Bloomberg News

Fed Beige Book Says Growth Was ‘Modest to Moderate’ in June

July 18, 2012

Fed Beige Book Says Growth Was ‘Modest to Moderate’ in June

A worker holds a bolt of fabric at Dynotex Inc. garment factory in the Brooklyn borough of New York. Photograph: Victor J. Blue/ Bloomberg

The Federal Reserve said the economy expanded at a “modest to moderate” pace in June and early July, as retail sales and manufacturing cooled in some regions.

“Manufacturing activity continued to expand slowly in most districts,” the Fed said today in its Beige Book business survey, which is based on reports from its 12 district banks. “Employment levels improved at a tepid pace.”

The New York, Philadelphia, and Cleveland districts “noted that activity continued to expand, but at a slower pace since the last report, while Richmond cited mixed activity.”

The report, which gives central bankers anecdotal evidence on the economy two weeks before they meet in Washington, supports Fed Chairman Ben S. Bernanke’s view that the U.S. lost momentum in the first half of 2012. Bernanke, in a second day of congressional testimony today, repeated that progress on unemployment may be “frustratingly slow” and the Fed is ready to take further action to boost the recovery if necessary.

“Overall, the report is tepid,” Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, said in an interview on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “It really echoes what the chairman has been telling us for the last two days, and that is that economic outlook is not looking too great. The economy has slowed.”

The Atlanta, St. Louis, and San Francisco districts were described as having “modest growth,” while Boston, Chicago, Minneapolis, Kansas City, and Dallas were “advancing moderately.” By comparison, in the June 6 report, seven districts were growing “moderately” and just one was reported to have slowed.

Shares Rise

Stocks held gains after the report. The Standard & Poor’s 500 Index advanced 0.7 percent to 1,372.47 at 2:37 p.m. in New York after housing starts increased at the fastest rate in almost four years and companies from Intel Corp. (INTC:US) to Honeywell International Inc. reported profit that beat estimates. The benchmark 10-year Treasury yield declined three basis points, or 0.03 percentage point, to 1.48 percent.

Today’s Beige Book reflects information collected on or before July 9 and summarized by the Atlanta Fed.

“Retail sales increased slightly in all reporting Districts except Boston and Cleveland, where sales were categorized as flat, and New York, where sales softened,” the report said.

FOMC Meeting

The policy-making Federal Open Market Committee meets for two days starting July 31. The group voted last month to extend Operation Twist, a program intended to push down long-term borrowing costs by extending the maturities of assets on the Fed’s balance sheet. As many as four policy makers were “quite receptive at this time” to more asset purchases, Atlanta Fed President Dennis Lockhart said July 13, citing minutes of the June meeting.

Retail sales unexpectedly declined in June for a third straight month, a sign that limited progress in job creation is holding back the biggest part of the economy, Commerce Department figures showed July 16.

The U.S. added 80,000 jobs in June, and the unemployment rate remained at 8.2 percent, the Labor Department reported July 6. Growth in private payrolls was the weakest in 10 months. The figures underscore Bernanke’s concern that growth may not be fast enough to lower unemployment stuck above 8 percent since February 2009.

“Consumers across the globe continue to feel the effects and impacts of prolonged uncertainty in Europe, the further cooling of the economy in China, and a protracted recovery here in the United States,” Coca-Cola Co. (KO:US) Chief Executive Officer Muhtar Kent said in a conference call yesterday. The Atlanta- based company is the world’s biggest soft-drink maker.

Housing, Construction

The Beige Book said housing reports were “largely positive as sales and construction levels increased and home inventories declined.” In addition, “Rental markets continued to strengthen.”

“We have seen modest signs of improvement in housing,” Bernanke said in his testimony to Congress. “In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer.”

At the same time, he said, tight lending standards are making it difficult for would-be home-buyers to get financing, and an overhang of vacant homes is diverting demand from new construction.

Housing Starts

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate.

“Manufacturing activity continued to expand slowly in most Districts, and Cleveland, Atlanta, Chicago, and Kansas City cited slight increases in production levels,” the Fed said. “However, several districts reported a deceleration in new orders.”

Manufacturing in the U.S. unexpectedly shrank in June for the first time since the economy emerged from the recession three years ago, the Institute for Supply Management’s index showed July 2.

The recovery over the past three years has been marked by periods of solid growth followed by disappointing slowdowns, Fed Kansas City Bank President Esther George said July 16. “It looks like this summer’s slowdown will be no exception to that” and annual growth will be “not much beyond 2 percent.”

The U.S. economy will probably expand 2.1 percent in 2012 and 2.2 percent in 2013, according to the median of 72 economists surveyed by Bloomberg News July 6 to July 10.

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

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


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