Beige Book on Auto-Pilot

24/7 Wall St.

The U.S. economy continued to increase at a “modest to moderate pace” according to Wednesday’s release of the Federal Reserve’s October Beige Book. Employment growth, one of the key drivers of the Fed’s monetary policy decisions, was described as “modest” in the month of September although some Fed districts noted that demand remained high for skilled labor in many districts.

Economic growth slowed in the Philadelphia, Richmond, Chicago, and Kansas City Fed districts and remained stable in the other eight. Cautious optimism prevailed across all Fed districts.

Retail sales growth remained steady in 7 of the 12 Fed districts, with a pick-up noted in Cleveland and Richmond, while activity slowed down in Chicago, Kansas City, and Dallas. Auto sales remained strong in all except the three districts where overall activity slowed. In an encouraging note, the Fed reported that “retailers generally remained optimistic about the holiday shopping season.”

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Residential real estate activity continued to “improve at a moderate pace” in most Fed districts as sales and prices rose while inventory remained low. New residential construction also improved “moderately” in most districts.

Oil and natural gas activity remained at a “high level” in the Cleveland (Utica shale play) and Dallas (Barnett shale, Eagle Ford shale, Permian Basin, to name just three) districts. The Kansas City district reported a shift in drilling from oil rigs to natural gas driven by expectations that natural gas prices will rise and oil prices will fall. That seems like a good bet to us. Mining activity picked up in the Minneapolis district, probably due to increased production of iron ore, and coal production rose in the St. Louis and Kansas City districts while falling in Cleveland and Richmond.

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Many districts also noted an increase in uncertainty related to the federal government shutdown and the debate over the debt ceiling. Today’s announced deal could allay some of those concerns provided it is passed by Congress and signed by the President.

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