The economic recovery is finally spreading to all parts of the country, according to a Federal Reserve report yesterday. The new data indicate that manufacturing picked up, transportation improved and retail sales grew.

In the Federal Reserve’s latest regional business survey, known as the Beige Book, all 12 district banks reported an improvement for the first time since October 2007. Based on information collected on or before May 28, the report indicates that the economic recovery is finally spreading to all parts of the country.

According to the Beige Book, published this week, manufacturing picked up, transportation improved and retail sales grew nationwide.

“Manufacturing and transportation activity continued to gradually improve across all 12 districts,” the Fed report said. “Most districts reported further increases in factory production, shipments and new orders, although Philadelphia and Chicago noted that the pace of gains had slowed in May.”

Business spending increased moderately since the previous report. Cleveland, Chicago and Dallas reported that growth in manufacturers’ inventories is leveling off, while Boston, Atlanta and St. Louis reported the same for retailers’ inventories. In contrast, several districts said that production of automobiles was failing to keep up with demand.

The manufacturing, transportation and energy industries accounted for most of the increase in spending on plant and equipment resources.

Among the Fed report’s highlights for manufacturing and transportation:

• Steel producers and metals manufacturers reported moderately higher production in Cleveland, Chicago, St. Louis and Dallas, although Chicago indicated capacity utilization leveled off in May;
• Automotive and auto-parts production increased in Cleveland, Richmond and Chicago;
• Oil-refinery capacity utilization was up in Dallas (In the Institute for Supply Management’s manufacturing ISM Report on Business for May, the petroleum and coal products industry was the only sector that reported a slowdown in growth in May);
• Increased residential construction boosted demand for construction equipment and materials in Philadelphia, Richmond, Chicago, Dallas and San Francisco, while Chicago also noted that demand from Asia and South America for heavy equipment continued to be robust;
• The output of medical equipment and pharmaceuticals remained strong in Boston and Chicago, as did high-tech manufacturing in Boston, St. Louis, Kansas City and San Francisco;
• Food processing increased in Dallas and San Francisco (Food and beverage products also showed growth in May in the latest ISM report, with increases in new orders, production and exports); and
• Trucking and rail activity increased, with freight traffic and raw material shipments on the rise in Cleveland, Atlanta and Dallas.

Meanwhile, consumer spending improved from the previous Beige Book report, published April 14, although consumers tended buy necessities rather than discretionary items; grocers’ sales remained strong while sellers of household appliances and furniture continued to improve. Overall, retail sales increased in April and May — due in part to sales of seasonal goods such as summer apparel, home-improvement equipment and lawn and garden tools — although several districts noted that the gains were uneven across months. Vehicle sales also rose.

Financial activity was little changed, although a few districts noted a modest increase in lending.

“Contacts in some districts cited concerns over the potential impact of the European fiscal crisis on financial and business conditions, and reported a corresponding increase in uncertainty and financial market volatility,” the Fed report said on Wednesday.

The Beige Book also said labor market conditions “improved slightly with permanent employment levels edging up in most districts.” Many districts noted “an increase in temporary hires, with Boston and Dallas also indicating a pick up in temporary-to-permanent transitions.”

“Manufacturing was the most often cited source of employment gains,” the Fed said, as many regions also reported an uptick in manufacturing temporary hires.

U.S. unemployment stands at 9.7 percent, according to the U.S Department of Labor, with manufacturers having added 29,000 jobs in May. Factory employment has risen by 126,000 over the past five months, according to the Labor Dept.

On the same day the latest Beige Book was released, Fed Chairman Ben Bernanke offered “guarded reassurances about the economy” in testimony to the House Budget Committee, saying a new recession is unlikely and that the Fed still expects the U.S. economy to grow at a 3.5 percent annual rate in the months ahead before picking up “a somewhat faster pace next year.”

Bernanke also said the negative impact of Europe’s debt crisis was offset by a decline in the US government’s cost of borrowing.

Related

U.S. Auto Sales Surge in May

World Steel Production Climbs in April

Manufacturing Expands for 10th Month Straight

Hiring Turnaround Sputters

Resources

Full Report: Current Economic Conditions
by Federal Reserve District, June 9, 2010

Economists Expect Slow U.S. Growth
by Phil Izzo
The Wall Street Journal, June 9, 2010

Testimony: Ben S. Bernanke Before the Committee on the Budget, U.S. House of Representatives
Board of Governors of the Federal Reserve System, June 9, 2010

May 2010 Manufacturing ISM Report on Business
Institute for Supply Management, June 1, 2010