The US Federal Reserve sees only modest growth in the US economy, with the long-depressed housing market as one of the few bright spots on the horizon, a report showed on Wednesday.
“Overall economic activity continued to expand at a modest to moderate pace in June and early July,” according to the Fed’s Beige Book report, which will frame the central bank’s policy meeting later this month.
With employment levels improving at only a “tepid pace,” the manufacturing sector expanding “slowly” and retail sales increasing “slightly,” there is little to no cheer in the regular report.
However, one bright spot was the housing market, which was at the epicenter of the financial crisis that plunged the world’s largest economy into recession.
After years that have seen low numbers of home sales, despite low borrowing rates and low prices, the Fed reported the first signs that the market may have hit bottom.
“Housing market reports were largely positive,” the Fed said. “Sales and construction levels increased and home inventories declined.”
The central bank pointed out that “demand for loans, particularly those related to real estate, grew modestly in most [Fed] districts.”
Earlier on Wednesday, official data showed that construction of homes in the US rose sharply last month from May to the strongest pace in almost four years.
Yet the broader picture is far from rosy.
Many investors are looking for the Fed to step in and announce further stimulus when it meets on July 31 and Aug.1 .
They worry that the US economy has reached stall speed, while Europe’s economic crisis, China’s slowdown and US politicians’ inability to tackle the country’s debt could prompt a fresh recession.
“Since the last Beige Book report early last month, economic activity has softened,” Paul Edelstein of IHS Global Insight said. “As a result, the Fed is likely to ease again later this year.”
In two days of US Congressional testimony this week, Federal Reserve Chairman Ben Bernanke pointed to a gloomy outlook for the US economy, warning further drops in unemployment would likely prove “frustratingly slow.”
With unemployment stuck above 8 percent — where it has been for more than three years — Bernanke expressed the Fed’s willingness to act if necessary, but gave no hints about concrete action.