Fed sees some areas of acceleration in US economy
Friday, 15 June 2007
WASHINGTON, June 14 (AFP): Some segments of the US economy are picking up strength after a soft patch early this year, the Federal Reserve said in its Beige Book report yesterday.
The report, to be used by the central bank at its June 27-28 monetary policy meeting, had a more upbeat tone than those of the past few months of sluggish US economic activity.
The report also suggested inflation is holding in check, with the higher growth pace having little impact on price pressures.
While most of the 12 Federal Reserve district banks reported "modest or moderate" growth, a few suggested slightly better conditions.
The Dallas Fed reported growth as "moderately strong," while Philadelphia reported that growth was "somewhat faster than in recent months," the Beige Book said. The Boston Fed characterised activity as "generally positive." The Beige Book appeared to confirm most projections that the economy is gaining momentum after the tepid 0.6 per cent growth rate in the first quarter.
Many economists see the second-quarter expansion pace accelerating to 3.0 per cent and some say 3.5 per cent is possible. Wednesday's report showing a 1.4 per cent increase in May retail sales added to that optimism, since consumer spending accounts for about two-thirds of economic activity.
The Beige Book said its survey showed consumer spending generally stronger in late April and May, but that the results varied considerably by region. Auto sales were relatively steady.
Manufacturing, a weak spot in recent months for the economy, appeared to show some improvement, the Fed said.
In real estate, the main drag on economic activity over the past year, weakness in the residential sector was partly offset by improvement in commercial real estate.
"No district reported an increase in new home construction," the report said, adding that some real estate professionals in the east "anticipate that the weakness in the housing market will last several more months at least."
On the inflation front, the Fed said that overall price pressures remained steady despite higher energy costs.
Aside from other scattered cost increases, "district reports generally did not indicate an increase in overall price pressures," the report said.
The report could ease fears of accelerating inflation that could induce the Fed to tighten monetary policy. Absent any higher inflation, most economists expect the central bank to maintain its federal funds rate of 5.25 per cent, where it has been for the past 12 months.
The report, to be used by the central bank at its June 27-28 monetary policy meeting, had a more upbeat tone than those of the past few months of sluggish US economic activity.
The report also suggested inflation is holding in check, with the higher growth pace having little impact on price pressures.
While most of the 12 Federal Reserve district banks reported "modest or moderate" growth, a few suggested slightly better conditions.
The Dallas Fed reported growth as "moderately strong," while Philadelphia reported that growth was "somewhat faster than in recent months," the Beige Book said. The Boston Fed characterised activity as "generally positive." The Beige Book appeared to confirm most projections that the economy is gaining momentum after the tepid 0.6 per cent growth rate in the first quarter.
Many economists see the second-quarter expansion pace accelerating to 3.0 per cent and some say 3.5 per cent is possible. Wednesday's report showing a 1.4 per cent increase in May retail sales added to that optimism, since consumer spending accounts for about two-thirds of economic activity.
The Beige Book said its survey showed consumer spending generally stronger in late April and May, but that the results varied considerably by region. Auto sales were relatively steady.
Manufacturing, a weak spot in recent months for the economy, appeared to show some improvement, the Fed said.
In real estate, the main drag on economic activity over the past year, weakness in the residential sector was partly offset by improvement in commercial real estate.
"No district reported an increase in new home construction," the report said, adding that some real estate professionals in the east "anticipate that the weakness in the housing market will last several more months at least."
On the inflation front, the Fed said that overall price pressures remained steady despite higher energy costs.
Aside from other scattered cost increases, "district reports generally did not indicate an increase in overall price pressures," the report said.
The report could ease fears of accelerating inflation that could induce the Fed to tighten monetary policy. Absent any higher inflation, most economists expect the central bank to maintain its federal funds rate of 5.25 per cent, where it has been for the past 12 months.