland.
Source: The Age