The US economy is expanding modestly, but job prospects are dim, the Federal Reserve said on Wednesday in a report seen as unlikely to change anticipation of a new stimulus.
In the Beige Book report on current economic conditions, the central bank painted, if not an upbeat picture of the economy, one better than the previous assessment that had warned the recovery was slowing.
“Reports from the 12 Federal Reserve Districts suggest that, on balance, national economic activity continued to rise, albeit at a modest pace, during the reporting period from September to early October,” it said.
The Beige Book is compiled from anecdotal information nationwide and published eight times a year. The latest report will be used as a reference by Fed policymakers at their Nov. 2 and Nov. 3 meeting.
Expectations are high that the Federal Open Market Committee (FOMC), headed by Federal Reserve Chairman Ben Bernanke, will restart major asset purchases, or quantitative easing, next month to boost growth.
At the Sept. 21 FOMC meeting, the Fed said it would continue to hold its main interest rate at virtually zero “for an extended period,” but the central bank warned it anticipated the need for additional stimulus after the previous Beige Book had reported “widespread signs of deceleration.”
Bernanke made his case for another bout of major asset purchases, dubbed “QE2,” to boost growth just days ago.
The latest Beige Book provided a glum picture of the world’s largest economy as it struggles to recover more than a year after the end of the worst recession since the Great Depression.
Consumer spending, which represents about 70 percent of US economic activity, was essentially stalled as retailers geared up for the year-end holiday season.
Retail spending was flat to moderately positive in most districts, the report said.
“Retailers said consumers are slowly regaining confidence, but remain price-conscious and were largely limiting purchases to necessities and non-discretionary items,” the report said.
Consumers had little extra in their pockets to spend as most districts reported little evidence of wage increases.
With unemployment stuck near 10 percent in recent months, the central bank offered scant hope on the jobs front.
“Hiring remained limited, with many firms reluctant to add to permanent payrolls given economic softness,” the report said.
Firms were also bracing for increased costs of employee benefits as a result of healthcare reform.
Inflation remained weak, with retail prices stable, although there was a slight buildup of input costs.
Consumer lending activity also was weak and demand for commercial and industrial loans remained feeble as businesses “continued to postpone capital spending plans because of economic and public policy uncertainties.”
Manufacturing, the sector that is leading the recovery, continued to show expanding activity, but the housing market, which collapsed three years ago amid a price bubble, was still weak, with most districts reporting sales below year-ago levels.
“Bottom line is that the Beige Book reported a modest improvement in economic activity in the recent period, but an apparent deterioration in the overall labor market situation,” Brian Bethune of IHS Global Insight said.
Bethune predicted the Fed was still on track to launch QE2 at next month’s meeting.