U.S. Economy: Growth Jumps 5.7%, Fastest Pace in Six Years

By Timothy R. Homan

Jan. 29 (Bloomberg) -- The U.S. economy expanded in the fourth quarter at the fastest pace in six years as factories cranked up assembly lines, indicating the recovery may be strong enough to be weaned from government support.

The dollar rallied as the data signaled the momentum generated by the world’s largest economy last quarter will carry into the new year. Rising investment in equipment and software is boosting sales at companies including Intel Corp. and may help bring the jobless rate down from close to a 26-year high as employers add staff to meet demand.

“We are getting on to something that is pretty sustainable,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, who correctly forecast the gain in GDP. “Both consumers and businesses are beginning to increase spending. To get validation, we need to see a return in hiring, which we think we are going to get over the next few months.”

Consumer spending, which comprises about 70 percent of the economy, rose at a 2 percent pace following a 2.8 percent increase in the previous three months. Economists projected a 1.8 percent gain, according to the survey median. Efforts to rebuild depleted inventories contributed 3.4 percentage points to GDP, the most in two decades.

The dollar strengthened 0.7 percent to $1.3867 per euro. The Standard & Poor’s 500 Index fell 0.2 percent to 1,082.33 at 12:10 p.m. in New York after gaining as much as 1.1 percent.

For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.

Intel, the world’s largest chipmaker, posted its biggest quarterly revenue in more than a year last quarter, a sign the computer industry has emerged from last year’s global recession.

“My expectation for 2010 is that we’re going to see robust unit growth,” Chief Financial Officer Stacy Smith said in an interview this month. “The consumer segments of the market will stay pretty strong, and I do believe we’re going to see a resurgence in PC client sales.”

Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, today’s Commerce Department report showed. The gain helped offset a 15 percent drop in commercial construction, leaving total business investment up 2.9 percent over the past three months.

White House economic adviser Christina Romer said today’s GDP report is “the most positive news to date” on the economy.

Romer, chairman of President Barack Obama’s Council of Economic Advisers, said that while economic growth is a “necessary first step for job growth” the government’s “focus must remain on getting Americans back to work.”

Obama this week said job creation will be the “number one focus in 2010.” Speaking during his first State of the Union address, Obama called on Congress to deliver a new jobs bill to his desk.

Payrolls fell by 85,000 last month after a 4,000 gain in November that was the first increase in almost two years. The U.S. has lost 7.2 million jobs since the start of the recession in December 2007, the most of any slowdown in the post-World War II era. The jobless rate held at 10 percent in December.

The Federal Reserve this week repeated a pledge to keep interest rates low for “an extended period” to bring down unemployment while also raising its assessment of the economy and repeating a decision to end purchases of $1.25 trillion of mortgage debt by March 31. Policy makers said business investment “appears to be picking up.”

Fed Chairman Ben S. Bernanke was confirmed for a second four-year term yesterday by the Senate with record opposition as some lawmakers criticized the central bank for doing more to help Wall Street than average Americans.

A Labor Department report today showed wages and benefits rose 0.5 percent in the fourth quarter, capping their smallest annual increase on record.

Gains in production last quarter stemmed the slide in inventories. Stockpiles dropped at a $33.5 billion annual pace following a $139.2 billion decline the previous three months. Inventories declined at a record $160.2 billion pace in the second quarter.



Business Barometer



The expansion is carrying into the new year, a report from the Institute for Supply Management-Chicago Inc. indicated today. The group said its business barometer climbed to 61.5, the highest level since November 2005, from 58.7 last month. Readings greater than 50 signal expansion.

A gauge of consumer confidence climbed in January to the highest level in two years. The Reuters/University of Michigan final index of consumer sentiment rose to 74.4 from December’s 72.5.

In other areas of the economy, today’s GDP report showed a smaller trade gap contributed 0.5 percentage point to fourth- quarter growth, while government spending was little changed, dropping at a 0.2 percent pace.

Residential construction climbed at a 5.7 percent rate last quarter after expanding at a 19 percent pace in the previous three months.

Inflation held below the Fed’s long-term forecast. The central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.4 percent annual pace following a 1.2 percent increase in the prior quarter.

The GDP price gauge climbed at a 0.6 percent pace, less than the 1.3 percent median forecast of economists surveyed.

Today’s GDP report is the first for the quarter and will be revised in February and March as more information becomes available.

Ten Cities To Go From Renting To Buying

The U.S. government has pushed hard to make homeowners out of one-third of Americans who still rent their homes. It introduced and later extended a tax credit for first-time home buyers, and has kept federal interest rates at their lowest levels since the 1940s.

Market conditions are such that now is a particularly good time for some renters to take the hint.

In Portland, San Francisco, Minneapolis and Washington, D.C., the premium to buy--the spread between what you'd spend on renting and what you'd pay each month for a mortgage--is far narrower now than its 15-year average. And economists predict a significant home-price hike in five years. So upgrading will cost much less than usual, and home buyers are likely to get a good return on their investment.

Note that buying isn't necessarily cheaper than renting in these metro areas. In fact, it often remains a more expensive proposition. But for those determined to own, that investment is a better one now than it normally is.

Take San Francisco. To live here has always required a hefty bump in monthly costs from renting; it's normally an incredible 296% more expensive to buy than lease a home, and the city's residents know this. That's why 42% of them stick to renting. Even though in the third quarter of 2009 the premium was still in the triple digits--233%--it had shrunk by 63 percentage points from the above 15-year average. As with the other cities we've highlighted, you're not getting nearly as good a deal by renting as you might have just a few years ago.

"Rents are falling, but not nearly as rapidly as home prices," says Ron Witten, founder of Dallas-based Witten Advisors, an apartment market consulting firm. "Part of the reason is a shift away from home ownership toward renting," he says, in part because mortgages have become harder for many to obtain.

To find cities where it's a good time to go from renting to buying, we used data from Witten Advisors, which calculated the premium to buy for 42 Metropolitan Statistical Areas across the country using data from the U.S. Census, the National Association of Realtors and a blended average of fixed- and adjustable-rate mortgages from the Federal Housing Finance Agency (which oversees and regulates lenders). We compared the premium in the third quarter of 2009 with the average premium over the last 15 years to find the biggest drops.

We also wanted to pinpoint markets where home buying is a smart investment, so we factored in the five-year forecast in the S&P/Case-Shiller Home Price Index from Moody's ( MCO - news - people )Economy.com. The cities on our list have some of the biggest discounts on the premium to buy coupled with big projected increases in home prices over the next five years.

One major market we didn't look at is New York City, another spot where rents have softened less than home prices. Witten Advisors doesn't track the metro area because accurate historical data on rental costs there is exceedingly difficult to obtain.

Portland, Ore., makes our list for much the same reason that San Francisco does: It's a picturesque, culture-driven city with good local services and amenities. The city is still not particularly cheap for buyers--but it's cheaper than normal.

Visit The Forbes.com Digg ChannelA family hoping to put down roots there would normally pay a 62% premium to go from renting to buying. In the third quarter of 2009, however, that premium shrank by 16 percentage points. At the same time, Moody's Economy.com anticipates that home prices will jump 19% over the next five years. That's partly because, like San Francisco, Portland has strict government limitations on building and a coastal location that keep sprawl in check.

"Portland has one of the most controlled environments in the country in terms of development rights," says Stuart Gabriel, director of the Ziman Center for Real Estate at the UCLA Anderson School of Management. "Those supply constraints will push prices up."

Jobs Stability
The presence of jobs--along with strong industries that will keep generating new ones--is a big factor in keeping demand for homes, and therefore home prices, high. The weak national economy has helped reduce the premium to buy for the time being, but where the labor market is relatively healthy, home prices are predicted to shoot up.

In Minneapolis, for example, where large companies including Target ( TGT - news - people ) and General Mills ( GIS - news - people ) have their corporate headquarters (and there's a large university system), home buyers will only pay 14% more than if they were renting (24 percentage points lower than average), and home prices should climb by 15% in five years.

Similarly, in Washington, D.C., government jobs are plentiful, and anticipated to stay that way. The 6.1% unemployment rate here is well below the national average, which is partly why Moody's anticipates a five-year jump in home prices of 15%. And, at the moment, the premium to buy is 20 percentage points lower than its usual 57%.

Of course, whether buying or renting is best is ultimately an individual choice, and one driven by a lot more than map coordinates. When subprime lending was rampant, many without the means to buy were encouraged to do so anyway--and it's no secret how that turned out.

"If there's anything we should have learned from this housing cycle, it's that the decision to buy or rent ought to be a personal lifestyle decision," says Witten. "In part, it's a question about, 'Do I want to be a homeowner' in general, and specifically, 'Do I want to be a homeowner now, with this economic uncertainty?'"

Francesca Levy, 01.21.10, 04:50 PM EST

Stocks strengthen on Fed's economic assessment

By Tim Paradis, AP Business Writers , On Wednesday January 27, 2010, 3:40 pm
NEW YORK (AP) -- The stock market turned higher Wednesday after the Federal Reserve issued a more upbeat assessment of the economy.

Major stock indexes had fallen before the Fed released its statement following a two-day meeting on interest rates, then advanced as investors digested the central bank's statement. Treasury prices reversed direction and fell after the statement as investors withdrew money from safe haven holdings.

The Fed said it believes that "economic activity has continued to strengthen" since its last meeting in December. However, the Fed did not repeat its assertion that the housing market is improving.

The Fed said it is leaving interest rates near zero, as expected, but also that Kansas City Federal Reserve President Thomas Hoenig has voted against the decision to keep rates low.

Jamie Cox of Harris Financial Group in Colonial Heights, Va., said Hoenig's vote signals the central bank is moving closer to boosting rates.

"That means there are a couple of people who feel like that the economy is getting better at a nice rate that no longer warrants these exceptionally low rates," he said.

Stocks had fallen ahead of the report as a 7.6 percent drop in sales of new homes in December brought concerns about the economy.

In late afternoon trading, the Dow Jones industrial average rose 44.14, or 0.4 percent, to 10,238.43. It had been down 40 ahead of the Fed's announcement.

The Standard & Poor's 500 index rose 5.43, or 0.5 percent, to 1,097.60, while the Nasdaq composite index rose 17.00, or 0.8 percent, to 2,220.73.

Stocks had closed lower five of the past seven days.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.64 percent from 3.63 percent late Tuesday.

The dollar rose against most other major currencies, while gold fell.

Scott Marcouiller, senior equity market strategist Wells Fargo Advisors in St. Louis, said the Fed's statement that it is slowing its purchase of mortgage-backed securities suggests the central bank believes the U.S. housing market is improving.

The Fed said it expects to complete the purchase of $1.25 trillion in agency mortgage-backed securities and about $175 billion in agency debt by the end of the first quarter.

"Once we settle in here, the market will like this," he added. "This (statement) tells me that they're comfortable with how the economy is progressing, even though they didn't come right out and say that."

Reassurance from the Fed couldn't erase all of investors' worries about the economy. Caterpillar Inc. hurt the Dow industrials after the equipment maker issued a cautious forecast. The stock fell $3.54, or 6.3 percent, to $52.31.

Technology stocks got a boost from Apple Inc. after the company announced a tablet-style computer that looks like a large iPhone. The stock rose $3.05, or 1.5 percent, to $208.99.

The Fed's announcement was the latest event in Washington to command investors' attention.

Treasury Secretary Timothy Geithner defended the government's rescue last year of insurance giant American International Group Inc. in hearings on Capitol Hill. Analysts said the sometimes heated exchanges between Geithner and members of the House Committee on Oversight and Government Reform underscored concerns that Washington would be more assertive in its dealings with Wall Street.

Geithner oversaw the bailout as head of the Federal Reserve Bank of New York. Former Treasury Secretary Henry Paulson also testified.

Traders are also waiting to see whether Fed chairman Ben Bernanke, whose term ends Sunday, will win Senate approval for a second, four-year term.

The hearings came after President Barack Obama said last week that he would seek to limit trading by major financial institutions. That drew concerns from investors that bank profits would suffer.

Investors also will be looking to Obama's State of the Union speech Wednesday evening for clues about his plans to tighten restrictions on banks.

In other trading, crude oil fell $1.48 to $73.23 per barrel on the New York Mercantile Exchange.

Three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 978.8 million shares.

The Russell 2000 index of smaller companies rose 3.97, or 0.7 percent, to 616.13.

Overseas markets fell for a second straight day on concerns about China's move to curb bank lending. The country is trying to prevent speculative bubbles and rapid inflation as its economy continues to grow quickly. A slowdown in growth in China could stunt a global economic recovery.

Japan's Nikkei stock average fell 0.7 percent and Hong Kong's Hang Seng lost 0.4 percent.

Britain's FTSE 100 fell 1.1 percent, Germany's DAX index lost 0.5 percent, and France's CAC-40 dropped 1.2 percent.

Liberty High senior follows in brother's footsteps with success in Intel Science Talent Search

You may ask why I have an article of a 12 grade student from Liberty High in Hillsboro. It is because Liberty High is our High School here at Arbor Pass. See how Alex McCarthy is making Liberty High proud.

By Wendy Owen, The Oregonian
January 21, 2010, 5:30PM
View full sizeTORSTEN KJELLSTRAND/The Oregonian Alex McCarthy, 18, is a semi-finalist in the national Intel Science Talent Search for his project involving solar energy, which brought him and Liberty High School $1,000. He often uses the balcony in his family's one-bedroom loft in Hillsboro for his other science projects, recently including a 7-foot construction crane that broke as he attempted to lift a slipper. HILLSBORO -- It's not uncommon for Alex McCarthy's parents to find pulleys, ropes and, occasionally, a crane dangling from the balcony circling their living room.

Eighteen-year-old Alex is driven by an insatiable curiosity about how things work. As a result, the Liberty High School senior recently was named one of five semifinalists from Oregon in the prestigious Intel Science Talent Search.

While Alex's feat is admirable in itself, he isn't the only one in his family to be ranked nationally as a young scientist.

His older brother, Brian, placed third in the nation in the 2008 Intel Science Talent Search, winning $50,000 for his work involving solar energy.

Such accomplishments might be expected in a family of engineers or chemists, but their parents are not scientists.

Their father, Brian McCarthy, is a chef specializing in vegetarian meals for Bon Appetit, which contracts with Intel. Their mother, Karen McCarthy, is finishing a bachelor's of science degree in child and family studies at Portland State University. She also works in the home department at Fred Meyer.

Low-key and humble, like their sons, the couple says they made a point of letting their boys explore what interested them. "As long as it was safe," Brian McCarthy said.

That interest was usually scientific. As youngsters, the brothers built dams and bridges in a mud hole in their backyard. Over the holidays, they launched Lego airplanes across the living room balcony from a catapult rigged with weights.

Asked what sparked his interest in science, Alex thought for a moment and said, "Legos, I would say."

In between bouts of building, they played strategic board games. Their parents kept them away from video games and social networking sites, such as Facebook. Encouraged them to read, instead.

"The family goes a long way in encouraging that desire to learn," said Milt Scholl, who teaches science and math at Liberty High School. He taught both boys and coaches Alex on the school's new robotics team as well as their Science Olympiad team.

Eventually, Alex's inquisitiveness pushed him to follow his brother in investigating solar energy. Organic solar cells are less expensive to create than the silicone cells now used, but they're not efficient, because they leak electrons generated by sunlight.

Alex determined that a layer of some type of compound might keep the electrons from leaking -- making solar energy more affordable.

He patiently drew a picture to explain the complicated project and noted that, so far, he hasn't found the right compound. But, he said, "These things don't ever really end."

Despite the work-in-progress, the Hillsboro teen's research placed him among 300 Intel Science Talent Search semifinalists from across the country. The number will be whittled to 40 finalists on Wednesday.

Those winners will receive a free week-long trip to Washington, D.C., in March to attend the Intel Science Talent Institute, which concludes with the naming of the top 10 scholarship winners and prizes ranging from $7,500 to $100,000.

The brothers developed their interest in solar energy through the Apprenticeships in Science and Engineering program, where they worked alongside graduate students in a chemistry laboratory at Portland State University. During different summers, each boy developed his own project to enhance solar cells.

"They were both extraordinary scientists: hard-working, creative and insightful," said Carl Wamser, chemistry professor at Portland State University.

Brian, 20, who is majoring in chemistry at the Massachusetts Institute of Technology, says his little brother has a passion for science, especially engineering.

"He seems to have this intuition for it. Even though I was two years older ... I could never do what he could with building," Brian said.

At Liberty High School, Milt Scholl described Alex, whom he's taught for four years, as very methodical in his approach to science. "It's a persistent intelligence," said Scholl, a former college professor. "That way of thinking gets him through everything."

Alex is considering mechanical engineering as his future. He plans to join his brother at MIT in the fall.

Brian has continued researching solar energy as a sophomore at MIT. Asked if he planned to partner with his younger brother to create the perfect organic solar cell, he said his research has moved away from solar cells, but he would entertain teaming up with is "best friend."

"I think we would make a good team, whether or not he would be interested I don't know."

Federal Housing Administration to raise fees

Federal Housing Administration hikes fees, tightens standards for home loans


By Alan Zibel, AP Real Estate Writer , On Tuesday January 19, 2010, 8:48 pm EST
WASHINGTON (AP) -- The Federal Housing Administration is raising fees and tightening lending standards to shore up its strapped finances and avoid a taxpayer bailout.
The government agency has seen its losses rise with the foreclosure rate. Its reserves have sunk below the minimum level required by Congress. A healthy FHA is vital for the housing market because it insures roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.
The changes, which will go into effect in the first half of the year, "are among the most significant steps to address risk in the agency's history," FHA Commissioner David Stevens said in a prepared statement.
The FHA does not make loans, but rather offers insurance against default. Borrowers are willing to pay for the insurance because FHA loans only require down payments of 3.5 percent of the purchase price -- and that didn't change.
The new policies, to be announced Wednesday, are designed to bring more revenue into the agency, while at the same time keeping loans available.
Under the changes, homebuyers will:
--Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.
--Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.
The changes come as borrowers with loans backed by the agency have increasingly been falling into default. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.
Mortgage lenders "will find the new rules painful but necessary," said Howard Glaser, a mortgage industry consultant and former housing official during the Clinton administration.
There also have been fears that unscrupulous operators have shifted their business to the FHA after the subprime business went bust. Last week, the agency served subpoenas on 15 mortgage companies with suspiciously high default rates for FHA loans, part of a broad crackdown on dubious lenders.
The agency has already taken action against several problem lenders. One of the nation's biggest mortgage bankers, Taylor, Bean & Whitaker Mortgage Co. of Ocala, Fla., was banned from the FHA program in August and filed for Chapter 11 bankruptcy protection. Another mortgage company, Lend America, was kicked out in November.

Intel 4Q profit climbs as PC market turns around

Intel 4th-quarter profit balloons as the personal computer market rebounds

By Jessica Mintz, AP Technology Writer , On Thursday January 14, 2010, 4:57 pm
Intel Corp. said Thursday its fourth-quarter profit ballooned as a strong rebound in the personal computer market overcame a hefty payment Intel made to its biggest rival.
Intel also said its revenue and profit margin in the current quarter could be better than what analysts are expecting, and its shares rose in extended trading.
Computer shipments grew more sharply than expected in the fourth quarter, and Intel supplies the vast majority of PC microprocessors. That helped Intel generate net income of $2.3 billion, or 40 cents per share. That was more than nine times as much as it earned in the year-ago quarter, when profit totaled $234 million, or 4 cents per share.
Sales climbed 29 percent to $10.6 billion.
Analysts expected a profit of 30 cents per share and $10.2 billion in revenue, according to Thomson Reuters.
Intel shares, which gained 2.5 percent to close regular trading Thursday at $21.48, rose 1.8 percent in extended trading to $21.87.
Intel is the first major technology company to report its results for the fourth quarter. The company is seen as a barometer for the PC market and technology spending in general.
"We're predicting that 2010 is a year of robust unit growth. I think it's continued strength in the consumer segment," said Stacy Smith, Intel's chief financial officer, in an interview.
Smith said Intel had not yet seen signs that big companies are replacing old PCs, but that he expects it to happen this year.
Intel issued an optimistic sign by saying that in the current quarter, it expects revenue from $9.3 billion to $10.1 billion, and a gross profit margin of 59 percent to 63 percent.
Analysts had been predicting first-quarter revenue of $9.3 billion and a gross margin of 59 percent.
In the last quarter, Intel paid $1.25 billion to settle antitrust charges brought by Advanced Micro Devices Inc., the world's No. 2 microprocessor maker. The company also said, however, that the payment would lower its tax rate because legal settlements are tax deductible.

Will Rates Go Up; Don't Take the Gamble, Buy Now!

By Alan Zibel, AP Real Estate Writer , On Thursday January 14, 2010, 11:23 am EST
WASHINGTON (AP) -- Rates for 30-year home loans edged lower for the second straight week, a report said Thursday, but remained above last month's record lows.
The average rate on a 30-year fixed mortgage was 5.06 percent this week, down from 5.09 percent a week earlier, mortgage company Freddie Mac said.
Rates dropped to a record low of 4.71 percent in early December, pushed down by an aggressive government campaign to reduce consumers' borrowing costs, but then rose steadily for the rest of the month.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day, often in line with long-term Treasury bonds.
The Federal Reserve is pumping $1.25 trillion into mortgage-backed securities to try to bring down mortgage rates, but that money is set to run out next spring. The goal of the program is to make home buying more affordable and prop up the housing market.
While it's possible that the program could be extended, analysts believe the Fed is reluctant to do so. "We believe that the bar for the Fed's program extension is high," Credit Suisse mortgage strategist Mahesh Swaminathan wrote Thursday.
The average rate on a 15-year fixed-rate mortgages fell to 4.45 percent, down from 4.50 percent last week, according to Freddie Mac.
Rates on five-year, adjustable-rate mortgages averaged 4.32 percent, down from 4.44 percent a week earlier. Rates on one-year, adjustable-rate mortgages rose to 4.39 percent from 4.31 percent.
The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.
The nationwide fee for loans in Freddie Mac's survey averaged 0.7 point for 30-year loans, 0.6 point for 15-year and five-year loans and 0.5 point for one-year loans.

Fed says mild economic pickup broadening

Fed says mild economic pickup broadening

Reuters - A woman tries to fit into a car packed with toys after shopping at Toys R Us during ...
On Wednesday January 13, 2010, 4:00 pm EST
By Glenn Somerville
WASHINGTON (Reuters) - U.S. economic activity remained at a low level as 2010 began but was improving modestly and beginning to broaden out to include wider swaths of the country, the Federal Reserve said on Wednesday.
"Reports from the 12 Federal Reserve districts indicated that while economic activity remains at a low level, conditions have improved modestly further, and those improvements are broader geographically than in the last report," according to the periodic Beige Book report compiled this time by the Philadelphia regional Fed bank.
Ten districts said activity was picking up while the Philadelphia and Richmond Fed banks reported mixed conditions.
The Fed's findings were based on results of a survey taken on or before January 4. It said shoppers in the 2009 holiday season spent slightly more freely than in 2008 but at a rate still far below 2007 levels, when the economy was just on the verge of slipping into a serious financial crisis.
Job markets were still soft in most of the country, though the New York Fed reported "a modest pickup" in hiring and several service-sector firms in the St. Louis Fed region planned to take on more employees.
Wage rises and price pressures were subdued.
WON'T AFFECT POLICY
The Beige Book report, so called because of the color of its cover, will be used by U.S. central bank policymakers when the Federal Open Market Committee meets on January 26-27 to decide whether to adjust policy.
The Fed has slashed rates to near zero and pumped over $1 trillion into the financial system to prevent a banking failure and pull the economy out of the worst recession in decades.
It has pledged to hold rates ultra-low to nurture what appears to be a fragile recovery and comments from a senior policymaker on Wednesday reinforced the view that policy will be in place for some time.
"I think that we are going to be waiting for the economy to improve in a strongly sustainable fashion and until that happens then it's unlikely that we would be changing policy," Chicago Fed bank President Charles Evans told reporters after speaking to a business group in Coralville, Iowa.
Financial markets took the latest indication of modestly improving conditions positively, with stock prices adding to earlier gains after the report was issued in early afternoon.
It said home sales began increasing in most parts of the country as 2009 ended, especially for lower-priced homes. The extension of a federal tax credit for first-time homebuyers helped spur sales, according to realtors.
There were still plenty of signs of economic trouble.
The Fed said demand for loans continued to decline or weakened further in much of the country. As well, credit quality was still deteriorating and financial institutions in many districts including new York, Philadelphia and Cleveland said loan delinquencies were rising.
Commercial real estate conditions were still soft in most of the country. New York, Philadelphia, Kansas City and San Francisco all said that demand for commercial and industrial space was still losing momentum.
(additional reporting by Ann Saphir in Coralville, Iowa)
(Reporting by Glenn Somerville; Editing by Diane Craft)