Fed: Economy growing slightly as concerns remain

By Peter Schroeder - 10/19/11 02:37 PM ET

"Modest" and "slight" are the best words to describe the nation's economic growth in September, according to the Federal Reserve.

In the latest edition of the central bank's "Beige Book," business contacts told the 12 Fed governors that weakened or less certain outlooks about the economy were slowing growth. However, somewhat strong consumer spending and auto sales, as well as slight increases in business spending, were positive signs for the economy.

The book, released eight times a year, consists of the anecdotal takes of Fed officials about the economy, taken from discussions with local business leaders.

As has been the case since the economic downturn, the housing sector was a major drag on the economy last month. New construction of single-family homes was low across the board, as were home sales, even as home prices stayed flat or continued to slide. However, several districts reported upticks in the construction of multifamily dwellings like apartment buildings.

A side effect of the continued downturn in housing was low financial activity. Loan volumes were flat or lower in most districts, as consumer loan demand dropped in several areas. Credit was tight, but banks said that high-qualified borrowers were a hot commodity, leading to strong competition for them. Historically low interest rates have spurred increased mortgage refinancing in several other locations.

With the unemployment rate still lingering above 9 percent, the Fed's take did not show any major changes over the horizon. Hiring was flat in most districts, as several said there was "only limited and selective" demand for new workers. Reduced expectations for the future, coupled with continuing uncertainty about the fate of the economy, is keeping businesses from taking on new workers.

In New York, continued struggles in the finance industry has reduced hiring, and could lead to some layoffs in the coming months. While the city did expect an increase in seasonal hiring with the holiday season approaching, Chicago and Richmond were lowering those same expectations. Wage pressures remained subdued in most regions.