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U.S. economy to pick up steam in near term with headwinds
Date: 2011/1/5 Click: 2018
The U.S. Federal Reserve on Tuesday forecast that the U.S. economy would pick up momentum in the near term, but its outlook for the U.S. economic activity over the medium term was still cautious, as an array of factors might restrain the economic growth.


Central bank officials held that with the recent strong production and spending data, the staff revised up its projected increase in real gross domestic product (GDP) in the near term.

U.S. economic growth was revised upward to an annual rate of 2. 6 percent in the third quarter of 2010, higher than the second estimated pace of 2.5 percent released in November, reflecting positive contributions from personal consumption expenditures, private inventory investment, nonresidential fixed investment, exports, and federal government spending.

Tuesday figures from the Department of Commerce revealed that the new orders for U.S. manufactured goods rose 0.7 percent in November after a slight decline in October boosted by nondurable goods demand, indicating the ongoing bumpy economic recovery.

The U.S. Institute of Supply Management (ISM) announced on Monday that the manufacturing index, also known as the purchasing managers index, stood at 57 percent in December, higher than the reading of 56.6 percent in November. This was the 17th consecutive month for the index to stand above 50 percent that indicates an expanding manufacturing sector.

The recovery of manufacturing sector has been a main engine of the U.S. economic growth in the past several quarters.

"The pace of consumer spending picked up in October and November, and exports rose rapidly in October, and the recovery in business spending on equipment and software appeared to be continuing," the Fed noted in the minutes released on Tuesday of a Federal Open Market Committee (FOMC) meeting held in December 2010. The FOMC was the interest rate policy making body of the central bank.


However, the nation's unemployment rate was still stubbornly high, and that was also one important reason that Fed officials and economists did not become more upbeat about the economy's growth in the long run.

"Economic activity was increasing at a moderate rate, but the unemployment rate remained elevated," noted the minutes.

The central bank pointed out that the bulk of the private- sector job gains continued to be in the services industries, while employment in manufacturing, construction, and retail trade declined in October and November 2010 on average.

The U.S. unemployment rate edged up to 9.8 percent in November 2010, a seven-month high, with U.S. employers only adding 39,000 jobs in November, a sharp decline from the revised 172,000 jobs created in October, the Labor Department figures showed.

The U.S. unemployment rate had topped 9 percent for 19 straight months through November 2010, the longest stretch on record, with around 15.1 million Americans remaining jobless in November.

The White House said on Tuesday that President Barack Obama had told reporters accompanying him to a Hawaii getaway that the job for the two parties in the new year was "to govern and make sure that we are delivering jobs for the American people".


The central bank also took the sagging housing market as one of the key negative factors curtailing the U.S. economic growth.

"Activity in the housing market was still quite depressed. In October, starts of new single-family homes remained at the very low level that had prevailed since August. Moreover, the level of permit issuance, which is typically a near-term indicator of new homebuilding, continued to run below starts," according to the minutes.

The Fed believed that the persistence of a large excess supply of existing homes on the market and tight credit conditions for construction appeared to constitute a significant restraint on new homebuilding, while demand for housing also remained very weak, with sales of new homes in October at the lowest level in the 48- year history.

Experts held that the large amount of foreclosures would continue to weigh on the U.S. home prices and dampen household consumption enthusiasm on big-ticket items.

About 2.5 million foreclosure filings were expected in 2010 and 2011, respectively, and about 2.4 million more in 2012, Daniel Tarullo, Governor of the Fed, said in a Senate testimony last year.

"One of the big worries in the United States is that house prices appear likely to fall further in 2011 or so, with many estimates in the 5 percent range and some higher. There is a large inventory of houses on the market because of foreclosure, plus those that are likely to be foreclosed on and therefore come on the market later," Douglas Elliott, a fellow at the Brookings Institution, told Xinhua.
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