US economy continues broad expansion

GMT 23:53 2015 Wednesday ,14 January

Arab Today, arab today US economy continues broad expansion

Federal Reserve Board of Governors
Washington - AFP

The US economy generated "modest" or "moderate" growth in late 2014, although lower oil prices were hitting energy-producing regions, according to a Federal Reserve report released Wednesday.   
US job growth expanded "moderately" from mid-November through late December, but that was not accompanied by upward pressure on wages, said the Fed's Beige Book, a collection of economic reports from the central bank's 12 districts.
"Significant wage pressures were largely limited to workers with specialized technical skills," said the mostly upbeat report, which will be used as a basis for discussion at the Fed's next monetary policy meeting on January 27 and 28.
The rapid slide in oil prices, which at the end of the survey period had lost about half their value since June, showed up in slower growth in energy regions that in turn weighed on some hiring.  
While most Fed districts reported the modest or moderate economic growth, the Kansas City District, in the Midwest, reported only slight expansion, with slower growth in the energy industry.
"Most respondents reported lower drilling activity, and demand for oilfield services fell," the report said.
"Oil rigs decreased marginally while natural gas rigs increased. Future drilling activity, employment, and capital expenditures were projected to be significantly lower in response to lower oil prices."
And the Dallas Fed in Texas, reflecting the rapid slide in crude oil prices, indicated "that growth slowed slightly during the reporting period and that several contacts expressed concern about the effect of lower oil prices on the District economy."
Lower oil prices led to an overall slowing in hiring, for example, in the energy-producing regions of North Dakota and Montana.
The persistent minimal growth in wages has been a big worry for Fed officials as they debate the first increase in interest rates. The key federal funds rate has been pegged near zero since December 2008 to shore up the economy's recovery from deep recession.
- Stalled wages a worry -
Wages have stagnated despite the best annual job creation since 1999 last year, with the world's largest economy pumping out nearly three million jobs and the unemployment rate falling to 5.6 percent, its lowest level in six and a half years.
Some analysts say the robust number of jobs created will ultimately show up in higher wages, and some on the Fed's policy arm, the Federal Open Market Committee, have pointed to soft wage gains in arguing that the first increase in rates should be delayed.
The minutes of the December 16-17 FOMC meeting showed that the first hike in the federal funds rate could come at the April 28-29 meeting. Some Fed-watchers expect it to be announced at the June 16-17 meeting, which is followed by a news conference with Fed Chair Janet Yellen.
Inflationary pressures remained tame as 2014 wound down, helped by falling oil prices. "Prices increased slightly, on balance, in most Districts during the reporting period," the report said.
The major part of the housing market, single-family homes, was largely flat.
Consumer spending, which drives about 70 percent of the economy's activity, increased in most districts, while retail sales garnered "generally modest" year-over-year gains.
"Overall, we view the Beige Book as consistent with recent readings from high-frequency economic indicators, and it does not materially change our view of the overall state of the US economy," said Barclays Research.
The lackluster accounts on retail sales came after the Commerce Department reported earlier in the day that December retail sales fell, by a hefty 0.9 percent, instead of an expected increase, and revised down the prior two months' gains.
According to Macroeconomic Advisers, the retail weakness suggested less growth of consumer spending in the fourth quarter that would curb economic expansion as this year gets under way.
The researchers lowered their estimate of gross domestic product growth by two-tenths to 3.2 percent for the 2014 final quarter, and by two-tenths to 2.4 percent for the 2015 first quarter.


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