Fed says economy grows ‘modestly’ as housing, autos improve

Capital Goods

Still, many companies have been reluctant to invest in the prospect of a stronger expansion. Shipments of nondefense capital equipment excluding airplanes, a proxy for business investment, fell 0.9 percent in August after decreasing 1.1 percent in July, according to Commerce Department figures.

A pullback in business investment fanned concerns companies will begin to pare hiring in anticipation of more than $600 billion in government spending cuts and tax increases, known as the fiscal cliff, that take effect at the start of 2013 unless Congress acts.

Labor Department data so far has shown payrolls continuing to grow even as the Congressional Budget Office has warned the economy will fall into recession if Congress allows the fiscal squeeze to go ahead.

‘Fiscal Cliff’

“In the U.S. today, the big question is the economy generally and the fiscal cliff in particular,” said Arne Sorenson, president and chief executive officer of the Bethesda, Maryland-based hotel chain Marriott International Inc.

“Despite our just-outside-the-Beltway headquarters, we are by no means well-positioned to opine on how our leaders in Washington are likely to deal with these complex issues,” she said.

The Fed last month cited risks to the economic growth from the fiscal cliff, a slowdown in global growth or a worsening of the debt crisis in Europe.

Still, stocks have rallied as central banks around the world turned to economic stimulus. As of yesterday, the S&P 500 climbed 14.6 percent this year. Fed purchases of housing debt have helped drive the national average 30-year mortgage to 3.36 percent, the lowest on record in a Freddie Mac index.

Bloomberg News

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