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Fed survey finds modest economic growth, but businesses report uncertainty about future
WASHINGTON (AP) ' Most areas of the country reported slight economic improvement in September and early October, according to a Federal Reserve survey of its 12 bank regions. But several regions said a hazier economic outlook is making businesses more cautious and holding back their spending.
The Fed said Wednesday that consumer spending rose slightly in most districts. A key reason was more people bought new cars, in part because dealers had a greater selection of models.
Manufacturing also rebounded, particularly in the auto industry that has been hampered since the March 11 earthquake in Japan.
Still, in some regions, businesses outside the auto industry reported a weaker and more uncertain outlook, which raised caution and weighed on those companies' spending plans.
Three of the regions ' Philadelphia, Richmond, and Chicago ' indicated that many retailers were reluctant to build up their stockpiles ahead of the holiday season because of sliding consumer confidence.
The uncertainly appeared to rattle financial markets, which had been trading higher most of the day. Stocks fell after the report was released. The Dow Jones industrial average closed down 72 points. Broader indexes also declined.
Traders shifted money into safer Treasurys, which lowered the yield on the 10-year note to 2.14 percent.
The report, known as the Beige Book, covered the period from Aug. 27 through Oct. 7. The previous survey found growth more uneven across the country following a difficult summer that included wild fluctuations in the stock market.
"A month ago a lot of people were worried about the possibility of a double-dip recession. This report shows we are not headed down but we are still expanding at a very slow pace," said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.
Supply disruptions caused by the Japanese crisis have begun to ease. That has helped increase auto production and sales.
The latest survey showed that many auto dealers continued to replenish inventories that ran low in the aftermath of the disaster.
Cleveland, Atlanta and Chicago regions all reported increased auto production. Boston, Richmond, Chicago and St. Louis cited robust activity for auto supply companies.
Hiring remains sluggish in most districts and wages are largely stagnant.
A few districts ' Cleveland, Richmond, Atlanta, Chicago and Kansas City ' reported job growth in manufacturing, transportation and energy.
Atlanta and San Francisco said workers with specialized skills in such fields as information technology were seeing wage gains. Cleveland noted higher wages for truck drivers.
The economy grew at an annual pace of just 0.9 percent in the first six month of the year, the slowest growth since the recession ended two years ago.
Recent data suggest growth picked up slightly in the July-September quarter. In September, employers added 103,000 net jobs, and consumers increased their spending on retail goods by the most in seven months.
Stronger consumer spending could help tamp down concerns that the economy is at risk of a recession.
Consumer spending is closely watched because it accounts for 70 percent of economic activity. Americans pulled back on spending this spring in the face of higher food and gas prices.
Some economists predict growth of around 2 percent for the second half of the year. While that would ease recession fears, it's not strong enough to significantly lower the unemployment rate, which has been near 9 percent for more than two years.
In recent months, Fed policymakers have taken steps to help boost growth.
In September, the Fed voted to shift $400 billion of its investments to try to lower long-term interest rates. That followed the Fed's announcement in August that it planned to keep short-term rates at record lows until at least mid-2013, assuming the economy remains weak.
Both steps were approved on 7-3 votes. That represented the highest level of dissent at the Fed in nearly 20 years.