With the recent string of positive economic data suggesting the U.S. economic recovery was on a stronger footing, the U.S. Federal Reserve Tuesday projected that the pace of U.S. economic activity would pick up gradually in 2012 and 2013, but the nation's job and property markets would continue to remain weak.
The U.S. economy would gain momentum this year and next, boosted
by the "accommodative monetary policy, further increases in credit
availability, and improvements in consumer and business sentiment,"
the central bank said in the minutes of a December 2011 Federal Open
Market Committee (FOMC) meeting released Tuesday.
To help lift the world's largest economy out of the most severe
recession in decades and boost domestic lending and consumption, the
Fed had kept its key federal funds rate at a historically ultra-low
range of zero to 0.25 percent since the end of 2008.
The United States registered a 1.8 percent economic growth in the
third quarter of 2011, lower than the previous estimates, but was a
welcome acceleration from the 0.9 percent growth in the first half
of last year.
"The information reviewed at the Dec. 13 meeting indicated that
U.S. economic activity expanded moderately despite some apparent
slowing in the growth of foreign economies and strains in global
financial markets," noted the minutes, usually released three weeks
after the meeting of the FOMC, the Fed's powerful interest- rate
setting panel.
A separate report released Tuesday by the U.S. Institute of
Supply Management (ISM) showed that the nation's manufacturing
sector expanded at the fastest pace in six months in December,
offering relief that the U.S. economy could outpace the eurozone
economies this year as the two-year-old eurozone debt turmoil was
overhanging global recovery.
However, some economists held that the world's largest economy
would be confronted with new risks triggered by eurozone debt crisis
and a set of unsolved domestic structural problems including spiking
federal debts and low utilization rates of factories.
The best scenario for this year would be a slower growth due to
great uncertainties, including evolution of European crisis and its
spillover effects, still feeble recovery in the United States, as
well as a slowdown in emerging countries in their course of
structural reforms, Uri Dadush, a senior associate with Carnegie
Endowment for International Peace, said in a recent interview.
"Over the forecast period, the gains in real gross domestic
product (GDP) were anticipated to be sufficient to reduce the slack
in product and labor markets only slowly, and the unemployment rate
was expected to remain elevated at the end of 2013," said the Fed.
The U.S. unemployment rate declined 0.4 percentage point to 8.6
percent in November, the lowest since March 2009. However, the key
reason for the jobless rate to fall sharply was that 315,000
unemployed job seekers stopped applying for jobs, reflecting an
under-performing job market as business owners were cautious about
adding new people to their payroll.
Against the backdrop of slashing government outlays, employment
opportunities at state and local governments declined further, and
both long-duration unemployment and the share of workers employed
part time for economic reasons remained high, according to Fed's top
policymakers.
Initial claims for unemployment insurance have edged down since
early November, but were still at a level consistent with only
modest employment gains, while indicators of job openings and
businesses' hiring plans were little changed, said the Fed.
With long-run inflation expectations stable and the substantial
slack in labor and product markets anticipated to persist over the
forecast period, top officials of the U.S. central bank predicted
that the inflation would be subdued in 2012 and 2013.
Activity in the housing market continued to be depressed by the
substantial inventory of foreclosed and distressed properties, and
by weak demand that reflected tight credit conditions for mortgage
loans and uncertainty about future home prices, noted the minutes.
The U.S. construction spending rose 1.2 percent to a seasonally
adjusted annual rate of 807.1 billion U.S. dollars in November, but
still remained only half of the pace considered healthy by analysts,
a Tuesday Commerce Department report revealed.
Despite an array of recovery signs in recent months, many
economists held that U.S. housing market would remain sluggish for
several years and it would continue to dampen tax revenue and
expenditures of local governments, a drag on robust economic
recovery and improvement of the labor market.
