NEW YORK — The latest Beige Book report shouldn’t alter the Fed’s outlook on the U.S. economy or interest rates, RBC Economics reported today.
Most Federal Reserve districts once again characterized growth as “modest or moderate” although three noted the pace of growth had improved since the previous report. The outlook generally ranged from “slight to moderate.”
There was little change in overall labor market conditions in that most are remaining tight, plus wage growth continued to be modest and prices were fairly flat or increased only slightly, said Nathan Janzen, an RBC economist.
Consumer spending growth was reportedly mixed although a majority of districts reported an increase in retail sales. The outlook in most districts was for modest or even “mostly flat” sales.
Nonfinancial services demand generally expanded (after the previous report noted activity picked up) although demand for transportation services declined on net, due in part to weak exports and lower energy shipments.
Manufacturing activity was mixed although the outlook was generally positive despite some contacts noting continued headwinds from the strong U.S. dollar. Signs of stabilization were once again reported in the energy sector.
Residential real estate activity grew in most districts although only a few were optimistic about future growth. Low inventories continue to restrain sales in some districts and contributed to modest growth in home prices. Residential construction was flat to slightly higher.
The outlook for commercial real estate activity was more positive, vacancy rates were generally low and commercial construction increased on net.
Labor market conditions remained tight and there were reports of difficulty hiring in several sectors although, again, shortages varied across skill levels. Wage growth remained fairly modest but there was upward pressure in some sectors, both in skilled and entry level positions.
Tight labor market conditions and some pockets of wage pressure, rather than a more broad-based acceleration in wages, have been a consistent theme in recent Beige Book reports, said Nye.
“While there were some changes in the underlying details, today’s report is broadly in line with the previous Beige Book―economic growth remains modest to moderate and labor market conditions are tight but there is little evidence of broad-based wage or price pressure,” he explained.
“Recent indicators have been fairly consistent with that assessment. We continue to expect GDP growth rebounded solidly in Q3, although weaker-than expected retail sales and an unanticipated drop in housing starts in September contributed to lowering our Q3 monitoring to 2.6 percent from 3 percent previously,” he added.
“Core inflation was also slightly softer than expected in yesterday’s CPI report but remained above the Fed’s 2 percent objective,” said Nye. “On balance, there is little to suggest the economy is deviating from the Fed’s projected path, although recent developments aren’t necessarily enough to push the committee’s consensus in favor of a rate hike even after some saw the last decision as a ‘close call.'”
SOURCE: RBC Economics press release