Fed survey of 12 banking regions finds moderate growth

In this Jan. 12, 2015 photo, construction continues on a commercial property in Peabody, Mass.  The Federal Reserve releases its latest Beige Book survey of economic conditions on Wednesday, Jan. 14, 2015.
In this Jan. 12, 2015 photo, construction continues on a commercial property in Peabody, Mass. The Federal Reserve releases its latest Beige Book survey of economic conditions on Wednesday, Jan. 14, 2015.

WASHINGTON -- The U.S. economy was growing at a moderate pace in December and early January, helped by gains in sales of autos and other consumer products, but a big drop in oil prices was starting to have an effect in Texas and other energy regions, the Federal Reserve reported Wednesday.

The Fed said business contacts in its 12 regional banking districts were seeing "modest" or "moderate" growth. General merchandise retailers in the New York area reported largely sluggish Christmas sales while high-end merchandise in Philadelphia and San Francisco did well.

"Consumer spending increased in most districts, with generally modest year-over-year gains in retail sales," the Fed said Wednesday in its Beige Book, a collection of reports from its 12 districts gathered on or before Jan. 5. "Auto sales showed moderate to strong growth."

Payrolls grew in a variety of sectors, but significant wage gains were seen only by workers with specialized technical skills. A report last week showed average hourly earnings for U.S. workers dropped from the prior month by 0.2 percent, the biggest since comparable records began in 2006.

The Fed report, known as the Beige Book for the color of its cover, will form the basis of discussion at the Fed's next meeting on Jan. 27-28. The Fed at its last meeting in December said it expected to remain "patient" as it decides when to begin raising interest rates.

The pace of economic growth in the Fed's 8th District, which includes Arkansas, was slightly faster than the pace reported in the previous Beige Book report.

But monthly home sales fell 11 percent in Louisville, Ky.; 1 percent in Little Rock; 9 percent in Memphis; and 2 percent in St. Louis, compared with the same period a year ago. Residential construction fell in most of the district's metropolitan areas. Permits for single-family home construction fell in the majority of the district's metro areas compared with the same period in 2013, dropping 9 percent in Louisville, 16 percent in Little Rock and 5 percent in St. Louis. Memphis experienced a 2 percent increase in permits.

The report said the commercial and industrial real estate markets in the 8th District continued to be mixed.

"A contact in Little Rock expressed concern regarding occupancy rates in the downtown office market," the report said.

Analysts said the latest Beige Book struck a more subdued tone than the December report, noting that holiday sales were disappointing in many regions. A government report Wednesday showed that retail sales fell 0.9 percent in December, the biggest drop in 11 months.

Jennifer Lee, senior economist at BMO Capital Markets, said the new Fed report was more muted than the December survey.

The Fed's "business contacts suggest that while economic activity continued to expand in the New Year, the pace slowed," she said in a research note.

The new report, based on interviews with business contacts around the country, found several indications that the recent sharp slide in oil prices was starting to have an effect on the economy.

The Dallas Fed said some energy firms in its district were reporting hiring freezes and layoffs with demand for oil-field services falling.

"Outlooks for the first half of 2015 are very uncertain and significantly weaker than the prior reporting period," the Dallas Fed said. It said oil-field service firms were expecting a 15 percent to 40 percent decline in demand for their services.

Many private economists believe the big drop in oil prices will provide a boost to the overall economy by giving consumers more money to spend on other products, but they have cautioned that energy-producing regions could suffer from job cutbacks.

The Atlanta Fed said lower gas prices had boosted the sales of larger vehicles, but the St. Louis Fed said some auto dealers in its region were seeing excess inventories of luxury cars.

The Fed said reports of rising wage pressures were less prevalent in the latest survey than in its previous report, though there was continued upward pressure for high-skilled labor.

Various tourism contacts reported a brisk business, with Broadway theaters in New York City saying attendance and revenue were 10 percent higher than a year ago. Tourism was also reported up in the Richmond, Va., and Kansas City, Mo., regions, but ski resorts in the Philadelphia Fed district were struggling to attract visitors in the midst of unseasonably warm weather in December. The warm weather was also having an effect on winter tourists in the Minneapolis region.

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Jeff Kearns and Christopher Condon of Bloomberg News.

Business on 01/15/2015

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