Fed survey: US economy picked up at end of year

January 16, 2013 - 4:32 PM
Beige Book

In this Wednesday, Dec. 5, 2012, photo, a Honda Accord is for sale at a Honda car dealership in Des Plaines, Ill. Holiday shopping, strong auto sales and a recovering housing market helped boost the U.S. economy from the middle of November through early January, according to a Federal Reserve survey released Wednesday. (AP Photo/Nam Y. Huh)

WASHINGTON (AP) — Holiday shopping, strong auto sales and a recovering housing market helped boost the U.S. economy from the middle of November through early January, according to a Federal Reserve survey released Wednesday.

The Fed said 12 of its regional banking districts reported "modest or moderate" growth in the final weeks of 2012. Of those, only St. Louis said growth had slowed from the previous survey, which covered October through early November.

Consumers increased spending at the end of the year in every district. Auto sales were steady or stronger in 10 districts. Nearly all of the districts reported increases in home construction and home sales.

Still, employers in some parts of the country delayed hiring because of uncertainty over the fiscal cliff. Congress and the White House reached a deal on Jan. 1 to prevent sharp income tax increases from hitting most Americans. But they put off decisions on government spending cuts.

The report, called the Beige Book, provides anecdotal information on economic conditions through Jan. 4. Overall, analysts said the survey showed the economy looked better at the end of the year.

"Despite concerns about the dreaded fiscal cliff, the economy looks to have improved slightly in recent months," said Sal Guatieri, senior economist at BMO Capital Markets. He said the latest survey probably had not fully captured the improvement in business sentiment that has occurred with the January deal to avoid most income tax increases.

Congress must still decide what to do about automatic spending cuts that are now set to take effect in March.

The survey showed that companies in six districts — Boston, Richmond, Atlanta, Chicago, Kansas City and San Francisco — held off on hiring because of those looming cuts. Many of the companies are in the defense industry, which is slated for some of the cuts.

The information collected for the Beige Book survey will be used as the basis for the Fed's policy discussion at the Jan. 29-30 meeting. Many economists believe the Fed will take no new steps at its January meeting.

The Fed last month said it planned to keep its key short-term interest rate at a record low even after unemployment falls close to a normal level — which it said might take three more years. And it said it would keep buying $85 billion a month in Treasurys and mortgage bonds to try to keep borrowing costs low and encourage more spending.

The economy has shown some signs of improvement, according to recent government and private data.

U.S. automakers finished 2012 with their best sales in five years. The housing recovery has helped lift home prices in most parts of the country. Retail spending grew in December from November, led by higher sales of cars, furniture and clothing. And factory output has increased in the past two months.

Job growth has been modest but steady. In December, employers added 155,000 jobs, roughly matching the monthly average in 2011 and 2012.

Still, unemployment remains high at 7.8 percent. Wages are barely increasing. And many consumers are likely to pull back on spending at the start of the year because lawmakers and President Barack Obama allowed a two-year reduction in Social Security payroll taxes to lapse.

Most Americans will start seeing less money in their paychecks this month. A person earning $50,000 a year will see take-home pay shrink by roughly $1,000 in 2013. That's likely to slow consumer spending and weigh on economic growth.