Gains in manufacturing, technology and housing fueled “modest to moderate” economic growth from early October through mid-November, the Federal Reserve said.
“Hiring showed a modest increase or was unchanged,” the central bank said today in its Beige Book business survey, which contains anecdotal reports from the 12 Fed district banks two weeks before the officials meet to set monetary policy. Consumer spending increased in most of the country, with retailers expressing optimism about holiday sales.
“Manufacturing activity continued to expand in most districts, with gains noted in the motor-vehicle and high-technology industries,” the Fed said. “Demand for professional business services experienced stable to moderate growth, especially in computer technologies.”
The report gives policy makers clues to the state of the labor market and the economy as they debate whether to start reducing $85 billion in monthly bond purchases. Companies boosted payrolls last month by the most in a year, according to a private report today, and government data in two days are forecast to show the jobless rate declined.
The central bank kept intact its characterization of the world’s largest economy for the fifth straight report, continuing the same “modest to moderate pace” assessment that it has used since June. In April the Fed said growth was “moderate.”
“Modest to moderate growth is probably good enough to keep us out of a recession, but on net we’re still trudging along at the same pace,” said Brian Jacobsen, who helps oversee $236 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. “I’d be concerned if there were more references to a slowing down or that the economy merely expanded. That would have been unsettling.”
Services from banking to transportation grew more slowly in November. The Institute for Supply Management’s non-manufacturing index dropped to 53.9 from 55.4 in October, the group said today. A gauge above 50 shows expansion among companies that account for almost 90 percent of the economy.
The Standard & Poor’s 500 Index pared losses after the report, slumping 0.3 percent to 1,789.06 at 2:50 p.m. in New York. The yield on the benchmark 10-year Treasury remained near the highest intraday level since September, rising 0.06 percentage point to 2.84 percent.
“Residential real estate activity improved across many districts, with multifamily construction experiencing moderate to strong growth,” the Fed said. “Activity in nonresidential real estate was stable or improved slightly across many districts.”
Banking conditions were reported as “largely stable,” and loan demand improved. Several districts saw an “easing of lending standards,” the Fed said.
Fed Vice Chairman Janet Yellen, nominated to succeed Chairman Ben S. Bernanke, signaled Nov. 14 she will push on with stimulus until seeing improvement in an economy that’s operating below potential. Bond buying by the Federal Open Market Committee, which meets Dec. 17-18, has ballooned Fed assets to a record $3.93 trillion.
Yellen said during her confirmation hearing before the Senate Banking Committee that unemployment is “still too high, reflecting a labor market and economy performing far short of their potential.”
Companies expanded payrolls in November by 215,000, according to the ADP Research Institute in Roseland, New Jersey. The increase exceeded the most optimistic forecast in a Bloomberg survey and following a revised 184,000 gain in October that was larger than initially estimated.
Demand for new hires is biggest in “booming” information technology and health care, said Jeanne Branthover, a managing partner at Boyden Global Executive Search in New York. The firm has been “incredibly busy” as firms step up staff and transfer workers to jobs in other locations.
“Businesses are starting to do better and they know they have to increase staff,” Branthover said. “People are relocating more than I’ve ever seen and willing to relocate for a better job so we’ve been moving people all over the world.”
Job gains have added to signs of economic vitality. Manufacturing accelerated in November at the fastest pace since April 2011 with the ISM’s index rising to 57.3 from 56.4 a month earlier, a report showed Dec. 2. Readings above 50 indicate growth.
U.S. exports in October climbed to a record and the trade deficit narrowed for the first time in four months, the Commerce Department reported today. Sales of goods to China, Canada and Mexico were the highest ever, pointing to improving global demand that will benefit American manufacturers.
Purchases of new U.S. homes surged in October by the most in three decades, signaling buyers are starting to take higher mortgage rates in stride. Sales jumped 25.4 percent to a 444,000 annualized pace, following a 354,000 rate in the prior month that was the weakest since April 2012, figures from the Commerce Department showed today in Washington.
Building permits increased 6.7 percent in October to a 1.04 million annualized rate, the most since June 2008, after a September pace of 974,000, Commerce Department data show.
Still, recent signs of strength don’t mean gross domestic product growth will snap out of a range from 1.5 percent to 2 percent, said Keith Hembre, who helps oversee about $120 billion as chief economist at Nuveen Asset Management in Minneapolis.
“The data are consistent with an ongoing trend of moderate to sluggish growth,” Hembre said. “I don’t expect much difference in the narrative, maybe this will be a little better and that will be a little softer, but the broad picture is one of this slow growth environment.”
The economy grew 2.8 percent in the third quarter and 2.5 percent in the second, according to the Commerce Department. FOMC participants in September forecast economic growth of 2 percent to 2.3 percent for this year, and 2.9 percent to 3.1 percent in 2014.
Consumer spending, which accounts for 70 percent of the economy, is getting a boost from stocks, which are on pace for the biggest gain in a decade. The S&P 500 had climbed 26 percent this year before today.
The possibility of declining tensions over fiscal policy may lift confidence. U.S. budget negotiators are near a deal in which Democrats would accept fresh revenue from user fees and Republicans would agree to more federal spending, steps that could avert another government shutdown next year.
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