Economy little changed, still expanding modestly

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The economy was chugging along at about the same pace from mid-May through early July as it had in the previous period, according to the Federal Reserve’s Beige Book, released Wednesday.

Retail sales were up a bit, despite flat vehicle sales, with the non-financial services sector growing.

“Although some Districts continued to report healthy expansion in the transportation sector, others noted that activity declined modestly,” the report said. “On balance, home sales picked up somewhat, but residential construction activity was flat. Nonresidential construction activity increased or remained strong in most reporting Districts, and commercial rents rose.”

While manufacturing production was mostly flat, a few districts saw a “modest pickup in activity.”

Modest growth is seen continuing and the outlook generally remained positive, “despite widespread concerns about the possible negative impact of trade-related uncertainty.”

Evans backs rate cuts
Federal Reserve Bank of Chicago President Charles Evans advocated for “a couple of rate cuts” this year, even if a deal with China on trade is worked out.

“I think, on the basis of inflation alone, I could feel confident in arguing for a couple of rate cuts before the end of the year,” Evans said on CNBC’s “@Work Human Capital + Finance.”

Evans said the economy show grow slightly above trend. He defined trend as 1.75% and forecast 2-2.25% growth this year and about 2% in 2020. “That's slightly above trend. I don't think we should be in the business, necessarily, of generating excess stimulus in order to get growth up.”

While independence is essential for the Fed, he said, “there is an element of our economic analysis that's right” when President Trump says if rates were lower growth would be stronger. But, Evans said, “the question is: What's the right policy? How are we thinking about it? And, you know, we're doing the best that we can.”

Weakness in multifamily housing pulled down housing starts and building permits in June, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported Wednesday. Housing starts fell 0.9% to a seasonally adjusted annual rate of 1.253 million in June after 1.265 million in May.

Building permits fell to a seasonally adjusted annual rate of 1.220 million in June after 1.299 million in May.

Single-family starts were up 3.5% in the month, while multifamily dropped 9.8%. Single-family permits were up 0.4% in the month, while multifamily dropped 16.9%.

Economists polled by IFR Markets expected 1.262 million starts and 1.3 million permits.

Construction has subtracted from economic growth for five consecutive quarters.

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Monetary policy Economic indicators Housing Charles Evans Federal Reserve Federal Reserve Bank of Chicago FOMC