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Federal Reserve sees tepid economy ahead of rate meeting

By Agence France-Presse
Wednesday, August 29, 2012 18:09 EDT
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Federal Reserve building via AFP
 
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WASHINGTON — The US economy continued to grow at a tepid pace during the last two months, amid slight improvements in retail sales and the depressed housing market, the Federal Reserve said in a report Wednesday.

“Economic activity continued to expand gradually in July and early August across most regions and sectors,” the Fed said in the Beige Book report on current regional economic conditions.

Prepared for the Fed’s September 12-13 policy meeting, the Beige Book sent mixed signals as the central bank faces market pressure to provide additional stimulus to the economy.

Nomura economist Lewis Alexander said the report “confirmed that incoming data, though better on net in our view, suggests nothing other than an economy that ‘continued to expand gradually.’”

Half of the Fed’s 12 districts reported “modest” growth, while three said it was “moderate”, the report said.

Many districts reported a softening in manufacturing, the sector that has been a key driver of the recovery from a deep 2008-2009 recession.

Retail sales strengthened “somewhat” in July compared with softness in May and June, particularly at discount stores and online.

A bright note was the ravaged housing market, which was showing improvement six years after a price bubble collapsed.

“All 12 of the Fed’s districts cited increases in home sales, home prices, or housing construction” in July and early August, it said.

The jobs outlook, with unemployment stuck above 8.0 percent for more than three years, appeared little changed.

“Most districts reported that employment was stable or growing only slightly,” the report said, adding that it left upward wage pressure across the nation “very contained.”

Earlier Wednesday the government said the economy had expanded at a faster pace in the second quarter than first thought.

The Commerce Department reported a clip of 1.7 percent for gross domestic product growth in the April-June period, revised from 1.5 percent.

The slightly increased momentum of the world’s largest economy heading into the current third quarter did not recast expectations of tepid growth.

The GDP report “does little to alter the view that the US economy continues to tick along at a moderate pace and struggles to break out into a full-on recovery with consistently above-potential growth,” said Michael Gapen, a Barclays analyst.

Markets have been speculating that the Fed’s Federal Open Market Committee will announce a third round of bond buying, or quantitative easing, at its September meeting.

Economists and analysts were on tenterhooks ahead of Fed Chairman Ben Bernanke’s speech Friday at an economic symposium in Jackson Hole, Wyoming, watching for a signal on QE3 or other measures.

But analysts were divided over whether the growth outlook was weak enough to spur more stimulus.

Nigel Gault at IHS Global Insight said that third-quarter growth was facing plenty of risks, from the eurozone public debt crisis to the looming expiration of tax breaks and spending cuts at year-end, known as the “fiscal cliff.”

“The outlook is worse than the Federal Reserve’s June projections, and as a result we expect to see another round of quantitative easing from the Fed, when it meets in September,” he said.

For others, it boosted the argument against more stimulus.

“Growth is neither strong enough for Mr. Bernanke, who speaks on Friday, to take any additional easing off the table but it is hardly weak enough to force him to announce new actions,” said Joel Naroff of Naroff Economic Advisors.

Agence France-Presse
Agence France-Presse
AFP journalists cover wars, conflicts, politics, science, health, the environment, technology, fashion, entertainment, the offbeat, sports and a whole lot more in text, photographs, video, graphics and online.
 
 
 
 
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