Fed Survey Finds Tepid Growth 10/22 06:19
A Federal Reserve survey of business conditions around the country found
that the U.S. economy grew at a "slight to modest" pace in September and early
October, but also documented many areas of economic activity hobbled by the
WASHINGTON (AP) -- A Federal Reserve survey of business conditions around
the country found that the U.S. economy grew at a "slight to modest" pace in
September and early October, but also documented many areas of economic
activity hobbled by the coronavirus pandemic.
The Fed report made public Wednesday said that the pace of activity varied
greatly among sectors of the U.S. economy. Housing demand showed solid gains,
helped by very low mortgage rates, but conditions in commercial real estate
continued to deteriorate. That sector has been hurt by the closing of thousands
of restaurants and other retail establishments.
The report, known as the beige book, said that the outlook among the central
bank's business contacts remained generally optimistic but that respondents
expressed "a considerable degree of uncertainty" about the future.
"Restaurants in many districts expressed concern that cooler weather would
slow sales as they have relied on outdoor dining," the Fed report said.
It said that banks were also worried about rising delinquency rates in
coming months. Analysts are concerned about foreclosures on home mortgages and
commercial real estate after support payments for individuals and businesses
expired in late July or August.
The report said that while consumer spending, which accounts for two-thirds
of economic activity, remained positive, some districts reported a leveling off
in retail sales, which could be linked to the expiration of the support
programs in the summer.
The Fed survey said that businesses reported only modest price increases
with "notable exceptions." Prices were up significantly for things such as
food, autos and appliances, a development that has been linked to shortages
stemming from the coronavirus. Prices for personal protective equipment,
technology needed for remote work, and sanitation equipment also showed
Lewis Alexander, U.S. chief economist for Nomura, said he believes these
price increases would turn out to be transitory as production ramps up.
The Fed report was based on responses gathered by the Fed's 12 regional
banks before Oct. 9. The information will be used when the Fed holds its next
meeting to set interest rates on Nov. 4 and 5, just after the election.
The expectation is that the Fed will keep its key policy rate unchanged at
the current ultra-low level of 0% to 0.25% and keep signaling that it intends
to keep rates at that low level through 2023
However, the central bank may feel the need to go even farther in providing
economic support if a new wave of virus cases is threatening to throw the
recovery into reverse. Congress so far has been unable to reach a compromise
and provide another package of economic support for individuals and businesses.
In a speech Wednesday, Lael Brainard, a member of the Fed's board, warned
that the economy could face higher risks if Congress does not provide
additional spending to bolster hard-hit sectors.
"Apart from the course of the virus itself, the most significant downside
risk to my outlook would be the failure of additional fiscal support to
materialize," Brainard said in an on-line discussion.