Although the U.S. economy continues to grow, key indicators suggest the economic recovery slowed down from mid-July through the end of August, raising concerns about the long-term sustainability of the rebound.

The United States economy continued to expand this summer, but with mounting signs of a deceleration in growth across a wide range of industries and regions. As the slowdown spreads in certain markets, concerns over the nation’s financial health are likely to increase in coming months.

According to the latest Beige Book, the Federal Reserve’s regional business survey, economic growth continued at a modest pace among five of the 12 reporting districts from July to August, mainly in the Western and Midwestern regions. The Boston and Cleveland districts showed net improvements, while the remaining five regions, mostly in the East, reported mixed conditions or deceleration in overall economic activity.

Signs of the slowdown were reported in manufacturing, home sales, construction and demand for commercial real estate.

“Manufacturing activity expanded further on balance, although the pace of growth appeared to be slower than earlier in the year,” the Fed report, released yesterday, explained. “Most Districts reported further gains in production activity and sales across a broad spectrum of manufacturing industries.”

However, New York, Richmond, Atlanta and Chicago reported that the overall pace of growth had slowed, while Philadelphia, Cleveland and Kansas City cited weakened demand compared to the previous reporting period. Construction-related products showed the largest signs of weakness.

Meanwhile, new orders and activity for steel and other metals saw a boost in Cleveland, Chicago and St. Louis due to increased demand from the transportation equipment industry. Automakers and auto-parts suppliers had gains in Richmond and remained stable in Chicago, though there was a temporary drop in Cleveland.

The data on capacity utilization in the manufacturing sector remained mixed. While high-tech product manufacturers have been operating at near-maximum capacity, the majority of Cleveland’s manufacturing contacts reported that capacity utilization remains below pre-recession levels. In most regions, manufacturers plan little or no changes to their capital spending in coming months.

“The anecdotal information contained in the beige book is consistent with a slew of economic reports showing that the burst of growth in late 2009 and early 2010 has not persisted through the summer, as the impact of businesses rebuilding their inventories and fiscal stimulus fades,” the Washington Post reports. “Overall economic activity, as measured by gross domestic product, rose at a 1.6 percent annual rate in the April-June quarter, too slow to push down the unemployment rate. Forecasts for the third quarter, which ends this month, are not much better.”

The latest Beige Book findings are likely to play an important role in the Federal Reserve’s discussions later this month about setting interest rates. The recent slowdown has elevated concerns over the country’s financial health, and the Fed will be forced to respond to this worrying trend.

“The Fed is sure to keep rates at record lows to bolster the economy,” the Associated Press reports. “[Federal Reserve Chairman Ben] Bernanke has said the Fed is prepared to take additional steps — namely buying large amounts of government securities — if the economy seriously deteriorated. That would be aimed at driving down rates on mortgages and other loans to spur Americans to buy more and strengthen the economy.”

Experts maintain that consumer spending, which accounts for the majority of U.S. economic output, is a key component in supporting the economic recovery and raising the prospects for stronger future growth.

“The survey found that consumer spending, which is crucial because it dominates the overall economy and because of its implications for the job market, appeared to increase even though there was an emphasis on essential and lower-priced goods with limited spending on big-ticket items,” according to the New York Times.

Overall, consumer confidence improved in August, following a decline in July. The Conference Board’s latest Consumer Confidence Index, released last month, rose to 53.5 in August, up from 51 in July. The number of consumers expecting an improvement in business conditions over the next six months also rose from 15.8 percent to 17 percent, while those anticipating worsened conditions fell from 15.3 percent to 13.4 percent.

“Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future,” Lynn Franco, director of The Conference Board’s Consumer Research Center, said in an announcement of the findings. “All in all, consumers are about as confident today as they were a year ago.”

Resources

Full Report: Current Economic Conditions
The Federal Reserve Bank, Sept. 8, 2010

Fed Signals ‘Widespread’ Slowdown
by Neil Irwin
The Washington Post, Sept. 9, 2010

Fed Survey Sees Slower Growth in East and Midwest
by Jeannine Aversa
The Associated Press, Sept. 8, 2010

Fed Report Finds Signs that Growth is Slowing
by Christine Hauser
The New York Times, Sept. 8, 2010

Consumer Confidence Improves
The Conference Board, Aug. 31, 2010