The economy “continued to expand moderately” at the end of last year, according to a new report from the Federal Reserve that shows a recovery that, although not rapid, is on track.
The beige book, a compilation of anecdotal reports from businesses across the country, offered further confirmation of trends that have emerged from a range of economic data in recent weeks: The manufacturing, retail and service industries outside of finance appear relatively strong. The job market is gradually improving. And the housing sector remains a significant drag on the economy.
Add it all up, and the picture is an economy very slowly gaining momentum, with some continued pockets of distress but also definite signs of progress as 2011 gets underway. In the all-important labor market, for example, conditions “appear to be firming somewhat,” though not enough to push wages upward.
The document, prepared in advance of each Fed policy meeting to help officials decide the course of monetary policy, is in line with recent economic reports as varied as business surveys, retail sales data and weekly unemployment insurance claims.
“In general, the tone of the report was consistent with the recent data flow,” said Peter Newland, an economist at Barclays Capital.
The Commerce Department will release data on fourth quarter gross domestic product this month, which economists expect will show that the economy grew at a 3 to 3.5 percent annual rate in the final three months of 2010, up from 2.6 percent in the third quarter.
The beige book had a more upbeat tone than its previous installment, issued Dec. 1, which said that the economy “continued to improve, on balance,” but acknowledged more caveats to that growth than the newest report.
And in contrast to this summer, when Fed officials’ interviews with business contacts revealed fears that the economy would contract again, no reports from the 12 regional banks that constitute the Federal Reserve system “made mention of lingering fears of a double-dip recession.”
One of the encouraging areas was the manufacturing sector, which “continued to recover” across all Fed districts, according to the beige book. The auto industry was a particular source of strength. Industrial contacts in the states served by the Chicago Fed “pointed to pent-up demand for both light and heavy motor vehicles, attributed to an aging fleet, as a key driver of activity in the manufacturing sector.”
The strength in auto manufacturing was matched by growth in auto sales, which were either steady or up in eight of the 12 Fed districts.
The holiday retail sales season appeared to be solid across most of the United States, the report found, “with most retailers reporting sales growth consistent with or ahead of plan for the recent 2010 holiday season.”
Tourism was generally a positive for the nation’s economy as well, with a strong start to the winter ski season in many parts of the country, an uptick in attendance and revenue at Broadway theaters, and stronger business travel in the areas covered by the Atlanta and San Francisco Fed.
Another plus for the economy was much of the service industry, with signs of strength in information technology, advertising and consulting, and law firms. Health-care-related industries showed more mixed results
The biggest negative for the economy continued to be the housing industry, as “activity in residential real estate and new home construction remained slow across all Districts.”
Nine of the 12 Fed districts reported that home prices declined or held steady, and the oversupply of houses from the boom years discouraged builders to construct residences.
The financial sector was mixed, with districts across the country reporting conflicting trends in business demand for loans and bank lending.
In a sign of improvement for the moribund job market, staffing firms in six Fed districts gave positive reports, and in some parts of the country, firms were said to be raising work hours “instead of or in addition to hiring.”
On the inflation front, higher prices for fuels and other commodities in recent months were affecting businesses, though few were finding themselves able to pass the higher prices through to end users.
“Specific markets or products identified as experiencing high or rising prices included various food products, steel and other metals, building materials, textiles, chemicals, and petroleum-related products,” the report said.
Businesses are apparently not counting on the rise in fuel prices being short-lived. Many of the Fed districts “mentioned concerns among business contacts that petroleum-related prices, already above year-earlier levels, will continue rising in 2011.”
Source: Washington Post