'Modest' optimism in Fed survey, but not on jobs

By Neil Irwin
Thursday, October 21, 2010; A17

The economy is no longer decelerating but the pace of growth has remained tepid in recent weeks, according to a new Federal Reserve survey.

The Fed's "beige book," a compilation of anecdotal reports from businesses across the country released Wednesday, reported that "national economic activity continued to rise, albeit at a modest pace" from September through early October. That conclusion contrasted with that of the previous beige book, released in early September, which reported "widespread signs of deceleration compared with previous periods."

Still, the new survey gave little evidence that the job market is picking up, saying that "hiring remained limited, with many firms reluctant to add to permanent payrolls given economic softness."

The latest report comes ahead of a Nov. 2-3 meeting of Fed policymakers, at which they are likely to approve new, unconventional efforts to stimulate growth. The findings in the beige book - a weak labor market, modest growth and few signs of inflation - offer support for these new steps, which would include major new purchases of bonds to pump more money into the economy.

The stock market rose 1 percent Wednesday, as measured by Standard & Poor's 500-stock index, after solid earnings reports from Boeing and Yahoo.

The Fed survey includes results from various industries and parts of the country. The findings were mixed.

"Manufacturing activity continued to expand" across most of the country, with signs of strength in the export sector, semiconductors and high-tech equipment, and automobile production, the beige book reported. But it noted that "hiring at manufacturing firms remained sluggish."

With regard to the service industry, "accounting activity improved slightly, spurred by merger and acquisitions work," the survey found. It added that the Boston and Dallas Federal Reserve banks "noted increases in consulting activity," and "there were some reports from architectural firms that activity had picked up." Demand for transportation services appeared to have slowed, however.

Retail spending was "flat to moderately positive" in most of the country, with declining sales the Southeast.

The housing market remained weak, with home-sales activity and prices little changed in most of the country/But with construction activity rose in the Chicago, St. Louis and Kansas City Fed districts, which together encompass much of the Midwest. Commercial real estate was even less rosy than housing, as "industry contacts appeared to believe that the commercial real estate and construction sectors would remain weak for some time."

Bank lending was similarly mixed, with only uneven signs of improvement in the availability of loans.


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