Anyone looking for news of a stronger recovery appearing in parts of the sluggish US economy, won’t find it in the latest eige Book from the US Federal Reserve.
In fact there was little change overall from the September issue, and that was enough to send markets higher, especially in the US, where its release added to a more bullish tone after the sell off on Tuesday.
The Beige Book is a collection of anecdotes and reports based on contacts between fed staff and businesses of all types and sizes across the 12 Fed districts of the US.
It’s released two weeks before the next meeting of the Fed’s key group, the Open Markets Committee, which is on November 2 and 3 and is widely expected to reveal the start of a second round of quantitative easing to try and get banks lending more, inflation rising and boosting the slow rate of economic growth.
It’s also designed to rekindle inflation and break the gathering hold deflation seems to be gaining across parts of the economy.
The eventual aim is to get the high level of unemployment under control and then cut by more confident businesses taking on more staff as demand rises.
Why this Beige Book is especially important is that the Fed wants to make doubly sure that there aren’t new signs of growth or demand appearing that might be damaged by a resumption in spending, or inflationary pressures in the economy that might be lit by the billions of dollars to be injected into the economy.
But there doesn’t seem to any fear of that happening from the latest Beige Book, released earlier today in Washington.
It revealed that economic growth continued at a modest pace last month, despite a housing market that remains weak.
Despite the lagging housing market, the Fed reported some bright spots in the manufacturing, travel, tourism and auto sales.
But while consumer spending was either steady or slightly higher, the Fed said that consumers remained price-sensitive, and purchases were mostly limited to necessities and non-discretionary items.
In other words US consumers remain shell-shocked and unwilling to spend up big, limiting their purchases to food, clothing and the like.
Eight Fed banks, including San Francisco and Chicago, reported some form of growth, the Philadelphia and Richmond Fed banks said their economies were “mixed” while the Cleveland region “held steady” and the Atlanta district “remained slow” with falling retail sales.
“Across all sectors, the outlook appears to be ‘more of the same,’” the Boston Fed said in its section of the report.
The report said that on balance, national economic activity continued to rise, "albeit at a modest pace.”
Manufacturing expanded, consumer spending was “steady to up slightly” and companies had trouble passing on higher input costs to customers, the report said.
In the previous Beige Book, released on September 8, the Fed said the economy maintained its expansion while showing “widespread signs of a deceleration” in mid-July through the end of August. Five regional banks reported “economic growth at a moderate pace” and two pointed to “positive developments or net improvements.” The remaining five banks said conditions were mixed or decelerating.
So compared to that, the conditions revealed in the latest report do seem to be a bit better.
But it said “hiring remained limited, with many firms reluctant to add to permanent payrolls given economic softness.”
The Beige Book was issued after lacklustre new home starts for September were confirmed (with a worrying fall in new permits, which is really new starts down the track) and a fall in industrial output last month that surprised analysts.
Housing markets were “weak,” with “sluggish or declining” sales in many regions, the Fed said in the last report.
It said there were “scattered reports of some improvement.” “Respondents’ outlooks suggested sales and construction would remain subdued through year-end,” restrained in part by lending standards and “general economic uncertainty.”
Business demand for loans “remained weak” and commercial real estate lending was “subdued,” the Fed said. For consumers, “lending was sluggish, but there were scattered reports of improvement.
Breaking the grip of unemployment and the slowly growing deflationary pressures on the economy is the main game for the Fed.
Nothing in this report changes that, from the reaction of US markets this morning.
