Fed Says U.S. Economy Growing at ‘Modest to Moderate’ Pace
The U.S. economy maintained a “modest to moderate pace” of growth in recent weeks, bolstered by industries ranging from housing to manufacturing, the Federal Reserve said today.
“Residential real estate and construction activity increased at a moderate to strong pace in all reporting districts,” the Fed said in its Beige Book business survey, which is based on anecdotal reports from its 12 regional banks. “Manufacturing expanded in most districts since the previous report.”
Fed Chairman Ben S. Bernanke told Congress today central bankers will be “responding to the data” as they decide when to start reducing their $85 billion monthly pace of asset purchases. Today’s Beige Book, prepared for their next gathering in Washington on July 30-31, will be one piece of evidence they consider.
“It was unmistakably upbeat,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co LLC in New York. “The summary is littered with evidence of improving conditions, rising demand, better loan quality and quantity,” which “points to the potential for improvement over the second half of the year.”
The job market has shown signs of recovery. Non-farm payrolls have expanded on average by around 200,000 jobs per month from January through June. The proportion of unemployed workers who have been without a job for six months or more has fallen to less than 37 percent from about 40 percent when Bernanke launched the third round of quantitative easing in September.
“Hiring held steady or increased at a measured pace in most districts, with some contacts noting reluctance to hire permanent or full-time workers,” the report said. Fed officials are closely monitoring the labor market to determine whether it has “improved substantially,” allowing them to wind down their bond purchases.
“Banking conditions generally improved,” according to today’s report, compiled by the Federal Reserve Bank of St. Louis and based on information received by July 8. “Credit quality improved, while credit standards remained largely unchanged.”
The yield on the 10-year Treasury note fell to 2.49 percent at 3:26 p.m. in New York from 2.55 percent before Bernanke’s testimony. The Standard & Poor’s 500 Index rose 0.2 percent to 1,680.25.
The previous Beige Book, released June 5, used the same phrase as today’s report, a “modest to moderate pace,” to describe growth across 11 of 12 districts. The 12th district, Dallas, reported “strong” economic growth in the previous report.
“Hiring increased at a measured pace in several districts, with some contacts noting difficulty finding qualified workers,” the Fed said in the June 5 report.
Employers added 195,000 jobs in May and June and 199,000 in April, according to July 5 data from the Labor Department. Even as job growth has picked up, the unemployment rate has remained at 7.6 percent for three of the past four months.
Fed officials predict growth will accelerate in the second half of 2013 and next year.
“My colleagues and I projected that economic growth would pick up in coming quarters, resulting in gradual progress toward the levels of unemployment and inflation consistent with the Federal Reserve’s statutory mandate to foster maximum employment and price stability,” Bernanke said today in testimony to the House Financial Services Committee.
Federal Reserve Bank of New York President William C. Dudley said this month that “a strong case can be made that the pace of growth will pick up notably in 2014.”
Speaking July 2 in Stamford, Connecticut, Dudley, who serves as vice chairman of the Federal Open Market Committee, said “the private sector of the economy should continue to heal, while the amount of fiscal drag will begin to subside.”
Automatic budget cuts and a January increase in the payroll tax contributed to the U.S. government’s widest monthly budget surplus in more than five years in June. Receipts exceeded outlays by $116.5 billion last month, the biggest surplus since April 2008.
Consumer spending fell short of estimates in June, with sales at retailers climbing 0.4 percent last month, short of the 0.8 percent gain that was the median estimate of 82 economists in a Bloomberg survey.
Of the 49 companies in the Standard & Poor’s 500 Index that have reported second quarter earnings, 71 percent have exceeded analyst estimates. The S&P 500 hit a record high 1,682.5 on July 15.
Alcoa Inc. (AA), the largest U.S. aluminum producer, reported second-quarter adjusted earnings that beat analysts’ estimates after a better-than-expected performance at its unit that supplies components to aerospace and power companies.
The New York-based company expects “continued pressure on prices and demand in North American industrial products and European industrial products,” while auto demand is expected to remain strong, chief financial officer William Oplinger said in a July 8 conference call. “The economy in general is recovering slowly, with different speeds in Europe as well as in the U.S.”
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