By Scott Lanman
(Bloomberg)—The economy expanded or improved "modestly" across the U.S. from October to mid-November as consumer spending rose in a majority of Federal Reserve districts, the central bank said.
Eight regions "indicated some pickup in activity or improvement in conditions," while the other four said conditions were little changed or mixed, the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. The labor and commercial real estate markets remained "weak," the report said.
Policy makers last month repeated their pledge to keep interest rates low for an "extended period" to bring down unemployment that's forecast to remain above 10% even as the economy emerges from recession. A government report Dec. 4 is likely to show that companies reduced payrolls for a 23rd straight month, according to a Bloomberg survey of economists.
"Economic conditions have generally improved modestly since the last report," the Fed said. "Financial institutions generally reported steady to weaker loan demand, continued tight credit standards, and steady or deteriorating loan quality."
Today's Beige Book reflects information collected through Nov. 20 and summarized by staffers at the New York Fed. The four districts that didn't report an improved economy were Atlanta, Cleveland, Philadelphia and Richmond.
Fed Chairman Ben Bernanke testifies Tomorrow before the Senate Banking Committee in a confirmation hearing for a second term that would begin Feb. 1. The Fed's policy-setting Open Market Committee next meets Dec. 15-16 in Washington.
Stocks were lower before the report. The Standard & Poor's 500 Index was down 0.2% to 1,106.96 at 1:39 p.m. in New York. The index has jumped more than 63% from its 2009 low on March 9 on prospects for a recovery from recession.
The world's largest economy grew at a 2.8% annual pace in the third quarter, the first expansion after four quarters of contraction and the fastest rate in two years.
Consumer spending, excluding autos, rose in seven districts, was "steady or mixed" in four and declined in one, St. Louis, the Fed said. Vehicle sales increased in six districts. Some regional banks said retailers had "recently become more optimistic about the holiday-season outlook."
A report last month showed that consumer spending, which accounts for about 70% of the economy, rebounded in October more than anticipated by economists. Incomes climbed 0.2%, also exceeding expectations.
While the labor market "remained weak since the last report, with further layoffs, sluggish hiring and high levels of unemployment in most districts," the report said three districts had a slower pace of job cuts. In the Boston district, some businesses said they were starting to hire and reverse pay cuts or freezes.
The economy has lost 7.3 million jobs since the recession began in December 2007. The unemployment rate may exceed 10% through the first half of 2010, a Bloomberg survey showed.
Commercial real estate remained a problem area for the economy, with markets and construction "depicted as very weak and, in many cases, deteriorating," the Fed said.
The commercial mortgage default rate on loans held by U.S. banks more than doubled to 3.4% in the third quarter from a year earlier as vacancies rose and rents declined, according to a report by Real Estate Econometrics LLC.
Bernanke said in a Nov. 16 speech that "fallout" for banks from commercial real estate could slow the country's economic recovery.
While most regions reported increased home sales, new construction was "generally characterized as weak." Three districts showed "some pickup" in home building, two reported declines and three said it was "flat or stabilizing." The lower end of the market has been doing better than the higher end, the Fed said.
The number of contracts to buy U.S. previously owned homes unexpectedly rose in October, a report yesterday showed, as consumers rushed to take advantage of a tax credit that was due to expire. President Barack Obama on Nov. 6 extended the $8,000 tax credit for first-time buyers until April 30 from Nov. 30, and expanded it to include some current owners.
Sales of new homes increased 6.2% in October to a 430,000 annual rate, the fastest since September 2008.
In manufacturing, conditions were "on balance, steady to moderately improving across most of the country," the Fed said. A report yesterday showed manufacturing in the U.S. expanded in November for a fourth consecutive month.
Fed regions "generally reported little or no upward wage pressures," with most showing "stable selling prices." Some districts "noted upward pressure in commodity prices," the report said.
The Federal Open Market Committee repeated in its Nov. 4 statement that "with substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the committee expects that inflation will remain subdued for some time."
To contact the reporter on this story: Scott Lanman in Washington at email@example.com.