Fed Says Economy Grew at a Slower Pace in Some U.S. Regions
Economy Grew Slower in Some Regions: Fed
Craig Lassig/The New York Times/Redux
Tony Harrington waits in line to talk with potential employers at a job fair, which drew more than 250 people, in Bloomington, Minn., on May 2, 2011.
Tony Harrington waits in line to talk with potential employers at a job fair, which drew more than 250 people, in Bloomington, Minn., on May 2, 2011. Photographer: Craig Lassig/The New York Times/Redux
Sept. 7 (Bloomberg) -- Diane Swonk, chief economist at Mesirow Financial Holdings Inc., talks about Federal Reserve Bank of Chicago President Charles Evans's call for stimulus to cut unemployment. Swonk also discusses the Fed's Beige Book survey released today. She speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
Sept. 7 (Bloomberg) -- Lincoln Ellis, managing director at commodity clearinghouse Linn Group and chief investment officer at Strategic Financial Group, and Komal Sri-Kumar, chief global strategist at TCW Inc., talk about the outlook for the U.S. economy, corporate profits and the European debt crisis. They speak with Carol Massar, Matt Miller and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Sept. 8 (Bloomberg) -- Michael Dueker, head economist for North America at Russell Investments, talks about the U.S. economy, Federal Reserve monetary policy and financial markets. President Barack Obama is scheduled to appear before a joint session of Congress with a plan to spark job growth by injecting more than $300 billion into the economy next year, according to people familiar with the administration’s deliberations. Dueker, speaking from Seattle with Susan Li on Bloomberg Television's "First Up," also discusses the European debt crisis. (Source: Bloomberg)
Fed Says Economy Grew at a Slower Pace in Some U.S. Regions
Emile Wamsteker/Bloomberg
Customer Mary Cimirro of Kearny, New Jersey, right, tries on a sweater at a Talbots Inc. store in the Westfield Garden State Plaza mall in Paramus, New Jerse.
Customer Mary Cimirro of Kearny, New Jersey, right, tries on a sweater at a Talbots Inc. store in the Westfield Garden State Plaza mall in Paramus, New Jerse. Photographer: Emile Wamsteker/Bloomberg
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. 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 until Aug. 26.
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. The S&P 500 Index fell 7.4 percent from July 15 through the end of August.
Stocks Rebound
Stocks rebounded today, with the S&P 500 rising 2.8 percent to 1,197.85 at 2:59 p.m. in New York amid speculation President Barack Obama’s plan for more than $300 billion in economic stimulus will boost growth.
“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.
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.”
Five Regions
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.
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.
Consumer spending, which accounts for roughly 70 percent of the economy, grew “slightly” in most Fed regions, the Beige Book said.
Big-Ticket Items
Boston, Chicago, Kansas City and San Francisco all reported sluggish sales of big-ticket household goods, such as furniture and appliances. Merchants in several regions, which weren’t identified, “thought that heightened consumer anxiety was weighing on sales.” Meanwhile, evacuations due to Hurricane Irene disrupted retail sales in New York.
Among U.S. factories, New York, Philadelphia and Richmond regions said production declined. Manufacturers in Boston and Dallas reported slower demand from European customers. Textile makers in the Richmond region said “markets have grown weaker due to declining consumer confidence.”
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 nation 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 Treasury securities in its $1.65 trillion portfolio.
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.
Yields Fall
The action came after S&P lowered the U.S.’ credit rating to AA+ from AAA on Aug. 5. While stocks fell after the move, the government’s borrowing costs decline to record lows as Treasuries rallied. The yield on the benchmark 10-year note fell to 2.04 percent at 3:04 p.m. in New York today, from 2.56 percent on Aug. 5. Moody’s Investors Service and Fitch Ratings affirmed their top rankings of the U.S.
Charles Evans, president of the Chicago Fed, today said the central bank should move “aggressively” to reduce unemployment, even at the cost of temporarily pushing inflation higher.
The Fed’s current commitment to record-low interest rates should be made contingent on pushing the unemployment rate to around 7 percent or 7.5 percent, as long as inflation stays below 3 percent in the medium term, Evans said in a speech in London.
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 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,” Sargent said in an Aug. 17 conference call with analysts. “But from what I see, we have no chance at another recession.”
To contact the reporter on this story: Jeannine Aversa in Washington at javersa@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
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