Fed Beige Book says growth was ‘modest to moderate’ in June

Limited Progress

Retail sales unexpectedly declined in June for a third straight month, a sign that limited progress in job creation is holding back the biggest part of the economy, Commerce Department figures showed July 16.

The U.S. added 80,000 jobs in June, and the unemployment rate remained at 8.2 percent, the Labor Department reported July 6. Growth in private payrolls was the weakest in 10 months. The figures underscore Bernanke’s concern that growth may not be fast enough to lower unemployment stuck above 8 percent since February 2009.

“Consumers across the globe continue to feel the effects and impacts of prolonged uncertainty in Europe, the further cooling of the economy in China, and a protracted recovery here in the United States,” Coca-Cola Co. Chief Executive Officer Muhtar Kent said in a conference call yesterday. The Atlanta- based company is the world’s biggest soft-drink maker.

Housing, Construction

The Beige Book said housing reports were “largely positive as sales and construction levels increased and home inventories declined.” In addition, “Rental markets continued to strengthen.”

“We have seen modest signs of improvement in housing,” Bernanke said in his testimony to Congress. “In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer.”

At the same time, he said, tight lending standards are making it difficult for would-be home-buyers to get financing, and an overhang of vacant homes is diverting demand from new construction.

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate.

“Manufacturing activity continued to expand slowly in most Districts, and Cleveland, Atlanta, Chicago, and Kansas City cited slight increases in production levels,” the Fed said. “However, several districts reported a deceleration in new orders.”

Manufacturing Shrinks

Manufacturing in the U.S. unexpectedly shrank in June for the first time since the economy emerged from the recession three years ago, the Institute for Supply Management’s index showed July 2.

The recovery over the past three years has been marked by periods of solid growth followed by disappointing slowdowns, Fed Kansas City Bank President Esther George said July 16. “It looks like this summer’s slowdown will be no exception to that” and annual growth will be “not much beyond 2 percent.”

The U.S. economy will probably expand 2.1 percent in 2012 and 2.2 percent in 2013, according to the median of 72 economists surveyed by Bloomberg News July 6 to July 10.

Bloomberg News

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