Fed: U.S. Growth Slows In Areas; Debt Impasse Fears Rise
Washington (AFP) – Growth in some U.S. regions has slowed in recent weeks and concerns about the economic impact of the Washington budget drama have risen, a Federal Reserve report said Wednesday.
Overall, contacts remained cautiously optimistic about the economic outlook, according to the Fed’s Beige Book regional survey.
It characterized growth in the world’s largest economy as “modest to moderate” for the fourth time in a row.
However, it said, many respondents “also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.”
The new report included information collected through October 7, the first week of the federal government shutdown over a budget deadlock between the White House and Congress.
Of the Fed’s 12 districts, “growth slowed some” in four: Philadelphia, Chicago, Kansas City and Richmond, which includes the Washington D.C. area, which felt the brunt of temporary layoffs of federal workers due to the budget impasse.
Most districts reported rises in consumer spending and improved travel and tourism activity. Auto sales were still “strong” — and in the New York region even “increasingly robust.”
The service sector, the bulk of the U.S. economy, saw rising demand.
Manufacturing activity “expanded modestly” and while there was little immediate disruption from the federal government shutdown, “contacts were worried about the potential impact if the closing became prolonged.”
Home construction, a rare bright spot in the economic recovery, continued to increase “at a moderate rate.”
Jobs growth, closely watched by the Fed under its dual mandate of maximum employment and price stability, “remained modest in September,” the report said.
That information helped to fill the void of official data created by the government shutdown. The Labor Department has postponed the September jobs report that had been due for release on October 4.
Several districts reported that contacts were hesitant to expand payrolls, citing uncertainty about the U.S. fiscal policy and the implementation of the Affordable Care Act, President Barack Obama’s landmark health-care initiative.
“Price and wage pressures were again limited,” the report said, reflecting the weak labor market. But there was still high demand for skilled labor, including in technology, healthcare, engineering and financial services.
Financial conditions were little changed from the September Beige Book, with modest overall loan growth.
The new report, a collection of anecdotal information across the country, will provide input to the October 29-30 monetary policy meeting of the Federal Open Market Committee.
At the September 17-18 FOMC meeting, the Fed announced it would keep pumping $85 billion a month into the financial system because the economy was not strong enough to reduce it. Markets were shocked, having priced in Fed signals that it could taper the year-old stimulus at last month’s meeting.
“Assuming that the shutdown is soon lifted and the debt ceiling is raised, as reports today have indicated, we expect modest improvements in the growth picture over the rest of the year,” said Erik Johnson of IHS Global Insight.
“We still anticipate that the Fed will begin tapering asset purchases at the December meeting and conclude the program in the first half of 2014,” he added.
The Beige Book report came as Congress appeared to reach a deal on passing a budget for the 2014 fiscal year that began October 1 and to raise the $16.7 trillion debt ceiling before the country is forced to default on its obligations.
Senate leaders announced a compromise Wednesday, but it still needs to pass both chambers of Congress — including an unpredictable House of Representatives — before it reaches Obama’s desk.