Americans spending more on cars and housing helped the economy maintain a “modest to moderate” pace of expansion from early July through late August, even as borrowing costs increased, the Federal Reserve said today.
Consumers spent more on travel and tourism while manufacturing expanded “modestly,” the Fed said today in its Beige Book business survey, which is based on anecdotal reports from its 12 regional banks. Hiring “held steady or increased modestly.”
The Federal Open Market Committee is debating whether growth is sufficient to fuel steady improvement in the job market and warrant tapering the Fed’s $85 billion in monthly bond buying. Speculation the FOMC will dial down purchases at its Sept. 17-18 meeting has roiled financial markets, pushing up U.S. bond yields and contributing to the worst rout in the currencies of developing nations in five years.
“Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods,” the Fed said. “Residential real estate activity increased moderately in most districts, and demand for nonresidential real estate gained overall.”
The Fed said eight districts described growth as moderate; of the other four, Boston, Atlanta and San Francisco reported a modest expansion, while Chicago indicated an improvement. The previous Beige Book, released on July 17, also said that the economy expanded at a “modest to moderate pace” overall.
The effect of higher interest rates was reflected in today’s report, with conditions in housing and bank lending slowing from the previous Beige Book.
“Lending activity weakened a bit, and several districts reported less-favorable conditions than in the preceding reporting period,” the report said. The Atlanta, Chicago, St. Louis and San Francisco districts reported that lending slowed, while Kansas City said lending declined. The Chicago district reported that “recent interest-rate increases likely were depressing commercial investment.”
Today’s report said that residential real estate “increased moderately” compared with the previous report, which cited a “moderate to strong pace” of expansion. Sales and prices continued to increase, and many districts said that “limited inventories of desirable properties contributed to upward price pressures.”
The world’s largest economy has weathered the impact from federal budget cuts and higher taxes, with gross domestic product growth accelerating to a 2.5% annualized rate in the second quarter from 1.1% during the first three months of the year.