WASHINGTON — All 12 Federal Reserve districts reported modest or moderate economic growth in the past two months, the latest Beige Book survey showed Wednesday, up from the 10 reporting those levels of growth in the previous period.
The survey — which informs the Federal Open Market Committee at its Sept. 19-20 meeting — was conducted by the Chicago Fed before Aug. 28 and the landfall of Hurricane Harvey which devastated Houston, the U.S.'s fourth largest city, and other areas along the Gulf Coast.
While the hurricane had not yet hit land, the survey said it "created broad disruptions to economic activity" in the Dallas and Atlanta districts, although it was "too soon to gauge the full extent of the impact."
Many firms were closing or expecting to close due to flooding, and one-fifth of the oil and natural gas production in the Gulf of Mexico was offline, the survey said in a special section.
Overall, with all districts reporting favorable growth conditions, the report seems to give the FOMC the greenlight to go forward with plans to announce the end of reinvestments at the September meeting. That meeting, which is not expected to see an increase in the fed funds rate, will be accompanied by an update to the Summary of Economic Projections and a press conference by Fed Chair Janet Yellen.
Consumer spending increased in most districts, with gains in non-auto retail sales and tourism, the survey said. Auto sales were reportedly mixed. Capital spending increased in some districts and manufacturing expanded "modestly" on balance, it said.
The Beige Book noted "prices rose modestly overall across the country," with input and materials costs increasing, "most notably for freight, lumber and steel."
However, the report continued, "a number of districts indicated that pass-through to downstream prices was limited, with increases in input prices exceeding gains in selling prices."
This is consistent with lower-than-expected inflation readings over the past few months — the top concerns for policymakers as they weigh a third rate hike this year.
The survey noted "labor markets were widely characterized as tight," with employment growth having "slowed on balance, ranging from a slight to modest rate in most districts."
Part of this was due to the inability to get find workers, as "many districts indicated that businesses were having difficulty filling openings at all skill levels."
Despite the tight labor markets, the majority of districts reported "limited wage pressures and modest to moderate wage growth." The bright spot was the Dallas and San Francisco districts where "labor shortages were pushing up wages."
Firms in the Atlanta district, for example, "continued to implement various methods to attract and retain top talent, often in lieu of wage increases," the survey said. This includes offering flexible work hours and locations, more vacation time and training opportunities. However, "some contacts" noted these non-wage compensation methods "were losing their effectiveness."
The Beige Book survey, while mostly positive, highlighted the possible large economic impact of natural disasters such as Hurricane Harvey. A special section on the hurricane noted the storm affected fuel and petrochemical production with 15 refineries shutdown completely, and some areas experienced gasoline shortages.
Besides Harvey, the continental U.S. is in the path of Hurricane Irma, and possibly two other Atlantic storms. The Federal Reserve also released at 2 p.m., along with other banking regulators, recommendations for banks in impacted areas.
"The agencies realize that the effects of natural disasters on local businesses and individuals are often transitory and prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism," the release said.
