WASHINGTON – Americans spending more on cars and housing helped the economy maintain a "modest to moderate" pace of expansion from early July through late August, even as borrowing costs increased, the Federal Reserve said Wednesday.
Consumers spent more on travel and tourism while manufacturing expanded "modestly," the Fed said Wednesday in its Beige Book business survey, which is based on anecdotal reports from its 12 regional banks. Hiring "held steady or increased modestly."
The Federal Open Market Committee is debating whether growth is sufficient to fuel steady improvement in the job market and warrant tapering the Fed's $85 billion in monthly bond buying. Speculation the FOMC will dial down purchases at its Sept. 17-18 meeting has roiled financial markets, pushing up U.S. bond yields and contributing to the worst rout in the currencies of developing nations in five years.
The effects of higher interest rates was reflected in Wednesday's report, with conditions in housing and bank lending slowing from the previous Beige Book of July 17.
The world's largest economy has weathered the impact from federal budget cuts and higher taxes, with gross domestic product growth accelerating to a 2.5 percent annualized rate in the second quarter from 1.1 percent during the first three months of the year.
"The economy is growing at a steady pace," said Thomas Costerg, an economist with Standard Chartered in New York. "It's not accelerating, but it's still healthy."
Payrolls rose by 180,000 following a 162,000 gain the prior month, according to the median forecast of 71 economists surveyed by Bloomberg before the Sept. 6 release of Labor Department data.
Faster hiring and income gains would underpin consumer spending, which accounts for about 70 percent of the economy.
Fed Chairman Ben Bernanke and his colleagues have pledged for almost a year to press on with asset purchases until the labor market shows substantial improvement. Their buying of Treasuries and mortgage-backed securities have expanded the Fed balance sheet to $3.64 trillion.
Speculation the Fed will pare its bond purchases has pushed borrowing costs to two-year highs. The average rate on a 30-year, fixed-rate mortgage has increased to 4.51 percent from a record-low 3.31 percent in November, according to Freddie Mac. The 10-year Treasury yield hit a two-year high of 2.93 percent Aug. 22.
Construction spending increased in July to the highest level since June 2009, and the auto industry is at the forefront of the manufacturing rebound. U.S. stocks in August posted their worst monthly retreat since May 2012 as investors weighed prospects for a U.S. military response to a chemical weapons attack in Syria. The S&P 500 tumbled last month by 3.1 percent.
