Fed survey shows economy ended 2011 with strength

MARTIN CRUTSINGER

AP Eco­nom­ics Writer

WASHINGTON — The final weeks of 2011 were among the economy’s strongest as Amer­i­cans shopped and trav­eled more, end­ing the year with a shot of opti­mism for 2012.

That’s the bright pic­ture the Fed­eral Reserve sketched in a sur­vey released Wednes­day. It said all but one of its 12 bank­ing dis­tricts expe­ri­enced some growth from late Novem­ber through the end of the year.

Some sec­tors of the econ­omy, notably hous­ing, remain weak, the Fed said. But con­sumers spent more freely. Fac­to­ries made more goods. Amer­i­cans stepped up travel. And the auto indus­try enjoyed its best stretch of the year.

Econ­o­mists noted greater con­fi­dence in the tone of the report. For exam­ple, the cen­tral bank described auto man­u­fac­tur­ing as “vibrant” in sev­eral dis­tricts. Con­sumer spend­ing was deemed “robust” in the Dal­las region.

“It has been quite a while since we have seen the Fed use words like vibrant and robust to describe any part of the econ­omy,” said Brian Bethune, an eco­nom­ics pro­fes­sor at Amherst Col­lege. “I think one of the things dri­ving the stronger lan­guage is that things are bet­ter than the Fed had been expecting.”

The one dis­trict that didn’t expe­ri­ence growth was Rich­mond, Va., although even there, the Fed said eco­nomic activ­ity either “flat­tened or improved slightly.”

The report comes just six months after the econ­omy nearly stalled under the weight of high food and gas prices and sup­ply dis­rup­tions from Japan that slowed U.S. manufacturing.

The econ­omy and the job mar­ket have both improved since then. And Decem­ber may end up being the strongest month of 2011. Employ­ers added 200,000 jobs. And the unem­ploy­ment rate fell to 8.5 per­cent — the low­est rate in nearly three years.

“The Fed’s report Wednes­day con­firms what every­one else has been see­ing in the eco­nomic data from retail sales to auto sales and man­u­fac­tur­ing — activ­ity is improv­ing,” said Jen­nifer Lee, senior econ­o­mist at BMO Cap­i­tal Markets.

Most of the Fed’s dis­tricts reported hol­i­day sales increased over last year. In par­tic­u­lar, New York and Dal­las’ dis­tricts reported healthy gains. Boston, New York and Min­neapo­lis reported excep­tional growth in online sales.

Con­sumers are spend­ing more on cars and travel, the sur­vey noted. Auto sales in the Atlanta area were the best sales in more than two years. Boston, New York, Rich­mond and Atlanta expe­ri­enced gains in tourism from a year ago. In Boston alone, busi­nesses expect double-digit growth in hotel rev­enue in 2012.

U.S. man­u­fac­tur­ing con­tin­ued to lift the econ­omy, par­tic­u­larly in indus­tries that make heavy equip­ment and steel. That has helped boost energy, farm­ing and auto man­u­fac­tur­ing sec­tors, the report said.

The depressed hous­ing mar­ket has hurt some man­u­fac­tur­ers, and the Fed cited weak­ness among fur­ni­ture man­u­fac­tur­ers in the Rich­mond, St. Louis and San Fran­cisco districts.

Infla­tion remained sub­dued, largely because high energy prices have eased. That may change in the new year. Oil has climbed above $100 a bar­rel again, and gas prices are creep­ing up.

The strength shown in the Fed sur­vey reflected other pos­i­tive eco­nomic reports.

Con­sumer con­fi­dence hit its high­est point since the spring. U.S. automak­ers reported their two best months of sales for 2011 in Novem­ber and Decem­ber. And U.S. fac­to­ries ended the year with their best month of growth since spring.

Most econ­o­mists pre­dict the econ­omy grew at an annual rate of 3 per­cent in the final three months of last year. That would be an improve­ment from the sum­mer, when the econ­omy expanded just 1.8 per­cent, and much bet­ter than the 0.9 per­cent annual growth rate in the first half of 2011.

Still, the U.S. eco­nomic recov­ery remains vul­ner­a­ble. Europe’s debt cri­sis could lower demand for U.S. exports. Con­sumers may pull back on spend­ing, espe­cially if their wages con­tinue to stagnate.

And Con­gress could decide not to extend a Social Secu­rity tax cut or long-term unem­ploy­ment ben­e­fits, leav­ing many house­holds with less income. Both mea­sures expire at the end of February.

The Fed has been study­ing the economy’s progress but announced no new actions to try to ener­gize it after its Dec. 13 meet­ing. That was taken as a sign of con­fi­dence that the econ­omy was in no imme­di­ate danger.

But in the min­utes from the meet­ing released last week, the Fed said it will start this month announc­ing four times a year how long it plans to keep short-term inter­est rates at exist­ing levels.

The change is intended to reas­sure con­sumers and investors that they will be able to bor­row cheaply well into the future. And some econ­o­mists said it could lead to fur­ther Fed action to try to invig­o­rate the economy.

The Fed’s next meet­ing is set for Jan. 24–25.

The Beige Book is released eight times a year. The find­ings from each of the Fed’s regional bank dis­tricts are all anec­do­tal; there are no numbers.

The idea is to detect trends in con­sumer spend­ing, man­u­fac­tur­ing and real estate, among other areas. Con­sumer spend­ing is par­tic­u­larly impor­tant because it accounts for about 70 per­cent of gross domes­tic prod­uct, the value of all goods and ser­vices pro­duced in the United States.

Posted by AP News on Jan 11 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.