Washington: The US economy has picked up pace since November, with Christmas sales modestly stronger and New York and New Jersey rebounding from Hurricane Sandy, the Federal Reserve’s Beige Book showed on Wednesday.
But the survey of regional economic activity, important to setting monetary policy, showed manufacturing still sluggish, hiring and inflation still subdued and the stifling effect of the fiscal cliff fight still lingering.
“Reports from the 12 Federal Reserve districts indicated that economic activity has expanded since the previous Beige Book report, with all 12 districts characterizing the pace of growth as either modest or moderate,” the report said.
Christmas season sales were “modestly” higher from 2011 around the country, and auto sales were reported steady or stronger in 10 Fed districts.
But retailers and auto dealers expected slower sales growth “citing concerns that consumers will spend cautiously due to ongoing fiscal uncertainty.”
Real estate business was broadly steady or improved, and rains helped ameliorate some of the drought conditions in the farm belt.
But it added that trends in unemployment and prices were “relatively unchanged” across its 12 districts.
That placed no new pressure on the Fed’s Federal Open Market Committee (FOMC) to tighten monetary policy in its next meeting on 29-30 January.
In its December meeting the FOMC approved a new open-ended program of bond buying to put pressure downward on long-term interest rates to strengthen growth.
It also set, for the first time, explicit targets for unemployment and inflation that would lead to tightening up monetary policy.
The Fed has been frustrated by persistent high unemployment and especially high long-term joblessness, and has made clear that bringing those numbers down is its priority in the absence of inflationary pressures.
But the minutes from that meeting showed slight movement among FOMC members toward earlier tightening: several suggested that the bond-buying “quantitative easing” policies could be wound up by the end of this year, earlier than markets had anticipated so far.
The Beige Book survey showed that manufacturing, which was hoped to play a key part in driving continued growth, was only mixed, with half of the Fed districts reporting no change or contraction.
There was some moderate impact from the intense debate over the economy-crunching fiscal cliff austerity measures that had been due to be implemented from 1 January.
The resolution of the tax increase part of the cliff, and the postponement of how to deal with severe programmed spending cuts, or sequestration, helped some businesses, respondents told the Fed.
In the Chicago region, “Speciality metal manufacturers reported a decline in quoting and new orders as customers continued to delay purchases until the last minute. In contrast, a contact in the defence industry noted a substantial rebound in orders due to the two-month delay in sequestration,” the report said.
In addition, a Chicago region recruiting firm “noted that customers that are heavily dependent upon government spending were very cautious about increasing headcount amidst the fiscal cliff negotiations.”
In New England, meanwhile, the fiscal cliff “was an explicit problem for a computer firm that sells almost exclusively to Defence Department customers who are worried about sequestration.”
But the report suggested that the overall impact of the cliff battle on growth was not heavy. However, it was too early to judge the likely impact of the rise in social security tax deductions from pay cheques that begins this month as part of the cliff resolution.
“Overall, it seems that most businesses took the fiscal cliff showdown in stride, perhaps anticipating a benign outcome,” said economist Paul Edelstein at IHS Global Insight.
“We’ll see what business contacts have to say about the payroll tax increase in the next report.”