U.S. Economy Expands as Labor Markets Improve, Fed's Regional Survey Finds

The Federal Reserve said the economy expanded at a “moderate” pace across much of the U.S. in February and March, led by manufacturing, with labor markets showing improvements in most regions.

“While many districts described the improvements as only moderate, most districts stated that gains were widespread across sectors,” the Fed said today in its Beige Book report in Washington. While higher commodity costs compelled sellers to try to raise prices, pressures to increase wages were “weak or subdued.”

The report may reinforce views this month from Chairman Ben S. Bernanke’s top two lieutenants, Janet Yellen and William C. Dudley, that the economy is recovering without enough strength to warrant withdrawing record monetary stimulus. The Fed, while keeping the benchmark interest rate close to zero since 2008, is aiming to boost growth by completing $600 billion of Treasury purchases through June.

“Reports focusing on the near-term outlook were most often upbeat,” the Fed said in its anecdotal survey of the economy released two weeks before meetings of the policy-setting Federal Open Market Committee. “Some districts, however, also noted that uncertainties remained high,” with seven citing disruptions to sales and production from Japan’s tsunami and nuclear disaster, the central bank said.

Photographer: Andrew Harrer/Bloomberg

Ben S. Bernanke, chairman of the U.S. Federal Reserve. Close

Ben S. Bernanke, chairman of the U.S. Federal Reserve.

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Photographer: Andrew Harrer/Bloomberg

Ben S. Bernanke, chairman of the U.S. Federal Reserve.

‘Strengthen Modestly’

The last report, released March 2, said the job market “continued to strengthen modestly” throughout the country. Today’s report was compiled by the Federal Reserve Bank of Richmond and based on information collected before April 4 by the Fed’s 12 district banks.

U.S. stocks rose, with the Standard & Poor’s 500 Index gaining 0.2 percent to 1,316.39 at 3:11 p.m. in New York. Yields on 10-year Treasuries declined to 3.46 percent from 3.49 percent yesterday.

“Growth remains steady but weak,” said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., which manages about $51 billion.

Manufacturing is expanding because of exports and demand from businesses rather than from household spending, she said. “Businesses have money, consumers do not.”

The report underscores the rationale for the Fed to complete its bond-buying and keep interest rates low for an “extended period,” Swonk said.

Economists forecast the U.S. economy will expand at a 2.9 percent annual pace this year, according to the median estimate of 74 analysts in a Bloomberg News survey conducted from April 1 to April 7. That compares with a 3 percent median projection in March.

Select Location

General Electric Co. said last week it will select a location in about three months for a U.S. solar-panel plant that will employ about 400 people and may be the country’s largest.

The Fed’s preferred price measure, which excludes food and fuel, was up 0.9 percent from a year earlier in February, the most since October. Including all items, prices rose 1.6 percent, compared with a 1.2 percent 12-month increase through January, the biggest monthly increase since December 2009.

“Wage pressures were described by most Districts as weak or subdued, but higher commodity costs were widely reported to be putting increasing pressures on prices,” the Fed said today.

Top Fed officials have indicated they are in no rush to follow the lead of the European Central Bank in raising interest rates.

‘Surge’ in Prices

Yellen, the Fed’s vice chairman, said April 11 that “the surge in commodity prices over the past year appears to be largely attributable to a combination of rising global demand and disruptions in global supply.”

Dudley, president of the Federal Reserve Bank of New York, said April 1 that the recovery is “still tenuous,” while Bernanke said April 4 that higher commodity prices may have a “transitory” effect on inflation.

“We’re fully aware that consumers are still relatively constrained,” Brian J. Dunn, chief executive officer of Richfield, Minnesota-based Best Buy Co., the world’s largest consumer-electronics retailer, said on a March 24 conference call.

The FOMC, which next meets April 26-27 in Washington, said at its last session March 15 that the economy is on a “firmer footing” and unanimously affirmed plans to buy the Treasuries through June. Bernanke will hold his first press conference following the FOMC’s statement on April 27.

Rate Fell

The economy added a greater-than-forecast 216,000 jobs in March, and the unemployment rate fell to the lowest level in more than two years, marking a drop of a full percentage point over four months. A Labor Department report today showed job openings increased in February by the most since December 2004, a sign companies are turning more optimistic about hiring.

“Most districts reported that labor market conditions were generally stronger than in their last reports,” the Fed said today. “Wage pressures were reported to be mostly contained.”

Manufacturing in the U.S. expanded in March at close to the fastest pace in almost seven years, while service industries grew less than forecast, according to recent reports.

All 12 districts reported a pickup in manufacturing since the last report, with regional industries expanding including auto and auto parts, commercial aircraft and fabricated metal products, the Fed said. Non-financial service companies “generally reported expansion,” with growth in areas including advertising and seasonal accounting services.

‘Little Changed’

The housing market was either “little changed from low levels” or weaker across the country, the Fed said. Commercial real estate “remained weak across all districts,” while seven regions reported “slight improvements” since the last survey.

The central bank said last month that housing “continues to be depressed.” Sales of existing homes decreased 9.6 percent to a 4.88 million rate in February, while purchases of new homes fell in February to the lowest level on record. The pace of home starts in March almost matched a record low from two years ago.

Total U.S. loans and leases have declined to $6.69 trillion as of March 30 from $6.78 trillion at the end of 2010. Commercial and industrial loans have increased to $1.24 trillion, the highest in more than a year, from $1.23 trillion, while consumer loans have dropped to $1.08 trillion, according to Fed bank data.

“Most districts cited loan demand as either unchanged or slightly improved since the last report, although many of the districts citing improvements noted weak demand in some market segments,” the Fed said today.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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