Fed Says ‘Moderate’ Growth Led by Housing, Autos

WASHINGTON (Bloomberg News) —

The Federal Reserve said Wednesday that the U.S. economic expansion remained “moderate” amid gains in manufacturing, housing and autos that offset weakness in defense-related industries in some regions.

“Most districts noted increases in manufacturing activity since the previous report,” the central bank said in its Beige Book business survey, which is based on reports from the Fed’s 12 regional banks from late February to early April. “Particular strength was seen in industries tied to residential construction and automobiles.”

Most regions said “residential and commercial real estate improved markedly” as housing prices rose in many areas and demand for home loans was “steady to slightly up,” the Fed said. Consumer spending “grew modestly,” even as some regions said sales were curbed by rising gasoline prices, higher payroll taxes and winter weather. “Employment conditions remained unchanged or improved somewhat,” the report said.

Several policymakers, including Federal Reserve Bank of New York President William C. Dudley, have said the Fed should maintain record monetary stimulus after an April 5 report showed employers added 88,000 workers in March, the smallest gain in nine months. The Federal Open Market Committee said in March that it will continue buying $85 billion in bonds each month until the labor market “improves substantially.”

The panel also repeated its pledge to keep the main interest rate near zero so long as the unemployment rate remains above 6.5 percent and the forecast for inflation doesn’t exceed 2.5 percent over one to two years.

Wednesday’s report showed that growth was “moderate” in five districts, “modest” in another five, and accelerated “slightly” in the New York and Dallas districts.

In its last Beige Book report, released on March 6, the Fed said the economy grew at a modest-to-moderate pace across most of the country, amid rising consumer demand for homes and autos.

The anecdotal snapshots from the Fed district banks help the FOMC evaluate the economy prior to its next meeting. Policymakers plan to meet April 30-May 1 in Washington.

While housing and auto sales are bright spots this year, retail sales declined in March amid across-the-board federal budget cuts known as “sequestration.” Tax increases have also taken a toll on demand.

“Continued modest growth right now is most likely,” said Josh Feinman, the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset manager overseeing $228 billion, and a former Fed senior economist in Washington.

Fed officials are debating when to curtail their unprecedented bond buying. Several FOMC members said at their March 19-20 meeting that the Fed should begin tapering its quantitative easing program this year and stop the asset purchases by year end, meeting minutes released April 10 showed.

FOMC members “thought that if the outlook for labor-market conditions improved as anticipated, it would probably be appropriate to slow purchases later in the year and to stop them by year-end,” according to the record of the gathering.

Housing has gained as Fed easing pushed mortgage rates to record lows. The S&P/Case-Shiller index of property values in 20 cities climbed 8.1 percent in January from a year earlier, the most since June 2006. Cars sold at an average 15.3 million annualized rate in the first quarter, the most since the same period in 2008, according to Ward’s Automotive Group data.

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