Fed's Beige Book Shows Solid Expansion Across the US (DJ)
Last Modified: 04:19 PM, Wed Dec 05, 2018
05 December 2018
By Sharon Nunn

WASHINGTON -- Economic activity continued to increase across much of the U.S. at the end of fall, but uncertainty among businesses appeared to be growing as tariffs and rising interest rates muddied the outlook for the coming year, a Federal Reserve report indicated Wednesday.

Most of the Fed's 12 regional districts reported their economies expanded at a modest or moderate pace in recent weeks, the central bank said in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The report was based on information collected through Nov. 26.

But representatives of businesses across many of the districts expressed worry about the eventual economic price of rising interest rates and the Trump administration's recent trade actions. Earlier this year, the White House placed tariffs on billions of dollars of foreign-made products, including steel and solar panels. Foreign countries have placed retaliatory tariffs on U.S.-made products.

Multiple businesses in the Minneapolis district told the Fed they put "capital spending plans on hold due to uncertainty in their outlooks." A recent Commerce Department report showed that nationally, orders for long-lasting factory goods declined in October, suggesting that business investment was softening.

A central California agricultural business said trade policy uncertainty continued to "limit the ability of growers to secure longer-term sales contracts."

Meanwhile, rising interest rates appear to be putting the brakes on the housing market and other sectors of the economy. The average interest rate on a 30-year fixed-rate mortgage in October was 4.83%, up from 4.03% in January, according to Freddie Mac.

The Fed found new-home construction and existing home sales tended to decline or hold steady in recent weeks across the U.S. The uncertainty around rising rates drove falling home demand in the Cleveland Fed's district, according to home builders based there.

Rising rates affected auto sales, too. Demand for new cars fell in the Cleveland district, partly because rates eroded affordability for some buyers.

The strengthening employment picture appeared to be adding to business uncertainty as well, as employers found it increasingly difficult to find and retain qualified talent. Business contacts in many districts said the labor market had tightened further in a broad range of fields.

The Chicago Fed district reported a number of businesses "had been 'ghosted,' a situation in which a worker stops coming to work without notice and then is impossible to contact."

The Fed's report also showed most districts reported wages grew at a modest to moderate pace. Nationally, wages rose 3.1% from the prior year in October, the biggest annual gain for average hourly earnings since 2009, the Labor Department reported.

Meanwhile, prices rose at a modest pace in most districts, with a few noting moderate increases. The Fed's preferred measure of national inflation, the personal-consumption-expenditures price index, was up 2% in October from the prior year -- the level the central bank considers healthy for the economy. Inflation has been at or above the Fed's 2% target every month since February, after years of undershooting, but remains subdued.

The report likely keeps Fed officials on track to raise short-term interest rates at their mid-December meeting.

Tax cuts passed in late 2017 and a boost in federal-government spending for this year and next helped strengthen the Fed's outlook on the economy earlier in the year. But recent market volatility, trade disputes and the lagged effects of Fed officials' own policy-tightening moves over the past have called into question the timing of tightening next year.

Write to Sharon Nunn at sharon.nunn@wsj.com

(END) Dow Jones Newswires

December 05, 2018 16:19 ET (21:19 GMT)

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