By MARTIN CRUTSINGER
AP economics writer
August 06, 2012
WASHINGTON — The Federal Reserve said Wednesday that the U.S. economy is losing strength and repeated a pledge to try to boost growth if hiring remains weak.
The Fed took no new action after a two-day policy meeting.
But it appeared to signal in a statement released after the meeting a growing inclination to take further steps to lift the economy out of its funk. The Fed noted that growth had slowed over the first half of the year, with job creation slackening and consumer spending tapering off.
“The Fed took no action at this meeting but strongly hinted that there will be further easing action at the next meeting in September,” said David Jones, chief economist at DMJ Advisors.
The Fed reiterated its plan to hold its benchmark short-term interest rate at a record low near zero until at least late 2014.
The statement was slightly different than the one issued after the Fed’s last meeting, June 19 and 20.
In addition to noting that the economy had “decelerated,” the Fed’s policymaking committee said it would “closely monitor incoming information” and “will provide additional accommodation as needed” to stimulate the economy and job creation. In the June statement the central bank said “the economy has been expanding moderately” and that it “is prepared to take further action as appropriate.”
Many economists believe the Fed could launch another program of buying government bonds and mortgage-backed securities at its September meeting if the economy doesn’t show improvement. The goal of the program, known as quantitative easing, would be to drive long-term rates, which are already at record lows, even lower.
The Fed’s next move could depend on whether the European Central Bank, which meets Thursday, takes any action to stimulate growth among the 17 countries that use the euro.
The next big signal on the U.S. economy’s health comes Friday, when the U.S. Labor Department reports on July hiring and unemployment trends.
HIRING: A private survey on Thursday showed U.S. businesses kept hiring at a modest pace in July, suggesting the job market could be improving after three sluggish months.
Payroll provider ADP said Wednesday that businesses added 163,000 jobs last month. That’s slightly below a revised total of 172,000 jobs it reported for June.
The report only covers hiring in the private sector and excludes government job growth. The report has often deviated sharply from the government report.
Economists waiting for Friday’s government report forecast that U.S. employers added 100,000 jobs in July.
That would be slightly better than the 75,000 a month average from April through June but still below the healthy 226,000 average in the first three months of the year.
The U.S. unemployment rate is expected to stay at 8.2 percent.
MANUFACTURING: U.S. manufacturing shrank for the second straight month in July, further evidence of an economy growing at a sluggish pace.
The Institute for Supply Management, a trade group of purchasing managers, said Wednesday that its index of manufacturing activity ticked up to 49.8, from 49.7 in June.
A reading below 50 indicates contraction. June was the first time the survey showed manufacturing contracted in three years.
The reading points toward more slow growth but not another recession. The trade group says the index needs to fall below 43 to signal a recession is likely.
The July report also showed factories hired in at a slower pace than June, while new orders declined more slowly.
And export orders fell to the lowest level since April 2009, evidence of slower global economic growth.
CONSTRUCTION: Another strong gain in homebuilding pushed U.S. construction spending up for a third straight month in June, a further indication that the battered housing industry is showing signs of life.
Construction spending rose 0.4 percent in June following an upwardly revised 1.6 percent gain in May that was the biggest one-month increase since December, the Commerce Department reported Wednesday.
The June advance pushed spending to a seasonally adjusted annual rate of $842.1 billion, up 12.9 percent from a 12-year low hit in February 2011.
Still, the level is roughly half of what economists consider to be healthy.
The construction industry has been flashing signs of improvement while other sectors of the economy have slowed.
For June, the strength came from a 1.3 percent increase in spending on housing, the fifth gain this year.