The nation's economy expanded in all 12 Federal Reserve districts in late January and February, though a recent payroll tax increase, the new health care law and the budget standoff in Washington tempered consumer spending and hiring, the Fed said Wednesday.
Overall, the economy has been resilient despite the tax increase and the prospect of $85 billion in federal spending cuts that began to take effect March 1. The economy grew moderately in five districts, modestly in five others and "slowly" in the Boston and Chicago areas, the Fed said in its "beige book" report.
The housing rebound gained steam, and manufacturing and consumer spending grew moderately, while the labor market generally improved, and bankers opened the lending spigots a bit more.
Consumer spending picked up in most areas. Retail sales grew in the Philadelphia and Richmond, Va., areas in particular, but bad weather crimped sales in the Boston, New York and Minneapolis regions. Sales slowed overall in Kansas City.
The end of the payroll tax holiday in January, businesses' worries about expenses from the health care law, the budget battle and rising gasoline prices all hampered retail activity, the Fed said.
The auto market, however, remains a bright spot, with sales solid or strongly increasing in most districts. Auto dealers in the Philadelphia-New Jersey area said lingering effects from Superstorm Sandy, which damaged cars, continue to bolster sales.
Business at Minnesota ski resorts was running ahead of last year. Boston and Atlanta saw a surge in foreign tourists. New York hotels continued to do well, in part because of residents displaced by the storm.
Manufacturing also expanded, though at a modest pace. Boston, New York, Cleveland, Atlanta and Chicago were among the areas reporting slightly more activity. Meanwhile, auto production increased in Cleveland, Chicago and St. Louis districts. The uptick was so brisk in Minneapolis that one manufacturer plans to renovate a plant.
The housing recovery, meanwhile, also spurred a pickup in wood product manufacturing in the St. Louis and San Francisco areas, household goods production in Chicago and cement manufacturing in Dallas. Overall, industry officials are more optimistic about coming months than they were in the January beige book survey, the Fed said.
Housing gained momentum in most areas, with strong growth in home sales reported in the Boston, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco areas.
Home construction also advanced in most areas, except Kansas City. Home prices generally rose.
The commercial real estate market is also starting to turn around. Office vacancy rates fell in New York City, and Upstate New York posted the lowest industrial vacancy rate in three years.
Low interest rates drove strong demand for housing loans in the Philadelphia, Cleveland, Richmond, Atlanta and Chicago districts. San Francisco lenders said that competition was growing intense for qualified borrowers. Those are positive signs, as lenders generally have been cautious since the housing crash.
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