Beige Book: Weak Housing is Impeding Growth

The U.S. economy continued to expand modestly across all regions in the final six weeks of 2011, the Federal Reserve said in a report released Wednesday.

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The central bank’s studies of regional economies, known as the “beige book,” found that persistent weakness in the housing market impeded growth in most areas, while limited inflation pressures left the door open for more stimulus.

In seven of the Fed’s 12 districts, the pace of growth was characterized as “modest” while it was given a slightly better “moderate” rating in the Dallas and San Francisco regions. The Fed noted a “pickup” in the New York and Chicago areas, but that “activity flattened or improved slightly” in the Richmond district.

The beige book, a snapshot collected from business contacts and economists around the country, will be used for discussions at the Fed’s next policy meeting January 24-25, after which the Fed will publish their monetary policy forecasts for the first time as part of Fed Chairman Ben Bernanke’s push for greater transparency. They will likely show short-term interest rates staying near zero beyond their current mid-2013 prediction, which could help stimulate spending and investment.

“The reports on balance suggest ongoing improvement in economic conditions in recent months, with most districts highlighting more favorable conditions than identified in reports from the late spring through early fall,” the beige book reads. The survey is based on information collected from November 18 through the end of last year.

The report showed that retail sales were up in most districts in the last six weeks of 2011 compared to 2010, with consumer electronics and jewelry among the best sellers across all regions, while luxury items in general sold well in the Chicago area. Travel and tourism did well in most regions.

Of course, the holiday shopping season is responsible for a significant boost in spending, and Americans had to tap into savings and borrow more to keep up spending. In fact, consumer borrowing soared in November at the fastest pace in a decade. And though economic data is improving — the national unemployment rate declined to 8.5 percent in December — “the data aren’t strong enough, or uniform enough, to assert that momentum for growth is building,” Chicago Fed President Charles Evans said Wednesday.

Housing markets held steady “at very low levels,” according to the beige book, but though prices were stable compared with previous months, most were below their year-ago levels as the market continued to be flooded with foreclosures throughout 2011. But if short-term interest rates were to stay at a record low past mid-2013 as now expected, it might ultimately give the housing market and wider economy a boost by pushing down mortgage and other long-term rates.

Still, the Fed continues to struggle with the White House and Congress, saying they must do more to help the battered housing sector. Fed officials recognize their own limitations, and acknowledge their inability to turn around housing without help from the rest of the government. In a study he sent to Congress last week, Bernanke said the broader recovery is dependent upon improving the housing market, which represented 15 percent of the U.S. economy in the third quarter, down from 18.6 percent in 2005.

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To contact the reporter on this story: Emily Knapp at

To contact the editor responsible for this story: Damien Hoffman at