This is how they are managing their economy........

Despite high unemployment and persistent weakness in the housing market, consumers are cautiously increasing their spending, helping keep the U.S. economic recovery going.

The Federal Reserve said Wednesday that its “beige book“ survey of economic conditions in the central bank's 12 districts showed that economic activity “continued to rise, albeit at a modest pace.“ The report, based on interviews conducted by the Fed's regional banks between September and early October, was in line with recent data showing that the period of deterioration the economy underwent in the summer has ended.

“The beige book was a further indication that the double-dip anxieties of the third quarter did not come to pass,“ said Robert Barbera, econo- mist at Newtown, Pennsylva- nia-based hedge fund Mount Lucas Management. “But growth remains disappointing.“

The economy's main source of strength over the past year has been manufacturing, which swiftly rebounded as global trade recovered from the recession and businesses around the world rebuilt depleted stockpiles. The manufacturing sector is still grow- ing, but at a slower pace than earlier in the recovery. That leaves any hope of a boost to economic growth largely in the hands of consumers.

The picture painted by the beige book showed consumers spending just a bit more. Retailers told the Federal Reserve Bank of Boston that consumers are focused on “getting a good deal,“ and the Cleveland Fed said that consumers “remain price sensitive and focused on buying necessities.“ Most Wall Street economists now esti- mate that consumer spending increased at an annual rate of around 2.5% in the third quarter, enough to keep the econo- my growing moderately, but not enough to prompt companies to hire enough workers to bring down the unemployment rate.

Indeed, the beige book not- ed that many companies felt the economy was still too weak to add to permanent jobs. The New York Fed said that manufacturers in its district continued to hire, but that New York City financial firms shed workers. The Cleveland Fed said that the pace of hiring had slowed and the San Francisco Fed said that in most sectors businesses “expect that ongoing productivity gains and cost efficiencies will largely offset the need for staffing increases in the near term.“

High unemployment is a main factor holding back consumer spending, while the weakness in spending is an important reason that companies aren't hiring. In an effort to break that cycle, the Fed is expected to restart its bond-buying program when it meets November 2 and 3. By doing so, the Fed also hopes to bolster the economy to head off any possibility of deflation.

The beige book reported that companies were paying higher prices for agricultural commodities like wheat, raw mate- rials like steel, copper and zinc and wholesale goods, but those prices were not passed along to consumers.