Beige Book Shows Stronger Growth, but Europe a Major Threat

But Europe could easily turn that growth negative.

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Recent jobs numbers, slowly growing GDP, and signs of life in the housing sector have all seemed to point to an accelerating recovery. Today came a solid confirmation of that fact in the Federal Reserve's latest Beige Book report.

But in a global economy wracked with uncertainty, it is hardly time to celebrate.

The Fed Beige Book report is released eight times per year and provides a periodic snapshot of the country's economic well-being. Today's report characterized economic activity as growing at a "slow to moderate pace" in 11 of 12 Federal Reserve Districts, and also indicated increases in consumer spending and manufacturing activity. The report is a marked improvement over October's Beige Book report, in which Districts described growth as "modest" and "slight."

[See why the U.S. may have turned the corner on jobs.]

"Our sense has been that the economy is slowly recovering. When you boil it all down, that's what the Beige Book said," says Mark Coffelt, CFA and president of Empiric Advisers, a financial advisory firm based in Austin, Texas.

Among the more promising indications in the report are increases in residential real estate activity and bank lending, two areas that have been among the biggest drags to economic growth.

Still, job growth remains a problem—with the Fed report calling new hires "subdued" and noting that firms have reported difficulty in finding qualified applicants for open positions. This is further evidence of the "skills mismatch" problem facing the labor market. In September 2011, there were nearly 3.4 million open jobs in the U.S., according to the Labor Department. But many firms, like those in advance manufacturing, are having difficulties finding workers with the necessary skills.

The Beige Book paints a picture of an ever-strengthening economic recovery. But the United States economy does not operate in a vacuum, and a shaky European Union is a very real and perhaps imminent threat to growth, experts say.

"If Europe suddenly goes down the toilet ... it's going to have an impact on the whole world economy," says Coffelt. And in his opinion, "It's just a matter of time" before European troubles do start to profoundly impact the global economy.

Recognizing the precariousness of the global credit situation, the Federal Reserve today took action with five other central banks to increase the availability of U.S. dollars globally. The banks agreed to halve the cost of a program under which foreign countries borrow U.S. dollars. The Dow Jones Industrial Average shot up nearly 500 points today, in part on the news of the coordinated action.

[Read how extending the payroll tax cut could help the U.S. economy.]

Some economists have likened the U.S. economy to a very slow-moving bike, with little momentum to keep it from wobbling and falling over. Europe's troubles are more than enough to cause that reaction, says Coffelt.

"If we start growing at 4 or 5 percent, which is where we should be at this point in the cycle, then if Europe goes, we'll still keep our head above water," he says.