US continues to grow ‘moderately’

WASHINGTON - Agence France-Presse

Federal Reserve Board of Governors Chairman Ben Bernanke delivers a luncheon speech at a conference in Washington in this file photo. REUTERS photo

The Federal Reserve slightly upgraded its view of the U.S. economy, its Beige Book report on regional activity saying that manufacturing and construction continues to grow.

“Reports from the twelve Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from late February to early April,” the survey said on April 17.

The previous Beige Book, a key input for monetary policy-making, was more tentative, calling growth “modest to moderate” amid concerns of a nascent slowdown due to higher payroll taxes and a cut in government spending.

“Most districts noted increases in manufacturing activity since the previous report. Particular strength was seen in industries tied to residential construction and automobiles,” the report said.

Travel and tourism business was also broadly firm across most of the regions, according to respondents to the Fed survey.

Suggestion to sequester spending reductions

However, in a suggestion that the steep federal government “sequester” spending reductions were having an impact, it said that several districts reported “uncertainty or weakness in defense-related sectors.” Consumer spending was up only “modestly,” with some evidence that the payroll tax rise, higher gasoline prices and winter weather were to blame.

The jobs situation was unchanged or “somewhat” improved with hiring firmest in manufacturing, home construction, information technology and professional services.

While not backed by data, that picture was brighter than the monthly unemployment and job creation numbers reported on April 5, which showed a paltry 88,000 net jobs generated by the economy in March.

Commercial banks around the country -- with Philadelphia an exception -- generally reported a pickup in loans to businesses and for homes and cars.

Price increases were generally subdued around the country, the Beige Book said, while the outlooks of respondents to the regular Fed survey “remained optimistic across sectors and districts.” Analysts said the report was more encouraging about March than recent data, which has suggested a slowdown.

“All in, these comments were more positive than the prior Beige Book and certainly do not add to March’s lackluster payroll report,” said Jennifer Lee at BMO Capital Markets.

The report was not seen as strong enough to push the majority of Fed policy makers to support reeling in its quantitative easing program.

But it will give the minority of inflation hawks more ammunition for their drive to slow QE bond purchases, said Paul Edelstein at IHS Global Insight.

“The message from this latest Beige Book report that the economy is growing modestly along with the labor market will embolden those on the Fed who advocate an early exit” from QE, he said.