WASHINGTON - The U.S. economy expanded at a "measured pace" in recent weeks as gains in consumer demand and housing were tempered by a slowdown in manufacturing and the impact of superstorm Sandy, the Federal Reserve said Wednesday.
"Consumer spending grew at a moderate pace in most districts, while manufacturing weakened," the central bank said in its Beige Book business survey, which is based on reports from the Fed's 12 district banks. "Contacts in a number of districts expressed concern and uncertainty about the federal budget, especially the fiscal cliff."
The Fed's Minneapolis district was one of those reporting moderate growth. "Increased activity was noted in consumer spending, tourism and professional services," the report said. "Some significant parts of construction and real estate are growing at a double-digit clip."
The report indicates that Fed policymakers are unlikely to curtail monthly purchases of $40 billion in housing debt to boost the three-year economic expansion. It also bolsters Fed Chairman Ben Bernanke's view that an agreement on reducing long-term federal budget deficits without abrupt tax increases and spending cuts would remove a barrier to growth.
The Fed is "trying to convey that growth is ongoing but not sufficient," said Drew Matus, senior U.S. economist with UBS Securities. The central bank will continue its $40 billion monthly purchases of mortgage-backed securities and begin outright purchases of Treasury bonds when their current maturity extension program ends in December, Matus said.
The Beige Book provides anecdotal evidence on the health of the economy two weeks before the Federal Open Market Committee meets in Washington on Dec. 11-12. In its prior report, the Fed said that "economic activity generally expanded modestly."
"Even if the fiscal cliff does happen, housing is still a bright spot, and this Beige Book confirms that," said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Conn. "The economy has never really caught fire, and we still have the same weak spots like manufacturing slowing."
Disruptions from Sandy
The Fed said "widespread disruptions" caused by superstorm Sandy contributed to weaker conditions in the New York region and exacerbated the "general weakness" around Philadelphia. Retailers in New York expect to make up business lost because of the storm, which also helped strengthen sales at home and garden stores in the Richmond Fed district.
The storm made landfall Oct. 29 near Atlantic City, N.J., and killed more than 100 people in 10 states. The worst damage was concentrated around one of the country's most densely populated regions: New York City and the New Jersey coast.
While the storm may reduce gross domestic product in the final three months of this year, the loss may be reversed in 2013 amid continued rebuilding, according to economists at Goldman Sachs and Economic Outlook Group.
The Fed said that seven of 12 districts reported "either slowing or outright contraction in manufacturing" as some contacts "expressed concern about the outlook for 2013, in part, due to the uncertainty regarding the outcome of the fiscal cliff."