US growth 'up a notch'

The President insists the budget deficit will halve in the next two years

US economic growth has "increased a notch" during June and the first half of July, according to the Federal Reserve's latest snapshot of business activity.

The US central bank's so-called Beige Book - its reading of economic conditions around the country - found that eight of the 12 Federal districts reported "somewhat stronger growth", making it the most optimistic survey in the past year.

"In particular, manufacturing activity edged higher in most districts," the report said, sparking hopes of a reversal of fortunes for the long-suffering sector.

However, the report also found that prices of manufactured goods remained "soft" in much of the country and consumer spending "lacklustre".

Optimism ahead

Federal Reserve policy makers will use the anecdotal evidence when they meet on 12 August to set interest rates.

They cut rates to 1%, their lowest level for 45 years, on 25 June and many analysts believe they will now keep rates steady at the August meeting.

"Consistent with the generally more positive assessments of current economic activity, several districts noted increased optimism about economic prospects in coming months," said the report.

It noted that housing sales and construction, buoyed by the low mortgage rates, remained strong.

Prices and wage inflation were "broadly in check", it added, noting however that "in contrast, consumer spending remained lacklustre".

US President George W Bush brushed aside questions about his economic control on Wednesday, insisting the country's growing budget deficit was inevitable, with or without his tax cuts.

Under tough questioning by Democrats, Mr Bush insisted his tax cuts had positioned the US economy for a pickup in growth, although he played down the chances of a swift rebound in job growth.

US Treasury Secretary John Snow has forecast US economic growth will pick up to more than 3% in the third quarter of this year, 3.5% in the last quarter and 4% in 2004.