The Federal Reserve said the labor market improved throughout the country early this year, driven by increasing retail sales and “solid growth” in manufacturing.
“Labor market conditions continued to strengthen modestly, with all Districts reporting some degree of improvement,” the Fed said today in its Beige Book report, an anecdotal account of the economy released two weeks before meetings of the Federal Open Market Committee. Its last survey, released Jan. 12, said the job market was “firming somewhat.”
Overall, the economy “continued to expand at a modest to moderate pace,” the central bank said in Washington. Eleven of the Fed’s 12 regional banks, including San Francisco and Philadelphia, described their regions as expanding, improving or experiencing moderate growth. Only Chicago reported growth “at a pace not quite as strong” as before.
Fed policy makers at their last meeting in January took a more optimistic view of the economy while maintaining their dissatisfaction with job growth. Policy makers, who are pressing ahead with their plan to buy $600 billion in Treasuries through June, raised projections for economic growth this year and made little change to forecasts after 2011 for unemployment and inflation.
The Beige Book reported that all districts except St. Louis “experienced solid growth in manufacturing production” and noted an increase in retail sales in every district except Richmond and Atlanta.
Extended Gains
Treasuries extended losses after the report. The yield on the 10-year Treasury note rose to 3.45 percent as of 2:22 p.m. in New York, from 3.39 percent yesterday. The yield on the 30- year Treasury bond rose to 4.54 from 4.48 yesterday.
Fed Chairman Ben S. Bernanke, in congressional testimony today, said he’s still not satisfied with the strength of the recovery from a recession that the National Bureau of Economic Research describes as the longest since the Great Depression.
“The economy’s recovery is not firmly established, and we think monetary policy needs to be supportive,” Bernanke said in semiannual testimony to the House Financial Services Committee.
Responding to a question from Representative Nydia Velazquez, a New York Democrat, Bernanke said the Fed’s policy of keeping its benchmark rate near zero for an “extended period” helps provide support to the economy, “which in our judgment, it still needs.”
Economies Growing
The Beige Book’s characterization of growth was little changed from the report in January, when six Fed regions, including Atlanta and Chicago, showed economies growing “modestly to moderately,” and four, including New York and Boston, reported “improving” conditions.
The Commerce Department last week reduced its estimate of fourth-quarter economic growth to a 2.8 percent annual pace from 3.2 percent as state and local governments made deeper cuts in spending. Consumer purchases rose at a 4.1 percent pace, the most since 2006, providing a boost for retailers.
Last week Target Corp., the second-largest U.S. discount retailer, projected sales at stores open at least a year may rise as much as 5 percent this year, after a 2.1 percent gain the prior period.
“Retail spending strengthened compared with a year ago across all Districts except Richmond and Atlanta,” today’s report said, while noting that winter weather “had a negative impact on retail activity” in Boston, New York, Philadelphia, Atlanta, Kansas City and Dallas.
Beige Book
The Beige Book report released today reflects information collected on or before Feb. 18 and summarized by the Atlanta Fed.
“The Boston, Cleveland, Minneapolis, and Dallas Districts cited noticeable improvements in the manufacturing sector, and the Boston and Cleveland Districts also observed increased labor demand in the health-care and medical sectors,” today’s the report said.
The Labor Department will report March 4 that the economy added 190,000 jobs in February, the most since May 2010 when the government was hiring to conduct the decennial census, according to the median forecast of a Bloomberg News survey. The unemployment rate will rise to 9.1 percent.
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” Bernanke said this week.
The chairman repeated his call for lawmakers to adopt a long-term plan to reduce the federal government’s debt, and said the Fed won’t buy state debt to alleviate any funding crunch, even as it’s “possible” that U.S. states could pose a risk to the financial system.
Real Estate
The Beige Book report described the real estate market as “varied, but overall sales and construction remained at low levels across all districts.”
Four Fed districts, including Dallas and Boston, described the manufacturing outlook as “optimistic” and four, including Philadelphia and Atlanta, reported “more rapid improvement in factory orders.”
Manufacturing in the U.S. grew in February at the fastest pace in almost seven years, driven by gains in orders, employment and exports that signal factories will continue to propel the expansion.
The Institute for Supply Management’s factory index increased to 61.4, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level since May 2004, the Tempe, Arizona-based group said yesterday.
Auto dealers are seeing improved demand. General Motors Co. yesterday said U.S. sales of its four remaining brands rose 49 percent in February, topping analysts’ estimates.
Company Profits
Berkshire Hathaway Inc.’s quarterly profit rose 43 percent to the highest since 2007, boosted in part by Chairman Warren Buffett’s purchase last year of Burlington Northern Santa Fe, the second biggest railroad in the United States. Economic expansion in the U.S. fueled profit gains at the freight-hauling unit in 2010.
The improvement in the job market has not translated to pay increases, the report said, describing wage pressures as “minimal across all Districts.”
The report noted that “non-wage input costs increased for manufacturers and retailers” and that many manufacturers “reported having greater ability to pass through higher input costs to customers.”
“Retailers in some Districts mentioned they had implemented price increases or were anticipating such action in the next few months,” the Fed said.
Price Gauge
The Fed’s preferred price gauge, which excludes food and fuel, rose 0.8 percent in January from a year earlier, matching December’s year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6 percent to 2 percent.
Oil and crop prices have soared even as core inflation has remained low. The price of gasoline, among the most visible expenses consumers, has risen 25 percent in the last year, according to an index from the American Automobile Association.
Experience with such price gains in recent decades, along with currently stable labor costs, suggests a “temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke told Congress today.
Farmland values also are rising as commodities soar. A report last month from the Chicago Fed showed Midwest farmland values rising 12 percent in the fourth quarter from a year earlier. The Kansas City Fed has recorded cropland prices nearly 20 percent above year-earlier levels in Kansas and Nebraska.
Kansas City Fed President Thomas Hoenig warned Feb. 17 that the surge in farmland prices may be part of an “unsustainable bubble.”
The Fed said today that for now, “strong commodity prices were benefitting producers” of many crops, even as there were reports “of rising input prices, particularly in fertilizer and feed prices.”
To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net
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