Fed survey: housing, manufacturing drive recovery

WASHINGTON — Improvements in housing and manufacturing are driving the early stages of the economic recovery, according to a Federal Reserve survey released Wednesday. The Fed’s latest snapshot of business conditions nationwide found “many sectors” of the economy either stabilized or logged modest improvements over the last six weeks. The pickups, though, often were from “depressed” levels of activity. Still, the new report adds to evidence that a recovery has started from the worst recession since the 1930s. Only two of the Fed’s 12 regions — Atlanta and St. Louis — reported weaker overall economic activity. An $8,000 credit for first-time homebuyers boosted the housing sector. There’s been concern among private economists and some lawmakers that recent gains in housing will fizzle out when the credit ends. It is slated to expire Nov. 30, although some in Congress are mulling an extension. Meanwhile, factories increased production as businesses restocked depleted inventories. Part of that restocking was due to the now-defunct Cash for Clunkers rebate program, which caused a brief burst in car sales. Both housing and manufacturing continued a “pattern of improvement that emerged over the summer,” the Fed observed. By contrast, the Fed said weakest link in the recovery was commercial real estate. Conditions were described as “either weak or deteriorating” across all 12 regions surveyed. Consumer spending also remained weak, the Fed said. Consumers, whose spending accounts for about 70 percent of economic activity, are expected to stay cautious given rising job losses, stagnant incomes and hard-to-get credit. “Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered,” the Fed survey said. For instance, Dallas cited slight improvements in residential real estate and at staffing firms. New York noted gains predominantly in manufacturing and retail. Philadelphia, Cleveland and San Francisco cited small pickups in manufacturing. Kansas City noted upticks at technology companies, while Richmond observed revenue gains at service companies. The nation’s unemployment rate climbed to a 26-year high of 9.8 percent in September, and is expected to top 10 percent this year. Economists predict it will rise as high as 10.5 percent by the middle of next year before slowly drifting down. Districts reported “little or no increase to either price or wage pressures,” but there were some references to downward pressures, according to the survey. In a separate report, the Labor Department found that unemployment rose in 23 states last month. While layoffs have slowed, companies remain reluctant to hire. Forty-three states reported job losses in September; only seven gained jobs. Many analysts believe the economy started to grow again in the third quarter at a pace of at least 3 percent, and is continuing to expand now. The government releases third-quarter results next week. If analysts are right, that would mark a turning point for the economy, which has contracted for a record four straight quarters. The central bank’s survey findings will figure into discussions when Fed Chairman Ben Bernanke and his colleagues meet Nov. 3-4. The Fed is expected to keep interest rates at record low at that time and probably into next year to help foster the recovery. Inflation, meanwhile, was under wraps, the Fed report suggested. That gives the central bank leeway to keep rates low. Competition, cautious consumers and expectations for a lethargic recovery mean companies won’t be rushing to boost prices, the report said. Known as the Beige Book, the survey does not include precise figures, but rather offers anecdotal snapshots of economic and financial activity nationwide.