By Andrew Beatty (AFP) – Sep 8, 2010
WASHINGTON — The US economic recovery is showing "widespread" signs of slowing, the US Federal Reserve warned Wednesday, as it gears up for a key policy meeting later this month.
The central bank reported "continued growth in national economic activity" between mid-July and the end of August, "but with widespread signs of a deceleration."
The latest Beige Book report, an economic survey which will guide a September 21 policy meeting, painted a dour picture of the health of the economy, with an uneven recovery across the country and across sectors.
The picture from the real estate market showed how deep the crisis remains, with private demand struggling to keep pace after a government tax break was removed.
"Activity in residential real estate markets declined further," the Fed reported.
"Home sales slowed further following an initial drop after the expiration of the homebuyer tax credit at the end of June, prompting a slowdown in construction activity as well."
But there was some good news from the manufacturing sector and the slightest of signs that Americans might be returning to the shops.
"Consumer spending appeared to increase on balance despite continued consumer caution," the report said.
Meanwhile "manufacturing activity expanded further on balance, although the pace of growth appeared to be slower than earlier in the year," it said.
Although a negative tone had been expected by market-watchers, the Fed's language was seen as evidence of the depth of concerns at the central bank.
"The very frank description of the situation and the avoidance of the use of the typical Fed euphemisms suggests a great deal of concern about the direction of the economy," said Brian Bethune of IHS Global Insight.
Others took solace from signs that economic growth was not grinding to a complete stop.
"Overall the report put a negative spin on activity, but indicated that the economy was clearly not slipping into recession," said Aichi Amemiya of Nomura Global Economics.
But the report will do little to alter the Fed's strategy of keeping interest rates low in order to boost growth.
Adding to that sentiment the bank said inflation was contained.
"Upward price pressures remained quite limited for most categories of final goods and services, despite higher prices for selected commodities such as grains and some industrial materials."
But the report is likely to put pressure on the Fed to act in some way to help stave off a renewed recession.
"With elevated odds of a double-dip recession and rising unemployment, the Federal Reserve will have to take at least some subtle action this month or risk disappointing financial markets and damaging its credibility," said Ryan Sweet of Moody's Economy.com.
"At a minimum, the Fed will lower its outlook for growth," he added.
The beige book report will be used at the next meeting of the central bank's interest rate-setting body, the Federal Open Market Committee, on September 21.
The Fed has set its base rate at a range of zero to 0.25 percent, a policy adopted since December 2008, in a effort to spark growth.
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