Americans spent more on cars and houses in July and August, helping the economy maintain its “modest to moderate” growth even as borrowing costs increased, the Federal Reserve said Wednesday.
Staff and wire reports
Consumers also spent more on travel and tourism while manufacturers expanded modestly, said the Fed’s Beige Book business survey compiled from its 12 regional district banks, including the one in Kansas City.
Hiring “held steady or increased modestly,” it said.
The report comes just ahead of the Fed’s policy meeting Sept. 17-18 at which it may reduce its aggressive bond buying policy that is intended to drive down long-term interest rates. The Fed has pegged softening of its economic policy to improvement in the job market.
Speculation about a policy shift at the Fed has roiled financial markets, pushing up interest rates on U.S. bonds and mortgages and contributing to the worst rout in the currencies of developing nations in five years.
“Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods,” the Fed report said. “Residential real estate activity increased moderately in most districts, and demand for non-residential real estate gained overall.”
The Fed said eight districts described growth as moderate. In the four others, Boston, Atlanta and San Francisco reported a modest expansion, while Chicago indicated an improvement. The previous Beige Book, released July 17, said the economy expanded at a “modest to moderate pace” overall.
“Further gains” are expected in the moderate economic growth throughout the Kansas City Fed’s district, which covers western Missouri, Kansas and all or part of five other states. Its report cited strong retail and auto sales with “positive expectations” about future sales and a rise in home sales and prices.
“Other firms, primarily in retail, leisure and hospitality industries, were beginning to raise wages to attract salespeople, housekeepers, maintenance and clerical staff,” the Kansas City Fed’s report said.
The effect of higher interest rates nationally was reflected in the Beige Book, with conditions in housing and bank lending slowing.
“Lending activity weakened a bit, and several districts reported less favorable conditions than in the preceding reporting period,” the report said.
The Atlanta, Chicago, St. Louis and San Francisco districts reported that lending slowed, while Kansas City said lending declined.
The Chicago district reported that “recent interest rate increases likely were depressing commercial investment.”