The Federal Reserve Board reported that “national economic activity continued to expand at a moderate pace” in its latest Beige Book. In general, Fed Districts have experienced modest growth in the manufacturing sector, recovering from some of the softness experienced in the spring months. There were some exceptions to this, such as the Minneapolis Fed reporting “that the pace of growth was uneven” in its region. Elsewhere, respondents found strong gains in the motor vehicles, machinery, and inputs to the housing and infrastructure sectors.
On the topic of federal budget cuts, the Fed’s report says the following:
Contacts in the Boston District reported minimal direct effects of the federal sequestration, although they were concerned about the prospect of larger effects in the fourth quarter. On the other hand, defense firms in the Kansas City and San Francisco Districts reported that the effects of the sequestration have already been passed through to actual reductions in production.
The Kansas City Fed has focused on frustrations with federal budget cuts for some time, with sample comments touching on this in its most recent survey.
Employment “held steady or increased somewhat” in the economy as a whole, but the gains in manufacturing were more modest. This finding is consistent with recent survey and jobs data, with manufacturers still somewhat hesitant to bring on new workers. Overall wage pressures remain “subdued.”
In terms of larger macroeconomic findings, the Fed noted “strong demand for automobiles and housing-related goods,” which have helped to lift consumer spending. Residential activity continued to grow moderately, with some respondents suggesting that higher mortgage rates have “spurred a pickup in recent market activity, as many `fence sitters’ were prompted to commit to purchases.” The recent existing home sales numbers made a similar observation, but other data tend to suggest that increased borrowing costs have begun to have a slowing impact on new home construction and sales.
Meanwhile, pricing pressures continue to be minimal, with core inflation below 2 percent, the desired level stated by the Federal Open Market Committee (FOMC). This has allowed the Federal Reserve to continue to pursue expansionary monetary policies, even as it contemplates an easing in asset purchases perhaps as soon as its September 17-18 FOMC meeting.
Chad Moutray is the chief economist, National Association of Manufacturers.
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