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U.S. economy continuing modest recovery: Fed

U.S. consumer spending picked up in January-February, the Fed's Beige Book shows.

KEVIN LAMARQUE/REUTERS

U.S. economic growth continued to improve gradually in January and early February as consumer spending picked up and the country's battered housing market maintained a broad-based recovery, the Federal Reserve said on Wednesday.

In a cautiously optimistic report from its 12 regional branches, the U.S. central bank also drew attention to stronger demand in the auto sector and for technology and logistics services, while emphasizing that price pressures remained muted.

"Reports from the twelve Federal Reserve districts indicated that economic activity generally expanded at a modest to moderate pace since the previous Beige Book," the Fed said.

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U.S. growth slumped to a mere 0.1-per-cent annual pace in the final three months of last year. But the Fed expects the economy to maintain a gradual recovery, helped by near-zero interest rates and its own massive bond buying program to spur borrowing.

The Beige Book, which draws on the extensive contacts maintained by regional Fed banks with their local business communities, was prepared in this instance by the Kansas City Federal Reserve, based on data collected on or before Feb. 22.

The Fed says its aggressive policy actions have had a visible impact on housing and the demand for autos, and the Beige Book confirmed that these sectors were perking up.

"Residential real estate markets strengthened in nearly all Districts and home prices rose amid falling inventories across much of the country," it said, while noting that "automobile sales were strong or solid (in) most districts."

The Fed has held interest rates near zero since late 2008 and has tripled the size of its balance sheet to around $3-trillion (U.S.) since then through a controversial bond buying program, maintained at its last meeting at a $85-billion monthly pace.

"For the Fed, it's slow progress, but not enough to alter its rate of asset purchases," said economist Yelena Shulyatyeva at BNP Paribas in New York, responding to the Beige Book.

Bond buying is designed to lower longer-term borrowing costs and the Fed pledges to keep it up until it sees a substantial improvement in the outlook for the U.S. labour market, where the jobless rate last month was a lofty 7.9 per cent.

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Critics say bond buying, also called quantitative easing, risks future inflation, but the central bank said there was no sign of higher input prices being passed along to consumers.

"Price pressures remained modest, with the exception of increases in prices for certain raw materials and slightly higher retail prices in several districts," the Fed said. "Even with some input costs rising, most district contacts did not plan to increase selling prices."

On the other hand, while most districts saw a 'modest' improvement in labour market conditions, wage pressures remained limited, although there were some signs of shortages for certain skilled workers, the Fed said.

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