The Federal Reserve said the economy grew at a slower pace in more parts of the country since the beginning of June as shoppers restrained spending and factory production eased.
“Economic activity continued to grow,” the Fed said in its Beige Book survey released today in Washington. “However, the pace has moderated in many districts.” Growth slowed in eight of the Fed’s 12 regions, compared with four in the last survey, the central bank said.
The report underscores Fed Chairman Ben S. Bernanke’s message to Congress earlier this month that maintaining record monetary stimulus is necessary to bolster the economy. Bernanke left the door open to additional action, including buying more government bonds, should the recovery appear in danger of stalling.
“Economic growth has cooled, not collapsed,” said James O’Sullivan, global chief economist at MF Global Inc. in New York. “The Fed is firmly on hold for now. The economy isn’t weak enough to justify another round of stimulus, nor is it strong enough for the Fed to rush toward the stimulus exit.”
With unemployment at 9.2 percent, the “economy still needs a good deal of support,” Bernanke told lawmakers July 13 in semiannual testimony on monetary policy.
The Fed survey, released two weeks before each policy meeting, is based on information compiled by officials at the Fed’s 12 regional banks. Today’s report covers June and the first half of July.
Stocks extended losses, with the Standard & Poor’s 500 Index down 1.8 percent to 1,308.59 at 3:04 p.m. in New York. Yields on 10-year Treasuries rose to 2.98 percent from 2.95 percent yesterday.
Many regions said manufacturing slowed or held steady, according to the report. Consumer spending, which accounts for about 70 percent of the economy, grew modestly. Auto sales slowed.
Hours before today’s report, the Commerce Department said orders placed with U.S. factories for durable goods unexpectedly fell 2.1 percent in June. That suggests companies were losing confidence in the recovery as the second quarter ended.
The government will release a report July 29 that may show the U.S. economy last quarter grew at 1.8 percent annual rate, its slowest pace in a year, as higher fuel costs crimped consumer spending and supply disruptions from the earthquake in Japan hurt manufacturing. The estimate is the median of 84 economists surveyed by Bloomberg News.
That pace of second-quarter performance would compare with the 1.9 percent growth in the first three months of this year and mark the worst showing since the economy grew at a 1.7 percent pace in the second quarter of 2010.
In the Fed’s survey, retailers in the Fed regions of Boston, Richmond, Atlanta and San Francisco said sales were mixed, while merchants in St. Louis said sales slowed.
The housing market stayed “weak,” the survey said. New-home sales dropped 1 percent in June to an annualized pace of 312,000, a three-month low, the Commerce Department said yesterday.
The Fed said reports of loan demand were “more mixed” than in the prior Beige Book. Lending by U.S. banks totaled $6.78 trillion as of July 13, little changed from $6.77 trillion in early January.
The survey also showed few forces pushing up inflation. “Price pressures moderated in many districts,” the Fed said.
Consumer prices dipped 0.2 percent in June, reversing an increase of the same size in May, the Labor Department said July 15. For the 12 months ended in June, inflation was 3.6 percent. Core prices, which strip out food and energy, increased 1.6 percent in June from a year earlier, up from 1.5 percent in May.
Bernanke told Congress that he expects economic growth to accelerate above 3 percent in the second half of 2011 as energy prices recede and supply disruptions caused by the disaster in Japan end.
Even so, Bernanke said central bankers expect unemployment to decline “gradually.” Fed officials in a June 22 forecast said the jobless rate would drop to between 8.6 percent and 8.9 percent during the fourth quarter.
Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Merrill Lynch say the economy will grow at a 2.5 percent pace in the third quarter, down from earlier projections of as much as a 3.25 percent growth.
Bernanke and his colleagues meet next on Aug. 9. Weaker growth would keep pressure on the Fed to hold interest rates at record lows close to zero and its balance sheet near a high of $2.88 trillion.
With projections for economic growth dimming, Cisco Systems Inc., the world’s largest networking equipment maker, on July 18 said it planned to eliminate about 6,500 jobs worldwide.
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