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Fed Beige Book: Economy Grew ‘Gradually’ as Housing Improved Despite Factory Weakness

Wednesday, 29 August 2012 02:01 PM

The Federal Reserve said the U.S. economy continued to expand “gradually” in July and early August as improvement in housing and retail sales helped outweigh weakness in manufacturing.

Most regional reserve banks reported employment was “holding steady or growing only slightly,” the Fed said in its Beige Book business survey based on reports from its 12 districts. The report reflects information collected on or before Aug. 20 and summarized by the Boston Fed.

“Retail activity, including auto sales, had increased since the last Beige Book report” in most districts, the Fed said. “Many districts reported some softening in manufacturing, either a slowdown in the rate of growth or a decline in the level of sales.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Wednesday’s Beige Book gives policy makers anecdotal evidence on the economy before they meet in Washington Sept. 12-13. Policy makers said at their July 31-Aug. 1 gathering that further action would probably be needed “fairly soon” without evidence of “substantial and sustainable” improvement in the recovery, minutes released last week showed.

The Federal Open Market Committee will weigh whether more accommodation is needed to spur an expansion that isn’t fast enough to bring down a jobless rate stuck above 8 percent since February 2009.

Six districts indicated the local economy “continued to expand at a modest pace” and another three, including Chicago, cited “moderate” growth, today’s report showed. Philadelphia and Richmond reported “slow growth in most sectors and declines in manufacturing,” while Boston cited “mixed reports” and some slowdown since the previous report.

Growth Forecasts

The economy will probably expand 1.8 percent in the third quarter and 2.1 percent in the fourth, according to the median of 75 estimates in a Bloomberg News survey. Gross domestic product grew 2 percent in the first quarter of this year before slowing to 1.7 percent in the following three months.

A Commerce Department report today showed that the economy expanded faster than its initial estimate of a 1.5 percent rate, reflecting gains in consumer spending and exports.

Americans signed more contracts to purchase previously owned homes in July, a sign housing will keep strengthening in the second half, figures from the National Association of Realtors showed.

The index of pending home resales climbed 2.4 percent, exceeding the 1 percent gain median forecast of 39 economists surveyed by Bloomberg. The gauge rose to 101.7, the highest since April 2010.

Jobless Rate

The jobless rate climbed to 8.3 percent in July even as employers added 163,000 workers for the month. The pace of payroll growth slowed to an average of 73,000 a month in the second quarter from 226,000 in the first.
Fed Chairman Ben Bernanke has an opportunity to describe his outlook on policy and the U.S. economy in a speech to central bankers and economists Aug. 31 at a Fed symposium in Jackson Hole, Wyoming.

The Fed has expanded its balance sheet with two rounds of bond purchases, known as quantitative easing. In the first, starting in 2008, the Fed bought $1.25 trillion of mortgage- backed securities, $175 billion of federal agency debt and $300 billion of Treasurys. In the second round, announced in November 2010, the Fed bought $600 billion of Treasurys.

The Standard & Poor’s 500 Index has rallied 12 percent this year as European leaders worked to stem contagion from the region’s debt crisis and the Fed pledged to safeguard the U.S. economy. The benchmark is outpacing the 8 percent gain in 2012 for global stocks in the MSCI All-Country World Index. The yield on the benchmark 10-year Treasury note rose 0.03 percentage point to 1.67 percent as of 1:15 p.m. in New York.

Evans, Williams

Fed presidents Charles Evans of Chicago, San Francisco’s John Williams and Boston’s Eric Rosengren have said that they favor “open-ended” purchases of securities. Evans said in an Aug. 27 speech in Hong Kong that the central bank should begin a third round of bond purchases and continue buying until unemployment falls for at least six months.

Cleveland Fed President Sandra Pianalto said Aug. 27 that the recovery remains “frustratingly slow” and that additional “large-scale asset purchases can be effective” if the risks are managed. Pianalto and Williams vote on the FOMC this year, while Evans and Rosengren don’t.

Best Buy Co., the world’s largest electronics retailer, said the sluggish economy and depressed consumer confidence are hurting business. The Richfield, Minnesota-based company reported second-quarter profit Aug. 21 that trailed analysts’ estimates after sales of computers and televisions dropped.

“Economic conditions are soft and will probably remain so for the indefinite future,” interim Chief Executive Officer Mike Mikan said on a conference call after the report. “Consumers remain very cautious.”

Confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about the economic outlook. The Conference Board’s index decreased to 60.6 from a revised 65.4 in July, figures from the New York-based private research group showed.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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Wednesday, 29 August 2012 02:01 PM
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