Fed's Beige Book Repeats "Modest Economic Growth", No Rate Hike Odds Reaction

The Fed's most boring report, the Beige Book, once again offered its ubiquitous "modest" to "moderate" growth outlook with little insight into whether the Fed is considering any rate hike in the immediate future, with the following summary of the Fed's two non-market mandates: "Labor market conditions remained tight in most Districts, with moderate payroll growth noted in general. Upward wage pressures increased further and were moderate on balance, with more rapid gains reported for workers with selected specialized skill sets. Price increases remained slight overall"

We are not sure which "specialized skill set" workers the Fed was referring to because as we showed recently, the only wages that are rising are those for low-paid workers.

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The Beige Book found tight labor conditions in Boston, Chicago, New York, San Francisco, St. Louis and Minneapolis. Boston in particular reported “an unusually high number of job openings,” and many districts said companies had difficulty filling job vacancies for high-skilled positions.

Additionally, the survey found that growth slowed in two districts, Philadelphia and Richmond. The economy was unchanged in New York and Kansas City. In its last report in July, growth was modest or moderate in 11 of 12 districts.

The one hint that the Fed is not preparing further tightening any time soon perhaps came the Fed's take on the state of the US consumer: "Overall consumer spending was little changed in most Districts, and auto sales declined somewhat but remained at high levels.

Perhaps the only notable news was that Boston residents are becoming more cultured, with "Boston Museum Attendance Up 10%", while the "Atlanta District observed fewer international arrivals relative to the previous reporting period and were monitoring the potential impact of the Zika virus on international travel."

Some other highlights:

Tourism activity was flat from the previous report but above year-earlier levels. Sales of nonfinancial services gained further momentum. Manufacturing activity rose slightly in most Districts. Activity in residential real estate markets grew at a moderate pace, but the pace of sales was constrained in a few Districts by shortages of available homes. Commercial real estate activity expanded further. Demand for business and consumer credit varied across Districts but appeared to expand at a moderate pace overall, with stable credit quality. Agricultural conditions were mixed, with price declines largely offsetting growing volumes. Overall demand for energy-related products and services weakened.

The 10 second summary:

• US economic growth was "modest" as inflation stays ‘slight’
• Contacts in several districts expect modest price gains
• Most Fed districts reported ‘modest’ or ‘moderate’ growth pace
• Kansas City, New York reported no change in economic activity
• Philadelphia, Richmond noted pace of economic activity slowed
• labor market conditions still tight in most districts
• Moderate upward wage pressures increased further
• Election damping real-estate outlook in several districts
• Consumer spending little changed in most Fed districts
• Credit demand appeared to expand at moderate pace
• Demand for energy-related products, services weakened

The recurring anecdotes from main regions:

• Economic activity continued to expand at a modest pace across most districts
• Boston: Museum attendance is up 10 percent year-to-date, providing further evidence of an increase in leisure travel.
• New York: A trucking industry analyst notes that there remains a shortage of drivers, as firms do not have enough pricing power to enable them to afford raising salaries.
• Philadelphia: Bankers noted no signs of excess inflation, except in health care.
• Cleveland: Builders and real estate agents believe there is pent up demand for homes that is spurred by low interest rates.
• Richmond: A few resort hotels reported increased hiring of foreign workers because they were unable to find employees locally.
• Atlanta: Most ports noted year-over-year volume increases in container traffic, bulk cargo, and automotive and machinery.
• Chicago: One contact noted that while demand for private construction is growing in most segments, public construction is at historically low levels.
• St. Louis: Contacts in manufacturing, construction, and wholesale trade continued to report difficulties in finding skilled or qualified candidates to fill job vacancies, citing either a shortage of applicants or candidates lacking the necessary skills.
• Minneapolis: A Minneapolis-St. Paul area mall reported a 20,000-square-foot expansion and the addition of 12 new stores in space freed up by the downsizing of a national retailer.
• Kansas City: Several retailers noted that luxury products sold poorly, while sales of building materials and home improvement items improved.
• Dallas: Flooding in Louisiana was not expected to have a significant impact on refining or petrochemical output overall.
• San Francisco: Financial institutions in a few states with a legal marijuana industry reported increased operational costs related to regulatory constraints on activities linked with that industry.

There was no change to the Fed's rate hike odds following the report, with September hike flat ar 13%.