Fed says ‘modest to moderate’ growth spurred by home, car sales

Third Round

The FOMC began its third round of quantitative easing in September 2012 with monthly purchases of $40 billion in mortgage-backed securities. It added $45 billion in Treasury purchases in December.

Policy makers were “broadly comfortable” with Bernanke’s plan to start tapering purchases this year if the economy improves, minutes of their July 30-31 gathering showed.

Federal budget reductions have posed a limited drag on growth and labor market gains. About $85 billion in automatic spending cuts, known as sequestration, started taking effect in March. In addition, the payroll tax reverted to its 2010 rate of 6.2% in January after holding at 4.2% for two years, resulting in lower take-home pay for American consumers.

Construction spending increased in July to the highest level since June 2009, with outlays climbing 0.6% to a $900.8 billion annual rate after little change in June, the Commerce Department said yesterday.

Manufacturing Measure

A measure of U.S. manufacturing, the Institute for Supply Management’s index, rose last month to 55.7, the strongest since June 2011, from 55.4 a month earlier, the Tempe, Arizona-based group’s report showed yesterday.

The auto industry is at the forefront of the manufacturing rebound. General Motors Co., Toyota Motor Corp. and Ford Motor Co. reported U.S. sales gains for August that exceeded estimates as analysts projected the best month for industry demand in six years.

Sales of cars and light trucks rose 15% for GM, 23% for Toyota and 12% for Ford, according to company statements. The results compared with average estimates for gains of 11% by GM, 15% for Toyota and 10% for Ford in a survey by Bloomberg News.

Ford, the second-largest U.S. automaker, is expanding payrolls and output of its Fusion sedan at its factory in Flat Rock, Michigan, according to the Dearborn, Michigan-based company.

Component Makers

“Adding 1,400 new jobs, all new employees, to this plant creates that job growth,” Joe Hinrichs, Ford’s president of the Americas, said in an Aug. 29 interview with Matt Miller on Bloomberg Television. “In addition, adding the capacity here brings the supply base and brings other component manufacturers to the area.”

Bernanke has said paring bond purchases wouldn’t signal an earlier increase in the benchmark interest rate, which policy makers forecast will remain near zero until 2015. As the Fed begins to dial down bond purchases to boost the economy, it will rely more on guidance on the future path of interest rates as a policy tool.

U.S. stocks in August posted their worst monthly retreat since May 2012 as investors weighed prospects for a U.S. military response to a chemical weapons attack in Syria. The Standard & Poor’s 500 Index tumbled last month by 3.1%.

www.bloomberg.com

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