Fed: Economy up moderately in July and August
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Wells Fargo CEO John Stumpf talks with USA TODAY’s Editor-in-Chief David Callaway.
In a report that could help the Federal Reserve decide whether to raise interest rates this month, the central bank said Wednesday the U.S. economy grew a bit more slowly from early July to mid August as consumer spending accelerated but a strong dollar and low oil prices continued to weigh on activity.
After recent market turmoil, some economists say the report and this Friday’s key August employment tally need to significantly beat expectations to nudge the Fed into lifting its benchmark rate for the first time in nearly a decade.The Fed meets September 16-17.
By itself, at least, the anecdotal snapshot of conditions around the country didn’t appear to provide the Fed ammunition to pull the trigger. Growth was moderate in half of the Fed's 12 bank districts but modest in New York, Philadelphia, Atlanta, Kansas City and Dallas, according to the "beige book," named for the color of its cover. The Cleveland economy ticked up only slightly.
While manufacturing activity generally advanced, the strong dollar bolstered imports and hurt exports. And consumer spending picked up on brisk auto sales, but at a slower pace than previously reported.
The report appears to cover a time frame that proceeded recent volatility in financial markets.
It provides no signal that payroll growth for August will exceed the roughly 200,000 monthly rate so far this year. Most areas reported "slight to modest growth in employment," though hiring strengthened noticeably in New York.
Part of the reason for the sluggish gains is that employers can find skilled workers, especially in technology, in regions including Richmond, Chicago, St. Louis and Kansas City.
Wages also notched just "like to moderate increases." But several areas reported in “increasing wage pressures” as the unemployment rate falls, including St. Louis, New York, Cleveland and San Francisco. The Fed is looking for pay growth to pick up from the modest 2% annual pace that has prevailed throughout the recovery.
Perhaps the economy's strongest pillar in recent months has been the auto industry, which is supporting both retail sales and manufacturing. Manufacturers in the Cleveland, Richmond and Chicago areas all posted strong growth in auto- related production. And the aerospace industry fueled factory activity in Chicago, Dallas and San Francisco. The recent residential and commercial construction rebound is supporting production of lumber and related goods in regions such as Boston, Philadelphia, Minneapolis and Dallas.
But falling energy prices dampened demand for machinery and metals in Cleveland, Minneapolis, Chicago and St. Louis. And a strong dollar and slowing growth in Asia hurt steel production in some of the same regions, the report said.
Retail sales were varied but picked up in the Richmond, Philadelphia,Chicago, Kansas City and San Francisco areas. But sales were mixed in Boston and Atlanta, flat in Minneapolis and "generally sluggish" in New York. The strong dollar hindered consumer purchases in border areas near Canada and Mexico. Still, autos were a bright spot in several regions, including Philadelphia, Atlanta, Chicago and San Francisco. Tourism also advanced in several areas but were "soft" in New York as hotel occupancy and room rates were flat.
The housing market has been resurgent lately, and that continued the past six weeks, with home sales and prices rising in every district. Several areas reported that sales of low and mid-priced homes continued to outpace higher-priced houses. And demand for multifamily units was more robust in the Cleveland, Richmond and San Francisco areas.
Residential construction accelerated in most areas but slowed in parts of San Francisco as a result of tighter credit conditions and shortages of labor and property. Strong housing demand and limited inventory led to sharp home price increases in many areas, with bidding wars breaking out in the Boston, New York and Richmond districts.
A recent rebound in commercial real estate leasing and construction also showed no letup as downtown Boston and New York City reported significant office rent increases.
The activity sparked increased loan demand, particularly for mortgages and auto loans. Atlanta report a slowdown in commercial lending "tied to the energy sector."
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