The Federal Reserve’s latest Beige Book, its seventh of the year, describes an economy treading water in the weeks before the October policy meeting. Two of the 12 districts reported moderate growth, three reported modest growth, four reported slight growth and three reported no significant change, the Fed said.
The consumer detail is the softest part of the report. Most districts reported little or no change in overall consumer spending, auto sales were flat or modestly lower in five of the six districts that reported on them, and more than half of the districts said spending was being driven by high income households. That pattern matches September’s retail sales split reported in this beat on Thursday, when the headline rose 0.8 percent on gasoline prices while the control group that feeds GDP rose only 0.1 percent.
Business sentiment has not cracked. Most districts reported that firms kept a positive outlook for the months ahead, though expectations were for slight growth, weighted toward manufacturing and held back by persistent uncertainty.
For the October 27 to 28 FOMC meeting, the report cuts both ways and therefore settles nothing. It gives the members who want to wait until December evidence that demand is not overheating, and it gives the hawks no demand collapse to set against consumer inflation at 3.7 percent and producer prices up 1.3 percent on the month. The Beige Book’s role in this cycle is confirmatory: the October argument will be settled by prices, not by activity.