The US economy recovery remains tepid but on track, with the jobs market improving amid 'modest' growth, the Federal Reserve said in its latest Beige Book report published this evening.
'Economic activity continued to improve since the last report in April across all 12 Federal Reserve districts, although many districts described the pace of growth as modest,' the report said.
This evening Fed analysts provided a positive view of the troubled US job market, saying that labour market conditions improved slightly with permanent employment levels edging up in most districts.
'Manufacturing was the most often cited source of employment gains,' the Fed said, as many regions also reported an uptick in temporary hires. US unemployment currently stands at 9.7% and remains a major economic and political headache for the administration of President Barack Obama.
But there was some news that government policies could be aiding the economy, particularly the troubled property market.
'Residential real estate activity improved since the last report. Most districts noted an increase in home sales and construction prior to the April 30 deadline for the homebuyer tax credit,' the Beige Book said.
The bad news for Washington is that the trend appears to be temporary, with the Fed reporting that many districts reported 'a corresponding slowing in activity in May,' as the deadline passed.
There will also be concern about news that lending by commercial and industrial banks 'remained weak'. Obama has urged banks to resume lending to small businesses and consumers in order to give the economy a jolt.
Among those sectors doing well was the long-troubled car market, which continues to rebound from a spate of bankruptcies among top firms. 'Several districts reported that auto production was failing to keep up with demand,' the Fed reported.
The report will be used at the next meeting of the central bank's interest-rate-setting body, the Federal Open Market Committee, on June 22-23.
Fed sees robust US growth despite euro crisis
The US economy is on track to grow 3.5% this year as it sees only a 'modest' impact from the euro zone debt crisis, Federal Reserve chairman Ben Bernanke said earlier today.
'The economy appears to be on track to continue to expand through this year and next,' Ben Bernanke said in testimony to the US Congress.
Bernanke said the pace of growth would likely quicken in 2011, driven by rising consumer spending. 'The incoming data suggest that gains in private final demand will sustain the recovery in economic activity,' he told a House of Representatives panel.
'Consumer spending is likely to increase at a moderate pace going forward, supported by a gradual pickup in employment and income, greater consumer confidence, and some improvement in credit conditions,' he said.
US consumers, long the drivers of the world's largest economy, are spending around 3.5% more today than they were this time last year, Bernanke said.
He warned the still-moribund housing market continues to drag on the recovery, as home prices are pushed down by vast numbers of vacant houses and home builders struggle to get credit. 'Underlying housing activity appears to have firmed only a little since mid-2009,' he said.
But continuing his recent upbeat tone, Bernanke said that the spiraling European debt crisis should have only a modest impact on the US.
'If markets continue to stabilise, then the effects of the crisis on economic growth in the US seem likely to be modest,' he stated.
He said the negative impact of the Europe's crisis was offset by a decline in the US government's cost of borrowing, as investors rush to the perceived safe haven of Treasury bonds.
Bernanke added that Europe's crimped economy could push down oil prices, a trend that could help US consumers and businesses. But he warned the US must heed the lessons of fiscal woes seen across the Atlantic.
The US national debt currently stands at an historic high of $13 trillion and government deficits are soaring.
Bernanke said that while short-term spending had been needed to stimulate the economy, the deficit must be brought down over time.
'Ongoing developments in Europe point to the importance of maintaining sound government finances. History makes clear that failure to achieve fiscal sustainability will, over time, sap the nation's economic vitality, reduce our living standards, and greatly increase the risk of economic and financial instability,' he said.
'As the economy and financial markets continue to recover, and as the actions taken to provide economic stimulus and promote financial stability are phased out, the budget deficit should narrow over the next few years,' he added.
