U.S. Beige Book: Overall Economic Activity Increased, but with "Widespread Signs of Deceleration"

The Fed's Beige Book report, compiled using data collected on or before August 30 in preparation for the September 21 Federal Open Market Committee (FOMC) meeting, characterized U.S. economic activity as continuing to grow but with "widespread signs of deceleration." Five districts reported economic growth at a modest pace, while two noted positive development during the reporting period. The other five districts, however, noted more mixed results with indications of deceleration in overall economic activity.

• Consumer spending picked up on balance during the reporting period; however, it continues to be concentrated on necessities with consumer caution cited as constraining "big-ticket" purchases.
• Manufacturing activity continued to expand, with most districts reporting further gains in production and sales across industries. The pace of expansion, however, was noted to be "slower than earlier in the year."
• Real estate and construction continues to be a source of significant weakness. Housing markets declined further following the initial drop after the homebuyer tax credit lapsed, leading residential construction to falloff as well. Commercial real estate activity generally remained "depressed," although a few districts noted signs of stabilization.
• The banking & finance sector reported that lending was down slightly, with business lending remaining at low levels and consumer lending "sluggish in general." Lending standards and credit quality were largely unchanged since the last report.
• With respect to labour markets, the report noted that the hiring of permanent employees was limited due to the continued reliance on temporary and contract workers. Three districts noted that some sectors experienced skill mismatches between available jobs and the workers applying for them, but the general view was that the supply of qualified applicants for open positions was "ample."
• The persistent high level of unemployment led most districts to report "little or no upward" wage pressures, while prices of final goods and services experienced limited upward price pressures despite higher prices for some commodities and industrial materials.

Today's Beige Book report provides anecdotal evidence of further easing in the pace of growth, with this "deceleration" of the economy suggesting minimal progress in terms of reducing a still high unemployment rate. With inflationary pressures continuing to be held at bay, the Fed will remain focuses on stimulating growth. Our forecast does not call for the Fed funds to rise until well into next year.