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Manufacturers and Retailers Rebounded in December

Two industries battered during the recent recession are showing signs of renewed vitality—and fueling an economic recovery, the Fed reports.

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A worker assembles Ford Explorers and Tauruses and Lincoln MKZs at Ford's Chicago Assembly Plant on December 1, 2010 in Chicago. Ford spent nearly $400 million to renovate its Chicago facility to produce the all-new 2011 Explorer along with the Taurus and MKZ.

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The American economy gained muscle at the end of 2010—on the backs of two industries pummelled by the recession: manufacturing and retail.

In its latest 'beige book' survey, released on Wednesday, the Federal Reserve painted a rosier picture of economic activity in November and December, reporting gains in those two industries, as well as the service, advertising and information technology sectors.    

The beige book is a summary of economic activity—based on anecdotal reports from banks, businesses, economists and other sources—in 12 regions carved out by the Fed. The latest report, prepared by the Boston Fed, said manufacturing enjoyed the largest gains and that sources in Chicago, St. Louis, and Richmond, Virginia 'identified a strong flow of new orders.' In Chicago's case, manufacturing growth was driven by pent up demand for cars coupled with an aging auto fleet.

Manufacturing expanded in December at the fastest pace in seven months, while service industries grew at the quickest rate in more than four years, according to gauges from the Institute for Supply Management.

Consumer spending, which accounts for two-thirds of the economy, was up in most areas, as sales met or exceeded holiday-season forecasts, the report said.

To be sure, the overall economic expansion was moderate, with a soft job market and weak real estate and financial sectors still putting the brakes on the recovery. The hiring drought continues to vex Fed officials, with Chairman Ben Bernanke arguing the economy is running so far below its full potential that it still needs help from monetary authorities. Against that backdrop, the Fed said in November it would buy an additional $600 billion in bonds to support the recovery by keeping long-term borrowing costs low.

The beige book is released two weeks before each meeting of Fed policy makers. The Federal Open Market Committee will gather on January 25 in Washington to discuss interest rates, and with unemployment high and inflation low, officials are expected to maintain their easy-money policies later this month.

Last updated: Jan 13, 2011




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