Fed says expansion was ‘moderate’ in May with steady hiring

Beige Book

Manufacturing Slows

Manufacturing in the U.S. grew at a slower pace in May as factories tempered production and pared inventories in response to weakness in the global economy, according to a report last week from the Institute for Supply Management.

The ISM’s factory index fell to 53.5 after reaching a 10- month high of 54.8 in April, the Tempe, Arizona-based group reported June 1. Readings greater than 50 signal growth.

Service industries sustained their pace of growth in May, showing the biggest part of the U.S. economy is withstanding the impact of the European crisis, the Institute said in a separate report yesterday. Their index of non-manufacturing businesses, which covers about 90 percent of the economy, unexpectedly rose to 53.7 last month from April’s 53.5.

“Retail spending was flat to modestly positive in nearly all districts,” the Fed said today, and “demand for nonfinancial services was generally stable to slightly stronger since the previous report.”

Consumer Spending

Consumer spending rose in April, according to a Commerce Department report last week. Purchases increased 0.3 percent as incomes rose 0.2 percent.

The central bank’s report said that hiring was “steady or showed a modest increase,” a description at odds with Labor Department data that showed a decline in payroll growth for four consecutive months.

Employers added 69,000 jobs in May, down from 275,000 in January, and the unemployment rate climbed to 8.2 percent, according to Labor Department data.

“We still see a consumer out there who is making some tough choices,” Timothy A. Johnson, senior vice president of finance at Columbus, Ohio-based retailed Big Lots Inc., said in an earnings call yesterday. “He is concerned about where the economy currently sits.”

More Guarded

The Fed said that “economic outlooks remain positive, but contacts were slightly more guarded in their optimism.” Manufacturers were concerned “that a slowdown in Europe and domestic political uncertainty may affect future business decisions.”

Several districts noted “consistent indications of recovery in the single-family housing market, although the recovery was characterized as fragile.”

The housing market, a laggard in the expansion, may be reviving after a six-year slump in which home prices, sales and construction collapsed.

Starts through the first four months of this year were 24 percent higher than the comparable 2011 period, and home values in 20 cities fell in the 12 months ended March at the slowest pace in more than a year.

Bloomberg News

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