Economic activity in the US “continued to expand at a modest to moderate pace in June and early July”, according to the latest Beige Book survey of business conditions by the Federal Reserve.
All but one of the 12 regional Fed banks that interviewed their local business contacts reported expanding activity, albeit at a slowing pace in the New York, Philadelphia and Cleveland districts.
The report offers some reassurance that weak data recently has not dealt a catastrophic blow to business confidence. However, the business anecdotes in the Beige Book tend to be backward looking, and are likely to have only limited influence on Fed officials as they ponder whether to ease monetary policy further.
Separate data showed that new home construction in the US rose sharply in June, to its fastest pace in more than three years, signalling a tentative recovery of the housing market.
Housing starts rose 6.9 per cent last month to an annual rate of 760,000 units, the highest level since October 2008, according to the US commerce department.
The June data were more than analysts’ expectations of 711,000 groundbreakings, while May’s estimate was revised upwards to 711,000. New home construction was up 23.6 per cent year on year.
“One area where we have seen modest signs of improvement is housing,” said Ben Bernanke, the US Federal Reserve chairman, on Wednesday, although a glut of foreclosed homes, persistently high unemployment and uncertain job and salary prospects still hamper the future of the US housing market.
In his second day of testimony to Congress, Mr Bernanke fenced with Republican congressman Ron Paul over his bill to audit the Fed’s monetary policy, but broke little new ground on the US central bank’s intentions.
A slew of recent housing data have indicated that the housing market may have turned a corner. The National Association of Home Builders’ housing market index rose to its highest level in five years on Tuesday.
The monthly survey, which asks home builders to rate the general economy and housing market conditions, rose to 35 in July, up from 29 in June and ahead of expectations of 30. Any reading below 50 indicates negative sentiment about the housing market. The index has not reached 50 since April 2006, the peak of the housing boom.
For the latest month, single-family and multifamily home constructions both gained. Single-family groundbreakings increased by 4.7 per cent month on month while the volatile multifamily component rebounded 12.8 per cent, following a 19.3 per cent drop in May.
“The further improvement in starts suggests that the housing recovery is about more than just strong demand for heavily discounted, distressed properties,” said Paul Diggle, property economist at Capital Economics.
“With new homes selling at a historically high premium relative to existing homes, stronger activity in the new build sector suggests that Americans are becoming a little more willing to splash out on a new home,” he said.
However, demonstrating volatility typical of a recovering market, approvals for building permits – a proxy for future construction – slipped 3.7 per cent in June after a sharp 8.4 per cent rise in May. The June level of 755,000 fell short of analysts’ estimates of 775,000.
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