Fed Says Economy Stable or Improving in Most of U.S.
The Federal Reserve said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.
Five districts, including San Francisco, home to the biggest regional economy, “mentioned signs of improvement,” the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. The exception was the St. Louis district, which said the contraction’s pace “appeared to be moderating.”
The central bank survey indicates that while the worst of the downturn may be past, the economy has yet to show broader growth. The Fed reported “flat” retail sales and “weak” labor markets, and cited some auto-industry contacts as saying the sales increases from government “cash-for-clunkers” subsidies may be temporary.
“We are slowly on the road to recovery,” former Fed Governor Robert Heller said in an interview with Bloomberg Television. The Beige Book “confirms that we have turned the corner,” he said.
The Standard & Poor’s 500 Index increased 0.5 percent to 1,030.20 at 2:40 p.m. in New York after rising as much as 1.1 percent.
The outlook among many business contacts was “cautiously positive,” the Fed said. “Loan demand was described as weak, and many districts reported that credit standards remained tight.”
Phase Out
The Fed report reflects information collected through Aug. 31 and summarized by staffers at the Atlanta Fed. The Federal Open Market Committee next meets in Washington Sept. 22-23. At their prior meeting in August, officials decided to phase out their $300 billion Treasuries-purchase program through the end of October, extending buying by one month, and considered a similar move for the $1.45 trillion program to buy housing debt.
The Fed lowered its main interest rate almost to zero in December while switching to asset purchases and credit programs as its main policy tools. Investors expect the central bank to begin raising rates next year, according to trading in futures contracts.
Gross domestic product shrank at a 1 percent annual rate from April to June, following a 6.4 percent pace of contraction in the first three months of the year.
Chicago Fed President Charles Evans said in remarks in New York today that the economic recovery is “beginning to start” and he expects growth of 2 free credit report.5 percent to 3 percent over the next 18 months. At the same time, the jobless rate will rise, peaking at a “little over 10 percent” and staying “high for an uncomfortable period of time.”
Low Levels
A chief exception to the Beige Book’s reports of stabilization was the market for commercial real estate. Demand for space “remained weak,” and construction, already at “very low levels,” kept declining in all districts, the Fed said.
Fed officials expressed concern about the commercial property market at last month’s policy meeting. “Several participants noted that banks still faced a sizable risk of additional credit losses and that many small and medium-sized banks were vulnerable to deteriorating performance of commercial real estate loans,” minutes of the session said.
The residential housing market, by contrast, “remained weak” while showing “signs of improvement,” including higher sales in some areas, the Fed said. Pending sales of existing homes rose more than forecast in July, according to a report last week.
‘Cautiously Optimistic’
Manufacturing showed “modest improvements” in most regions, the Fed said today. Companies were “cautiously optimistic,” with New York among three districts reporting that contacts “expect modest growth later this year or early 2010.”
A recent report showed that in August, manufacturing expanded in the U.S. for the first time in 19 months.
Capacity utilization, the proportion of factory volume in use, remains near its historic low. It rose in July to 68.5 percent from 68.1 percent in June, its lowest level since record-keeping began in 1967.
The labor market “remained weak across all districts,” while some regions reported an “uptick in temporary hiring and a decline in the pace of layoffs,” the Fed said.
That reflects last week’s Labor Department report that employers cut payrolls by 216,000 in August, after a 276,000 drop in July. The jobless rate, at 9.7 percent, is the highest since June 1983, when it registered 10.1 percent. The so-called underemployment rate — which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking — reached a record 16.8 percent.