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Fed: Economic growth slows in places on shutdown worries

Published: Wednesday, Oct. 16, 2013 5:20 p.m. CDT

WASHINGTON – The Federal Reserve said economic growth slowed in a few key regions of the U.S. from September through early October, as businesses grew worried about a budget impasse that led to a partial government shutdown.

Overall, the economy continued to expand at a “modest to moderate” pace, according to the Fed survey released Wednesday. Eight of the Fed’s 12 banking districts reported the same growth rate as they had reported in August through early September. But four districts – Philadelphia, Richmond, Chicago and Kansas City – said growth had slowed.

Businesses around the country remained optimistic about the future and consumer spending continued to increase, helped by strong auto sales.

But many businesses noted greater uncertainty because of the federal shutdown, which began Oct. 1, and a looming deadline to raise federal borrowing limit.

Boston, in particular, reported that the tourism industry was worried about the impact of a prolonged shutdown. And several districts reported that businesses were cautious about hiring.

Senate leaders announced Wednesday they had an agreement to avert a threatened Treasury default and reopen the government after the 16-day shutdown. The House was likely to approve the measure, too, leading many to anticipate passage in both chambers before the end of the day.

Jennifer Lee, senior economist at BMO Capital Markets, said that the Fed’s survey showed that there had been only limited damage to the economy at least through the first week of the shutdown.

“Hopefully ... the damage and the hurt have been generally contained,” she said.

The Fed’s survey, known as the beige book, will be used by central bank policymakers in their next meeting on Oct. 29-30. Economists expect the Fed to maintain its $85-billion-a-month in bond purchases to offset the impact of the shutdown.

Some economists had presumed that the latest beige book would play a greater role at the October meeting because the shutdown had delayed most other economic reports.

But Pierre Ellis, an economist with Decision Economics, said the government is now expected to reopen and should be able to release some of the delayed data before the Fed meets. That would give policymakers a better handle on the economy’s health.

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