The US economy continues to grow slowly, with patches of weaker activity, the US Federal Reserve said on Wednesday in a report ahead of a key monetary policy meeting this month.
Recent stock market swings and rising economic uncertainty have dampened confidence, the Fed said in its latest “Beige Book” report.
The report, a collection of anecdotal economic data from the bank’s 12 regional districts, was based on comments taken between mid-July through Aug. 26.
It will be used by the Federal Open Market Committee at its next policy-setting meeting on Sept. 20 and Sept. 21.
“Economic activity continued to expand at a modest pace, though some districts noted mixed or weakening activity,” the report said.
Five districts reported modest or slight expansion, while growth remained sluggish or slowed in the others.
Several districts reported that “recent stock market volatility and increased economic uncertainty has led many contacts to downgrade or become more cautious about their near-term outlooks,” the report said.
Consumer spending, the traditional engine of economic growth in the US, “increased slightly in most districts,” but non-auto retail sales were “flat or down” in several districts.
Manufacturing conditions were “mixed” across the country, but the pace of activity slowed in many districts, according to the report.
High unemployment — at 9.1 percent for the past two months — showed little improvement. Last month, the economy added zero jobs as employers were reluctant to hire in the face of feeble demand and falling confidence in the health of the economy.
Labor markets were “generally stable,” although some districts reported a modest rise in job growth, the report said.
Amid the economic slack, price pressures edged lower, while input costs continued to increase in some industries.
“Most districts reported that wage pressures were minimal, but contacts said there were some wage gains for several skilled positions as a result of heightened demand,” it said.
The collapsed housing sector, once a pillar of the economy, remained “weak overall.”
The report also showed that the economy took a hit from disruptions caused by severe summer weather during the period, including the massive Hurricane Irene that swept the eastern seaboard late last month.
The report covered about half of the third quarter, a period marked by Washington political gridlock over huge debt and deficits, an 11th hour deal in Congress to avoid a default on sovereign debt and the loss of the US’ coveted “AAA” credit rating in a downgrade by Standard & Poor’s.
The world’s largest economy nearly stalled in the first quarter, growing only at an annualized rate of 0.4 percent, and posted only a tepid expansion of 1 percent in the second quarter.
The Fed may decide at its Sept. 20 and 21 meeting to replace some of the short-term Treasury securities in its US$1.65 trillion portfolio with long-term debt in a bid to lower rates on everything from mortgages to car loans, according to economists at Wells Fargo & Co, Barclays Capital Inc and Goldman Sachs Group Inc. Some analysts dub the maneuver “Operation Twist” because it would bend long-term yields lower.
After last month’s gathering, the Federal Open Market Committee said it would keep the benchmark interest rate low at least through the middle of 2013, replacing its earlier pledge to hold borrowing costs down for “an extended period.”
Additional reporting by Bloomberg
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