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Blurry U.S. economic outlook complicates Fed's task

WASHINGTON — A hazy picture of the U.S. economy has emerged from the most recent snapshots of retail sales, housing, manufacturing and the job market.

The figures reflect higher borrowing costs, slower hiring and rising uncertainty just before much of the government shut down Oct. 1 — all trends that the Federal Reserve is trying to assess at a policy meeting this week. Taken together, they portray an economy that was stumbling even before the shutdown, which further slowed growth.

Still, many Americans have managed to keep up their purchases in recent weeks. Their spending has raised hopes that if Congress can reach a long-term budget agreement in coming months, economic growth will pick up.

"One of the things that's really holding back the economy is this fog of uncertainty," said Mark Vitner, an economist at Wells Fargo.

One major factor behind the uncertainty: Congress and the White House agreed on Oct. 16 to reopen the government — but only until Jan. 15, when a new deal must be reached. That raises the threat of another shutdown. It also isn't clear when the Fed will begin to pull back on its stimulus for the economy.

All this has made the Fed's task of evaluating the economy even harder than usual. The Fed is considering when to slow its $85 billion in monthly bond purchases. Those purchases are intended to keep borrowing rates low to spur growth. Chairman Ben Bernanke has noted that the Fed's policy decisions are "data dependent." Yet most of the economic data that will be released in coming weeks will be distorted by the government shutdown.

The most recent reports the Fed will consider have pointed to a weak economy, though there are a few bright spots:

• Retail sales rose modestly in September outside of auto sales, the Commerce Department said. Auto sales dropped 2.2 percent, the most in almost a year. But that was mostly because of a calendar quirk that shifted Labor Day weekend sales to August. Sales rose in most other areas, including restaurants, electronic and appliance stores, and sporting goods stores, a sign Americans were willing to spend on items that weren't essential.

• Higher interest rates and rising home prices discouraged many Americans from buying existing homes in September. A measure of signed contracts reached its lowest level in nine months.

• Orders for most long-lasting U.S. factory goods dropped last month as businesses cut back on spending. The decline suggested that businesses weren't confident about the economy. And U.S. factories only slightly boosted their output in September, mostly because auto production rose.

• Hiring has slowed. Employers added an average of just 143,000 jobs a month from July through September. That was down from an average of 182,000 in April through June and from 207,000 in the first three months of the year.

Blurry U.S. economic outlook complicates Fed's task 10/29/13 [Last modified: Tuesday, October 29, 2013 7:42pm]
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