In the latest Federal Reserve Summary of Commentary on Current Economic Conditions (Beige Book), there was evidence of further labor-market tightening.
Most Districts reported a modest or moderate pace of expansion. Although New York reported no overall change in activity, 3 districts, including Kansas City, reported that the pace of growth had improved.
Manufacturing activity was mixed, while most Districts saw an uptick in retail spending, with the overall outlook for modest growth over the months ahead. There were signs of stabilisation in the oil and gas sector.
Residential construction and real estate activity continued to expand, although low home inventories continued to restrain sales in a few Districts.
Employment expanded at a modest pace over the reporting period with some layoffs in the manufacturing sector.
Overall labor market conditions remained tight across most Districts and, while reports of labor shortages varied across skill levels and industries, there were multiple mentions of difficulty in hiring workers across many sectors. There were also specific reports that shortages of construction workers were constraining economic activity as supply-side issues increase.
Wage growth held fairly steady at modest levels, although some Districts reported upward pressure on wages for some skilled jobs. Overall price growth was still mild with little change in selling prices.
The employment and wages sections will tend to gain the most attention and there is evidence of further underlying tightening compared with the previous report.
The underlying stresses are illustrated by the fact that nine of the twelve Fed Districts called for an increase in the Discount rate in September.
The overall evidence continues to suggest that the labour market is still tightening and the hawkish members of the FOMC will continue to push for an increase in rates. The Beige Book in isolation, however, will not tend to increase pressure for an immediate tightening at the November meeting. At this point, the Fed is still on track for a December move to raise rates. US Treasuries edged fractionally lower on the report, but were still close to unchanged on the day with no significant reaction in other markets.
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