Fed's beige book summary finds economy slowly gaining momentum
Wednesday, January 12, 2011; 8:36 PM
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.