Fed Says U.S. Economic Growth Improves While Hiring Limited

The U.S. economic expansion improved last month across most of the country while hiring was limited and housing remained stagnant, the central bank said.

The economy “expanded at a modest to moderate pace” from late November through the end of December on increased holiday retail sales, demand for services and oil and gas extraction, the Fed said in its Beige Book anecdotal business survey released today in Washington. At the same time, most industries saw “limited permanent hiring,” and the housing market remained “sluggish.”

The report may reinforce the views of a majority of Fed officials, who see an economy that’s expanding without being strong enough to reduce joblessness as quickly as they would prefer. The unemployment rate dropped to 8.5 percent in December from 9.4 percent a year earlier. Fed officials are also urging lawmakers to try more housing-aid programs.

“The reports on balance suggest ongoing improvement in economic conditions in recent months,” the Fed said in today’s report, which comes out two weeks before each meeting on monetary policy. “The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases.”

Most U.S. stocks rose and the Standard & Poor’s 500 Index reached a five-month high for a second day as gains in banking and technology shares helped the market recover from an early slump. The S&P 500 climbed less than 0.1 percent to 1,292.48 at the close in New York as almost three stocks advanced for every two that fell on U.S. exchanges.

‘Better Tone’

The beige book report reflects a “slightly better tone, slightly better data,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. Even so, “the financial market has taken recent Fed commentary as generally dovish and as a signal that the Fed is perhaps exploring more easing measures.”

The last Beige Book, released Nov. 30, said the economy expanded at a “slow to moderate” pace in 11 of 12 districts, led by gains in manufacturing and consumer spending. St. Louis was the only region to report a “decline in economic activity.”

The Federal Open Market Committee next gathers Jan. 24-25 in Washington as officials debate whether to try new actions to lower borrowing costs. Fed policy makers will for the first time publish projections for the benchmark federal funds rate and will also update their forecasts for economic growth, unemployment and inflation.

San Francisco Staffers

Today’s report reflects information collected on or before Dec. 30. The 12 regional banks’ reports were summarized by staffers at the San Francisco Fed.

The economy probably expanded at a 3.3 percent annual pace in the fourth quarter of 2011, according to an estimate by Macroeconomic Advisers LLC yesterday, after a 1.8 percent rate in the prior three months.

Analysts surveyed by Bloomberg News last month forecast 2.1 percent growth in 2012, based on the median of 69 estimates.

The Beige Book said that “upward wage pressures were modest overall” for workers across the U.S. The Labor Department said Jan. 6 that 200,000 jobs were added to payrolls in December, the most since September. The jobless rate declined for a fourth straight month to the lowest since February 2009.

Even so, New York Fed President William C. Dudley said last week that the “outlook for unemployment is unacceptably high” and that it’s “appropriate” for the Fed to consider steps to ease monetary policy, he said.

‘Held Steady’

The residential real estate market “largely held steady at very low levels” except for increasing construction of multifamily homes, the Beige Book said. The rental market “tightened in some areas,” the report said.

Last week, Fed Chairman Ben S. Bernanke and his colleagues began pushing harder for the Obama administration and Congress to try new programs to revive the housing market. The advocacy sparked criticism from two Republican senators, Tennessee’s Bob Corker and Utah’s Orrin Hatch, who said central bankers were supporting plans that would put taxpayers at risk.

The Fed said today that inflation and pressures to raise prices “were very limited” at the end of last year. Several district banks reported that “upward price pressures from rising commodity and input prices have eased substantially,” the Fed said.

Price Gauge

The central bank’s preferred price gauge, which excludes food and energy costs, rose 1.7 percent in November from a year earlier. Fed policy makers prefer a long-run inflation rate, including all items, of 1.7 percent to 2 percent.

Lending “edged up overall” on higher demand from businesses, with the New York and Cleveland regions reporting increased loans in commercial mortgages, the Fed said. Consumer lending “was largely flat compared with the prior reporting period,” the central bank said.

A separate Fed report Jan. 9 showed that consumer borrowing in the U.S. rose in November by the most in 10 years. Credit increased by $20.4 billion, the biggest jump since November 2001, to $2.48 trillion.

Most regions said holiday retail sales “were up noticeably over last year’s season,” and consumer spending and confidence have improved, the Fed said.

Macy’s Inc., the Cincinnati-based retailer, last week reported a 6.2 percent increase in December same-store sales, topping analyst estimates. The company boosted its fourth- quarter earnings forecast to as much as $1.60 a share, after earlier projecting a maximum of $1.57 a share.

Commercial and industrial loans from banks have increased to $1.34 trillion as of Dec. 28, the highest since October 2009, from $1.21 trillion a year earlier. They peaked at $1.62 trillion in October 2008.

----With assistance from Vivien Lou Chen in San Francisco. Editors: Christopher Wellisz, Kevin Costelloe

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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