The Federal Reserve said the U.S. economy strengthened in all of the central bank’s regions in April and May for the first time in more than two years, while noting growth in many districts was subdued.
“Economic activity continued to improve since the last report across all 12 Federal Reserve Districts, although many Districts described the pace of growth as ‘modest,’” the Fed said in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy.
Fed Chairman Ben S. Bernanke said in congressional testimony today that the recovery, while sustained by private demand, isn’t as strong as he prefers and faces risks from Europe’s debt crisis that may require further Fed action. Policy makers, who next meet June 22-23, committed in April to keep borrowing costs near zero for an “extended period.”
“Labor market conditions improved slightly with permanent employment levels edging up in most Districts,” the Fed said. Districts saw increases in temporary hires, with Boston and Dallas also “indicating a pickup in temporary-to-permanent” moves.
It was the first time since October 2007 the Beige Book showed all 12 Fed regions reporting an expanding economy. It’s a turnaround from the October and December 2008 reports, which showed contraction in all of the districts.
The report offers anecdotal evidence that will help central bankers weigh developments in an economy where unemployment is projected to remain above 9 percent through the end of the year.
Consumer spending and tourism “generally increased,” the Fed report said, and capital spending by businesses was “edging up.”
Today’s Beige Book reflects information collected on or before May 28, and summarized by staffers at the Chicago Fed.
The U.S. economy expanded at a 3 percent annual rate in the first quarter as households spent more freely, the government reported last month. Fed policy makers raised their growth estimates for this year to a range of 3.2 percent to 3.7 percent, according to minutes of their April 27-28 meeting.
“Contacts in some districts cited concerns over the potential impact of the European fiscal crisis on financial and business conditions, and reported a corresponding increase in uncertainty and financial-market volatility,” the Fed said.
The Fed remains “highly attentive” to risks from Europe, Bernanke said in testimony to the House Budget Committee today. Fed Bank Presidents Charles Evans of Chicago and Atlanta’s Dennis Lockhart have said the central bank may need to slow any move to raise interest rates because of the European crisis, while Kansas City’s Thomas Hoenig, the longest-serving policy maker, wants to withdraw a commitment to near-zero rates.
“Our ongoing international cooperation sends an important signal to global financial markets that we will take the actions necessary to ensure stability and continued economic recovery,” Bernanke said today.
Employment gains were led by manufacturing, with the biopharmaceutical industry in Boston, retailing in Chicago and transportation in Dallas also seeing gains.
U.S. companies hired fewer workers in May than forecast and workers dropped out of the labor force, a government report showed June 4. Private payrolls rose by 41,000, trailing the 180,000 gain forecast by economists, while the jobless rate fell to 9.7 percent from 9.9 percent, according to the Labor Department report.
The U.S. has lost more than 8 million jobs since the start of the recession in December 2007, the most of any slowdown in the post-World War II era.
Bernanke and his colleagues will give updated economic projections at their next scheduled meeting in Washington.
The Fed said residential real estate was buoyed by the April deadline for the homebuyer tax credit. Commercial real estate “remained weak.”
Atlanta-based Home Depot Inc., the largest U.S. home- improvement retailer, last month raised its sales projections. Home Depot said sales may rise about 3.5 percent this year, up from a February projection of about 2.5 percent.
“Prices of final goods and services were largely stable as higher input costs were not being passed along to customers and wage pressures continued to be minimal,” the central bank said.
The Fed’s preferred inflation gauge -- the core personal- consumption expenditures price index, which strips out food and energy -- rose at an annual rate of 0.6 percent in the first quarter, the slowest pace since records began in 1959.