Tags: Fed Report Many Regions Saw Mixed or Slower Growth

Fed: Struggling Economy Grew Even Slower in Some Regions

Wednesday, 07 September 2011 02:22 PM

The Federal Reserve said the economy grew at a slower pace in some regions of the country as shoppers limited their spending and factories curbed production.

“Economic activity continued to expand at a modest pace, though some districts noted mixed or weakening activity,” the Fed said in its Beige Book survey released today in Washington.

Chairman Ben S. Bernanke noted last month that the economy was weaker than anticipated and said policy makers will review ways to bolster growth and reduce unemployment at their Sept. 20-21 meeting.

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The central bank chief, speaking in Jackson Hole, Wyoming, didn’t say what tools the central bank may use.

Bernanke said “only a portion” of the economy’s weakness stemmed from temporary factors such as a surge in energy prices earlier this year. Persistent headwinds are also holding back the recovery, including high unemployment, tight credit and a flagging housing market, he said.

The Beige Book 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 the second half of July through late August.

During the survey period, Europe’s sovereign debt crisis, a drawn out political battle over raising the U.S. debt limit and a downgrade of the nation’s credit rating by Standard & Poor’s prompted a decline in U.S. stocks.

“Several districts also indicated that recent stock market volatility and increased economic uncertainty had led many contacts to downgrade or become more cautious about their near- term outlook,” the survey said.

Downbeat Views

Seven of the Fed’s 12 regions offered more downbeat views of business conditions than in the previous survey.

The Fed’s Atlanta region said the economy there was expanding at a “very subdued pace.” Cleveland reported “slow growth” and New York described the economy as “sluggish.” Economic activity in Chicago and Richmond both slowed. Boston and Philadelphia described their economies as “mixed,” although the Philadelphia region said its economy was “somewhat weaker overall.”

The remaining five Fed regions — St. Louis, Minneapolis, Kansas City, Dallas and San Francisco — said their economies either grew modestly or expanded slightly.

Hiring stalled in August, with employers adding no new jobs to their payrolls, the worst showing in almost a year, the Labor Department said last week. The unemployment rate remained stuck at 9.1 percent.

Slow growth has discouraged hiring. The economy will expand at a 2.3 percent annual rate in the second half of this year, according to the median forecast of 53 economists polled by Bloomberg News from Aug. 2 to Aug 10.

Weakest Stretch

John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina, predicts growth during the second half of 2011 will be 1 percent. That pace would be slightly better than the 0.7 percent during the first six months of this year, the weakest stretch since the recovery began in June 2009.

Services, which account for almost 90 percent of the U.S. economy, grew at a stronger pace last month than forecast by economists, the Institute for Supply Management said yesterday.

Manufacturing, a key support for the recovery before the earthquakes in Japan disrupted the supply of parts, also expanded last month, the institute said last week. Both reports eased concerns the economy is heading for another recession.

The Fed has a “range of tools that could be used to provide additional monetary stimulus,” Bernanke said in his Aug. 26 speech at Jackson Hole.

Bond Buying

Those options include buying more government bonds and extending the average duration of securities in its $1.65 trillion portfolio of Treasury securities.

Economists including those at Wells Fargo, T. Rowe Price Associates and Barclays Capital predict that the Fed this month will increase stimulus by replacing short-term Treasury securities in its portfolio with long-term bonds. The move would be aimed at cutting interest rates on everything from mortgages to car loans.

The Fed in a 7-3 decision at its Aug. 9 meeting pledged to hold its benchmark interest rate at a record low at least until mid-2013 in a bid to get Americans to spend more.

Bernanke warned in his Jackson Hole speech that the Fed alone can’t put 14 million unemployed Americans back to work or cure the housing market, hobbled by depressed home prices and a wave of foreclosures.

President Barack Obama is scheduled to speak tomorrow evening to a joint session of Congress on his plans to create more jobs and invigorate growth. Bernanke plans earlier in the day to give a speech on the economy.

The recovery will probably maintain its momentum while not gaining strength this year, Ronald Sargent, chairman and chief executive officer of office-supply company Staples Inc., said last month.

“I’m not an economist at all. But from what I see, we have no chance at another recession,” Sargent said in an Aug. 17 conference call with analysts.

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The Federal Reserve said the economy grew at a slower pace in some regions of the country as shoppers limited their spending and factories curbed production. Economic activity continued to expand at a modest pace, though some districts noted mixed or weakening activity, ...
Fed Report Many Regions Saw Mixed or Slower Growth
Wednesday, 07 September 2011 02:22 PM
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