US Economic Activity Little Changed Ahead of Next Fed Meeting, Beige Book Report Shows

Manuel

Summary:

Published two weeks ahead of each Fed policy meeting, the report is meant to help central bankers assess the U.S. economy's health with more timely, and often more colorful, insight than is available in the official statistics.

U.S. economic activity was little changed in recent weeks, though employment was weaker in about half of the Federal Reserve's 12 districts and consumer spending declined, the U.S. central bank said on Wednesday, likely reinforcing concerns about labor market softening.

"Economic activity was little changed since the previous report, according to most of the 12 Federal Reserve districts, though two districts noted a modest decline and one reported modest growth," the Fed said in its latest "Beige Book" report, a compendium of survey results, interviews, and other qualitative data from its 12 regional banks.

"Employment declined slightly over the current period with around half of districts noting weaker labor demand," the report said. "Despite an uptick in layoff announcements, more districts reported contacts limiting headcounts using hiring freezes, replacement-only hiring, and attrition than through layoffs."

With the data vacuum left by the record 43-day government shutdown that extended into mid-November, the Beige Book should get more weight than usual in the deliberations among deeply divided Fed policymakers, following their decision last month to cut rates by a quarter of a percentage point for the second consecutive meeting. The policy rate now stands in the 3.75%-4.00% range.

The data flow has resumed since the shutdown ended, but most of the reports issued over the past two weeks have been significantly dated, covering the period just before the shutdown began on October 1, and have offered almost no fresh insight into the health of the economy.

MARKETS BETTING ON ANOTHER RATE CUT NEXT MONTH

One of the most current indicators, however, suggests the job market remains in a stable, gradually softening state.

New claims for unemployment benefits fell last week to the lowest level since April, though the ranks of those remaining on benefits beyond a first week of assistance has plateaued near the highest level in about four years. Together, the figures point to no notable increase in layoffs despite a wave of job-cut announcements from big employers like Amazon.com, though those out of work are finding it harder to land a new job.

Interest rate futures markets are reflecting a high probability of a third straight quarter-percentage-point reduction in borrowing costs at the Fed's December 9-10 meeting.

Until last week it had been seen as a coin-toss decision amid deep divisions among Fed officials about whether more easing is needed to protect the job market or is too risky in light of inflation that remains above the central bank's 2% target. But the probability shifted sharply in favor of a rate cut after New York Fed President John Williams last week said he saw room to lower rates "in the near term."

Whatever the decision at next month's meeting, it is likely to be made over the objections of several policymakers, and will come alongside a fresh batch of forecasts from Fed officials that will show how inclined they are to bring rates down further next year.

Source: Reuters

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