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Economy

Fed: Economy grew modestly over summer

Paul Davidson
USA TODAY

The U.S. economy expanded modestly in July and August as manufacturing activity picked up slightly, retail sales were flat and payrolls increased moderately in a tight labor market, the Federal Reserve said in a report Wednesday.

The depiction of a tepidly growing economy in the Fed’s “beige book” was little changed from its previous summary. But Fed policymakers are expected to scrutinize the final edition of the account before they decide whether to raise interest rates at a September 20-21 meeting for the first time this year.

While job growth generally has been strong despite a slowdown in August, the economy has expanded at a sluggish pace for three straight quarters and a measure of service-sector activity fell sharply in August.

The economy grew a feeble 1.1% in second quarter

The beige book, named for the color of its cover, is an anecdotal snapshot of the economy that lacks the hard data of official reports but provides more color and a breakdown of activity by region.

Job  growth was “moderate,” the beige book said. The Labor Department reported strong employment gains averaging about 273,000 in June and July but a slowdown to just 151,000 additions in August. Yet hiring may be at least partly constrained by a smaller pool of available workers as a result of the 4.9% unemployment rate. The Fed said the labor market “remained tight” in the Boston, Chicago, New York, San Francisco, St. Louis and Minneapolis districts. And there were “an unusually high number of job openings” in Boston.

“In many districts, businesses reported trouble filling job vacancies for high-skilled positions, especially those aimed at technology specialists, engineers and selected construction workers,” the report said.

That led to strong wage gains in some areas, particularly for high-skilled workers, such as technology specialists in San Francisco and construction and retail workers in Cleveland.

Slowing job growth in Aug. lowers odds of Sept. rate hike

Retail sales “appeared little changed” during the summer, in line with the government’s flat reading of July sales following three strong months of gains. While the Boston, Cleveland and San Francisco bank districts cited modest growth, store sales fell in the Chicago, Dallas and Kansas City areas.

Auto sales, which has been a pillar of economic growth, slowed in a number of regions, including New York, Cleveland, San Francisco, Atlanta and Chicago, but “remained at high levels in general.” That, too, mirrors official data showing a drop in vehicle sales in August.

Tourism was largely unchanged, as a dip in demand for hotel rooms in Dallas, St. Louis and New York was offset by vibrant activity in the Chicago and San Francisco areas. The strong dollar curtailed visits to Minneapolis and San Francisco. And there were fewer foreign visitors in Atlanta, leading Fed contacts there “to monitor the potential impact of the Zika virus on international travel.”

Retail sales flatline as consumers take breather

Manufacturers appeared to continue to slowly climb out of a long slump. Activity “was flat to slightly up in general,” the Fed said, as Chicago recorded moderate growth, technology production grew modestly in Dallas and San Francisco pharmaceutical makers notched strong sales. But semiconductor output was flat in San Francisco. And the oil and gas downturn continued to dampen factory activity in several districts. On a positive note, steady steel demand in Chicago was attributed to declining imports. Several recent decisions in trade disputes have imposed tariffs on imported steel.

Meanwhile, the recovering housing industry continued to support growth, with residential construction picking up moderately in many areas. But home sales slowed in several regions because of low supplies. And while commercial real estate sales and construction “expanded further” in most areas, several Fed contacts  pointed to just a modest outlook for sales and construction “due in part to economic uncertainty surrounding the November elections.”

Data show that manufacturing has slowed again recently after picking up moderately earlier this year. The Fed's beige book provides an anecdotal snapshot of activity in factories and other parts of the economy.
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