Economy Growing, But Not Gangbusters

"The Summary of Commentary on Current Economic Conditions by Federal Reserve District" was released on Wednesday, and posited the not-quite-hopeful notion that the U.S. economy is growing, but not growing that quickly.

The latest Beige Book from the Federal Reserve, more formally called “The Summary of Commentary on Current Economic Conditions by Federal Reserve District,” was released on Wednesday, and posited the not-quite-hopeful notion that the U.S. economy is growing, but not growing that quickly. Or as the central bank put it, “reports from the 12 Federal Reserve Districts suggest that overall economic activity continued to increase at a modest to moderate pace in January and early February,” inviting readers to puzzle out the difference between “modest” and “moderate” growth.

In any case, “manufacturing continued to expand at a steady pace across the nation, with many districts reporting increases in new orders, shipments, or production and several districts indicating gains in capital spending, especially in auto-related industries,” the Fed said. “Activity in nonfinancial services industries remained stable or increased. Reports of consumer spending were generally positive except for sales of seasonal items, and the sales outlook for the near future was mostly optimistic.”

The Beige Book also noted that “residential real estate activity increased modestly in most districts,” but that home prices declined or were static in most places. Single-family construction was still weak or weak-ish in most parts of the country, though in a lot of places—the districts of Boston, Atlanta, Chicago, Minneapolis, Dallas and San Francisco—there was an increase in multifamily construction. As for commercial real estate, “markets displayed positive results in some districts,” the report said, since “leasing showed overall improvement.”

GDP revised upward

Also on Wednesday, Fed Chairman Ben Bernanke made his semiannual monetary policy report to Congress, and he said much the same thing: the economy is still seeing modest growth (or moderate, if one prefers). Investors were listening closely to the Bearded One for hints of further stimulus by the central bank, which some still call QE3, but Bernanke offered no such hints. Those same investors will be listening to see if he mentions easing on Thursday before the Senate Banking Committee.

One reason the Fed might be rethinking any addition stimulus is that the economy is, indeed, growing—and it’s because of steady if not overwhelming private-sector expansion. The Bureau of Economic Analysis announced on Wednesday that it has revised its calculations of U.S. gross domestic product growth upward for the fourth quarter of 2011. Thus, said the BEA, real GDP—the output of goods and services produced by labor and property—increased at an annualized rate of 3 percent in the fourth quarter of 2011, rather than 2.8 percent.

The increase reflected positive contributions from such sectors of the economy as private inventory investment, personal consumption expenditures, exports, nonresidential fixed investment, and—remarkably—residential fixed investment. But those factors were partly offset by the negative contributions of government spending at all levels, from massive arms of the federal bureaucracy to water reclamation districts. Imports, which are a subtraction in the calculation of GDP, also increased.

Consumer confidence buoys restaurant trade

Another measure of the economy, one that hinges on all-important consumer confidence, is the National Restaurant Association’s Restaurant Performance Index, and it was down in January, coming it at 101.3 compared with December’s reading of 102.2. Despite the decline, however, January represented the third consecutive month that the index stood above 100, which means expansion for the industry.

“Although the Restaurant Performance Index dipped somewhat from December’s nearly six-year high, it remained solidly in positive territory,” Hudson Riehle, senior vice president of the research and knowledge group for the association, said in a press statement. “Restaurant operators reported positive same-store sales for the eighth consecutive month, and a majority of them expect business to continue to improve in the months ahead.”

Wall Street was out to lunch on Wednesday, with the indices giving up ground, presumably on disappointment that the Fed isn’t going to juice up the economy. Dow Jones Industrial Average ended below 13,000, down 53.05 points, or 0.41 percent. The S&P 500 and the Nasdaq were up down 0.47 percent and 0.67 percent, respectively.