US economy extends 'modest' recovery

The US economy is showing more signs of firming in an extension of a 'modest' recovery from recession, the Federal Reserve said in its Beige Book report today.

Yet the economy is being held back by troubles in commercial property, offsetting improvement in the residential sector, and by 'weak or mixed' job market conditions, said the report.

'Reports from the 12 Federal Reserve districts indicated either stabilisation or modest improvements in many sectors since the last report, albeit often from depressed levels,' said the report, to be used at the November 3-4 policymaking meeting of the US central bank.

'Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered,' it added.

Leading the more positive sectors were residential property and manufacturing sectors, the Beige Book said.

The report said that 'labour markets were typically characterised as weak or mixed, but with occasional pockets of improvement.'

The latest official data showed a 0.7% pace of output decline in the second quarter, with the economy nearly emerging from the slump that led to a hefty 6.4% tumble in the first quarter of 2009.

Many analysts see growth returning in the third quarter, but fear that high unemployment may be a continued drag on activity. The jobless rate rose to 9.8% in September, a 26-year high.

The Beige Book's mixed outlook could be used to justify an extension of the Fed's ultralow interest rates aimed at stimulating growth. The federal funds rate has been at a record low range of zero to 0.25% since last December.

The report said inflation and wage pressures remained subdued and that deflationary pressures may still be an issue. 'Districts generally reported little or no increase to either price or wage pressures, but references to downward pressures were occasionally noted,' the report said.