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US economy shows 'modest' growth: Fed report

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The Federal Reserve's latest snapshot on the US economy shows "modest" expansion and a tightening jobs market, laying a path for the first increase in interest rates since 2006.

[WASHINGTON] The Federal Reserve's latest snapshot on the US economy shows "modest" expansion and a tightening jobs market, laying a path for the first increase in interest rates since 2006.

The Fed released its Beige Book report on Wednesday as Chair Janet Yellen, in a speech, signaled the rate hike could come in two weeks at the Federal Open Market Committee's policy meeting on December 15 and 16.

The report, a collection of anecdotal evidence from the central bank's 12 districts, provides some of the context for the FOMC policymakers in deciding monetary policy.

"Economic activity increased at a modest pace in most regions of the country since the previous Beige Book report" in October, said the report, based on information gathered before November 20.

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Consumer spending, the driver of two thirds of US economic activity, increased in almost all districts, with automobile sales remaining "robust".

"Labour markets continued to tighten modestly," the report said, reiterating limited wage pressures except for skilled occupations and for workers that were in short supply.

The strength of the dollar was blamed in part for weakness in the manufacturing sector. US exports have become relatively more expensive in a global market suffering from an economic slowdown.

"The strong dollar, low commodity prices, and weak global demand were named by several districts as factors for constrained demand," the report said.

Tourism was mixed, showing growth in the Richmond, Atlanta, Minneapolis and Dallas districts, while the New York district saw flat activity at or below the level of a year ago amid "sluggish" consumer spending.

Housing markets continued to be a bright spot in the economy, improving at "a moderate pace" with a modest rise in home prices.

Overall prices were stable, although some prices were lower due to further declines in commodity and energy prices as well as the strong dollar, the report said.

"On balance, the December Beige Book provides little new information on economic activity and is unlikely to be impactful for policy," said Jesse Hurwitz at Barclays Research.

Ms Yellen echoed the report with comments saying she expects the US economy to continue to grow at a similar moderate pace over the coming few years.

She said the economy has expanded at an annual rate of about 2.25 per cent during the first three quarters of this year and should continue at that level.

"Many economic forecasters expect growth roughly along those same lines in the fourth quarter," she told members of the Economic Club of Washington.

"I anticipate continued economic growth at a moderate pace that will be sufficient to generate additional increases in employment, further reductions in the remaining margins of labor market slack, and a rise in inflation to our two percent objective," she added.

AFP

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