The Federal Reserve said the U.S. economy expanded at a “modest to moderate pace” in January and early February as factories increased production.
“Manufacturing continued to expand at a steady pace across the nation,” with “several districts indicating gains in capital spending, especially in auto-related industries,” the Fed said Feb. 29 in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy.
Chairman Ben S. Bernanke said in congressional testimony last week that maintaining monetary stimulus is warranted even as the unemployment rate falls and rising oil prices may cause inflation to rise temporarily. Policymakers, who next meet on March 13, said in January that economic slack and subdued inflation are likely to warrant exceptionally low rates through late 2014, extending a previous date of mid-2013.
“The Beige Book shows the economy continues to do better, but has a long way to go before it is robust,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “It is slightly more upbeat” than the prior two reports. “Growth is still very slow two and a half years into a recovery.”
The central bank cited the districts of Cleveland, Chicago, Kansas City, Dallas and San Francisco as reporting moderate growth. In its January survey, the Fed applied the term only to Dallas and San Francisco.
“Reports of consumer spending were generally positive except for sales of seasonal items, and the sales outlook for the near future was mostly optimistic,” the Fed said. The housing market has “improved somewhat in most districts” with “several reports of increased home sales and some reports of increased construction.”
The report offers anecdotal evidence that will help central bankers weigh developments in an economy where unemployment is projected to remain above 8 percent through the end of the year.
Fed officials last month were keeping open the option of a third round of bond purchases in case the economy weakens or inflation falls.
“A few” members of the FOMC said economic conditions could warrant buying assets “before long,” and others indicated that action would become necessary if the “economy lost momentum” or price gains seemed likely to remain lower than the Fed’s 2 percent goal, according to minutes of their Jan. 24-25 meeting.
The U.S. economy expanded at a 3 percent annual rate in the fourth quarter, the fastest pace in more than a year, as households spent more freely, the government reported last week. Growth will probably slow to 2.1 percent this quarter, according to the median of 81 economists’ forecasts in a Bloomberg News survey from Feb. 3 to Feb. 9.
“At present, with the unemployment rate elevated and the inflation outlook subdued, the committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives” of the Fed for stable prices and maximum employment, Bernanke said Feb. 29 in testimony to the House Financial Services Committee in Washington.
The Fed report said economic gains varied widely. The St. Louis district had “modest” growth, and Minneapolis was “firm.” Philadelphia and Atlanta were “somewhat faster” and New York was “somewhat slower,” while Boston and Richmond had activity that “expanded or improved” in most sectors.
Most districts saw a “slight increase” in hiring, in part because employers in some areas, including Boston, Cleveland, Richmond and Chicago, were having difficulty finding skilled workers.
The U.S. jobless rate fell to 8.3 percent, the lowest in three years, in January, with the 243,000 increase in payrolls including gains in manufacturing, construction, temporary help agencies, accounting firms, restaurants and retailers.
Some Fed officials say recent economic gains may not last.
“The recent economic news has been encouraging, but in my view we haven’t seen enough sustained improvement to be sure it will last,” Atlanta Fed President Dennis Lockhart said Feb. 14. “The labor markets are going to be sluggish for quite a while,” St. Louis Fed President James Bullard said Feb. 3.
Atlanta-based Home Depot Inc., the largest U.S. home-improvement retailer, reported fourth-quarter profit that exceeded analysts’ estimates on Feb. 21.
“Certainly we think that as the economy continues to improve, hopefully as unemployment improves, that people will continue to want to do small and large projects in their home,” CEO Frank Blake said on an analyst conference call.
“Prices of final goods and services were relatively stable in most districts,” the Fed said, and wage pressures were “limited.” •
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