The Federal Reserve Issues Its Beige Book - November 28, 2012
The U.S. Federal Reserve has issued its latest Beige Book summary of economic activity across the country, and it contained few notable surprises.
Importantly, this summation of business activity noted that manufacturing was either slowing or outright contracting. And the reason given by business contacts is that the looming "fiscal cliff'' of mandated tax increases and expenditure reductions is continuing to cloud the outlook for factory owners.
In all, seven of the 12 Federal Reserve Districts reported weak factory activity, while two others suggested that overall conditions in this key industrial sector were mixed. Industries being hurt by the uncertainty from the so-called fiscal cliff include information technology, auto parts producing, and heavy equipment. In general, aerospace and aviation equipment was holding steady. Earlier, there had been fears about cuts in this area.
Overall, the central bank intoned that the economy was pressing ahead at a measured pace. That is similar to the modest growth path being tracked since the summer. Consumer spending also was moving forward, while many retailers seemed somewhat positive about holiday-related sales. That would seem to be consistent with the generally better spending patterns experienced on Black Friday (November 23rd) and Cyber Monday (November 26th).
Meanwhile, there were only modest improvements in hiring activity across the nation. The Fed had earlier said that it would continue its third round of asset purchases, a program popularly known as QE3, or the third installment of the widely popular quantitative easing maneuverings that were first launched by the central bank several years ago.
The Beige Book is essentially a compilation of anecdotal evidence sent in from business executives across the country, and it is used by the lead bank in formulating economic policies at its upcoming FOMC meeting. The next such monetary gathering will take place on December 11th and 12th.
Finally, there was some impact from Hurricane Sandy, but that tragic event was mostly confined to the Philadelphia and New York Districts. The other 10 regions were hardly affected, or not at all. Meantime, despite the storm, prices in the New York region have held fairly steady so far, but there are likely to be some evolving shortages of construction equipment and materials in the region. That could invite some short-term price adjustments.
On the whole, the report was not a headline grabber, and does little to change our sense that the maturing economic recovery will press forward by some 1.2%-1.5% in the current three months, about 0.5%, or so, less than we believe would have been the case without the aforementioned storm.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.