Fed: Latest Beige Book doesn’t alter outlook for December rate hike – RBC Economics

Nathan Janzen, Senior Economist at RBC Economics, notes that in the first Beige Book report of Fed since the November 8th elections, most districts once again characterized growth as “modest” or “moderate”, marking little change from earlier reports.

Key Quotes

“Most districts reported improvement in labour markets.  Wage growth was, as in the past four reports, characterized as generally “modest” and price growth was “slight.”

“Consumer spending growth was reportedly mixed although generally reflecting continued modest sales growth. Most districts reported growth in nonfinancial services with the exception of New York where contacts nonetheless remained optimistic about future prospects. Manufacturing activity was mixed with the strong dollar remaining a source of concern.”

“As in the last report, residential real estate activity grew in most districts.   Commercial construction activity also generally improved in most districts.”

“Labour market conditions continued to improve with employment generally continuing to expand at a ‘moderate’ to ‘modest’ pace.”

“Our Take:

There was little in the broad overall tone, or underlying details, of the report to suggest a significant change in the underlying path of growth in the economy with only minimal mention of the impact of ‘uncertainty’ around the presidential election results (eg. a ‘modest decline’ in job openings in Cleveland and some softening of vehicle sales in Richmond and St. Louis).  Recent ‘hard data’ indicators have been broadly encouraging with GDP growth rebounding 3.2% in Q3 after a weaker-than-expected first half of the year and labour markets continuing to improve.  Consumer price inflation has remained well-contained; however, wage growth has been gradually drifting higher as labour markets continue to tighten.  Indications that the underlying economic backdrop has strengthened in the second half of 2016 coupled with limited financial market volatility in the wake of the November 8th elections have increased the odds that the Federal Reserve will hike the fed funds target range by 25 basis points in December (to 90% or more) and  report is unlikely to have a significant impact on that assessment.”