Bloomberg News

Fed Beige Book Sees Slow to Moderate Growth in 11 Districts

December 06, 2011

(Updates with economist quote in fifth paragraph.)

Nov. 30 (Bloomberg) -- The Federal Reserve said the economy expanded at a “moderate” pace in 11 of 12 districts, led by gains in manufacturing and consumer spending.

“Overall economic activity increased at a slow to moderate pace since the previous report across all Federal Reserve districts except St. Louis, which reported a decline in economic activity,” the Fed said in its Beige Book survey released today in Washington covering October and the first half of November.

The report reinforces the central bank’s view that the economy, while strong enough to skirt a recession, remains too weak to bring down an unemployment rate stuck near 9 percent or higher for more than two years. At their last meeting Nov. 1-2, some Fed policy makers said the central bank should consider easing policy further, according to minutes of the meeting.

Today’s report said “hiring was generally subdued” and residential real estate “generally remained sluggish.” In the previous Beige Book report released Oct. 19, the Fed said that the economy was expanding “although many districts described the pace of growth as ‘modest’ or ‘slight.’”

The Beige Book underscores other recent reports showing that “the U.S. economy is in a much better place, no chance of a double dip recession,” Allen Sinai, president of Decision Economics Inc. in New York, said in an interview on Bloomberg Television. “Jobs will keep going up, the unemployment rate will keep going down, but very, very slowly.”

FOMC Meeting

The anecdotal survey, released two weeks before each policy meeting, is based on information gathered by officials at the Fed’s 12 regional banks. Today’s report was compiled by staff at the Minneapolis Fed.

The Fed, along with five other central banks, today said it will make it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis.

The Fed said in its Nov. 2 statement that “there are significant downside risks to the economic outlook, including strains in global financial markets.” Policy makers have identified the European sovereign debt crisis as one of the risks to the U.S. economy.

Stocks rallied worldwide, commodities surged and yields on most European debt fell on the show of force from central banks aimed at easing strains in financial markets. The cost for European banks to borrow dollars dropped from the highest in three years, tempering concerns about the euro’s worsening crisis.

Stocks Rise

The Standard & Poor’s 500 Index rose 3.3 percent to 1,234.28 at 2:18 p.m. in New York. The yield on the 10-year Treasury note climbed 0.08 percentage point to 2.07 percent.

The U.S. economy has been roiled this year by other international shocks, including the earthquake and tsunami in Japan that disrupted global supply chains, and a surge in oil prices exacerbated by political upheaval in the Middle East.

The economy expanded at a 2 percent annual pace in the third quarter. That compares with growth of 1.3 percent in the second quarter and 0.4 percent in the first three months of the year.

The Labor Department will report Friday that the economy added 125,000 jobs in November, according to the median estimate of a Bloomberg Survey of 82 economists. A separate report from ADP Employer Services today showed private companies added 206,000 jobs in November, the best month for hiring this year.

The Beige Book said “wages and salaries remained stable across districts” and that “some firms with open positions reported difficulty finding qualified applicants.”

Car Production Increased

Fed banks in Philadelphia, Cleveland, Richmond, Atlanta, St. Louis and Minneapolis reported increasing auto sales, and Cleveland and Chicago said car production increased.

Auto purchases ran at a 13.2 million annual rate in October, the highest since February and up from a 13.04 million pace in September, according to data from Ward’s Information Products.

“Consumers are just saying it’s time to get a new vehicle,” Ken Czubay, Ford Motor Co.’s U.S. sales chief, said on a conference call this month. “We’re seeing that more and more everyday from our dealers.”

All districts except St. Louis reported that manufacturers saw increased orders, shipments and production. St. Louis reported more plant closures than openings or expansions.

“Consumer spending increased modestly, on balance, during the reporting period,” the report said. Cleveland, Atlanta, St. Louis, Minneapolis, Dallas and San Francisco said holiday sales were “expected to be flat or to increase modestly over a year ago.”

Higher Demand

Sales at electronics stores advanced 3.7 percent in October, the most since November 2009, according to a Nov. 15 report from the Commerce Department. Demand at non-store retailers, including Internet and mail-order companies, rose 1.5 percent, the most in nine months. Both may reflect demand for the next generation of Apple Inc. iPhones.

Bank lending “increased slightly since the previous report,” the Fed said today. Philadelphia, Dallas and San Francisco saw improving credit quality, while Cleveland, Chicago and St. Louis said it was “relatively unchanged.”

President Barack Obama said this week that resolving the European debt crisis is of “huge importance” to the U.S., and his administration is “ready to do our part” in stabilizing the global economy.

“If Europe is contracting or if Europe is having difficulties, then it is much more difficult for us to create good jobs here at home because we send so many of our products and services to Europe,” Obama said at the White House, after a meeting with European Union officials.

-- With assistance from Mark Crumpton in New York. Editors: James Tyson, Christopher Wellisz

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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