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U.S. economy expands as consumers open wallets: Beige Book

U.S. economy expands as consumers open wallets: Beige Book

LM Otero/LM Otero/AP

Economic activity across the United States expanded at either a moderate or modest pace in recent weeks with consumer spending picking up, the Federal Reserve said on Wednesday, suggesting little change in the recovery's strength.

The U.S. central bank painted a cautiously positive picture of an economy gathering steam across its 12 districts, although businesses and consumers were wary due to uncertainty over fiscal policy and conditions on the other side of the Atlantic.

"Hiring plans were more cautious for firms doing business in Europe or in the defence sector," the Fed noted in its Beige Book report. It was compiled by the Federal Reserve Bank of Philadelphia based on data collected on or before Jan. 4, 2013.

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U.S. lawmakers agreed to hold taxes down for all American families who earn less than $450,000 (U.S.), but must still negotiate an increase in the U.S. debt ceiling and measures to set aside deep automatic spending cuts, currently due to bite on March 1.

"Reports from the 12 Federal Reserve Districts indicated that economic activity has expanded since the previous Beige Book report, with all 12 Districts characterizing the pace of growth as either modest or moderate," the Fed said.

The previous report found that the economy had jogged along at a "measured" pace.

The Fed has taken bold steps to boost the U.S. recovery and says it will hold interest rates near zero until unemployment reaches 6.5 per cent, from current lofty levels of 7.8 per cent, provided inflation does not breach a threshold of 2.5 per cent.

Fed officials predict the U.S. economy will grow by between 2 per cent and 3.2 per cent this year, but they are less optimistic on the prospects for employment, with forecasts for fourth-quarter unemployment ranging from 6.9 per cent to 7.8 per cent Policy makers have promised to maintain an aggressive bond-buying program until the outlook for the labour market improves significantly.

In the current Beige Book, the Fed highlighted areas of improvement, most notably in the real estate sector and consumer spending. Manufacturing, on the other hand, was more mixed.

"The manufacturing outlook remained generally optimistic; however, capital spending plans were less uniformly positive," the Fed said. A sustained upswing in business investment has been one of the components missing so far from a more pronounced improvement in growth and pick-up in hiring.

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