WASHINGTON (AP) — The recovery gained traction in the late fall as Americans spent a bit more and factories bumped up production. It marked the Federal Reserve’s most upbeat assessment of the US economy since it tumbled into recession two years ago.
The Fed’s new snapshot of business barometers nationwide, released Wednesday, found that “economic conditions have generally improved” since the last report in late October.
Eight of the Fed’s 12 regions surveyed reported “some pickup in activity or improvement in conditions,” the Fed said. Those regions were: Boston, New York, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
The other four regions — Philadelphia, Cleveland, Richmond and Atlanta — described conditions as “little changed” or “mixed.”
The new report adds to evidence that the economy is back on its feet, after being knocked down by the worst recession since the 1930s.
The main challenge for Fed Chairman Ben Bernanke, who will be on Capitol Hill Thursday seeking confirmation for a second term, is to keep the fledgling rebound going, especially after the bracing impact of government supports fade next year.
To that end, the Fed is expected to hold a key bank lending rate at a record low near zero when its meets on Dec. 15-16. Economists predict the Fed will keep rates at super-low levels well into next year.
With Wednesday’s survey also finding that inflation remains under control, the Fed has leeway to hold rates at record-lows. The Fed hopes that will entice people and businesses to step up spending, which would bolster the economy.
Although the jobs market remains lousy, the Fed survey found some scattered signs of improvement in some markets.
In the Boston region, some businesses were starting to hire and reverse pay cuts or wage freezes implemented earlier in the year.
The St. Louis region noted that the service sector recently started to expand.
Still, holiday hiring expectations nationwide were mixed, the Fed report said. And most private economists predict that even as the pace of massive job losses slow, the nation’s unemployment rate — now at a 26-year high of 10.2 percent – will continue to climb into next year. Some predict it will rise as high as 11 percent by the middle of 2010 before slowly drifting down.
The Fed warned last week that it could take five or six years for the job market to return to normal.
That’s why Bernanke and others think that consumers — while appearing to hold up fairly well now to all the negative stresses — may turn more cautious in the months ahead, restraining the recovery.
Consumers in late November spent more, with general merchandise and auto sales improving across much of the country, the Fed report said. Unsure of customer demand, most merchants were keeping stocks fairly lean during the holiday season. Yet some retailers suggested that they have recently become more optimistic about the holiday sales outlook.
The Fed survey also found that manufacturing conditions generally showed some improvements.
Biopharmaceutical companies in the Boston region noted that revenue increased. The Dallas region reported stronger activity for makers of high-tech equipment, paper and petrochemicals. Upticks in food-related production also were mentioned in some regions.
Many manufacturers said they were “optimistic about the near-term outlook.” But makers of construction-related materials were still pessimistic, mostly because of expectations that problems in the commercial real estate industry will be prolonged.
In fact, commercial real estate conditions continued to deteriorate, the Fed report said. Most regions were plagued by rising vacancy rates, downward pressure on rents and little, if any, new development.
By contrast, the housing market – sales and construction activity — improved across much of the country, according to the Fed survey.
A collapse in the housing market, which dragged down home prices, thrust the country into a recession. A sustained turnaround in housing is a key ingredient for a lasting economic recovery.