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Fed Beige Book Notes Pressure on Wages

U.S. economic activity expanded in all 12 Federal Reserve districts according to the latest version of the Beige Book released Wednesday afternoon. Six Fed districts characterized growth as moderate and five more described growth as modest. One reported only slight growth.

Retailers in a majority of Fed districts reported that sales and revenues continued to expand. Cleveland and Minneapolis cited flat consumer activity since the last report, Atlanta reported mixed results, and Dallas reported decreased sales year-over-year.

Ten districts reported stable or positive growth in manufacturing and the other two, New York and Kansas City, reported declines. Auto sales drove manufacturing in the Cleveland, Richmond, and Chicago Fed districts, and the aerospace industry boosted manufacturing production in Chicago, Dallas, and San Francisco.

Construction industry demand rose in six Fed districts on everything from lumber to machinery. Commodity price weakness in agriculture and mining (oil) have reduced demand for machinery in these sectors.

Capital spending plans remained unchanged in all districts, although the Kansas City district noted that recent declines in activity is expected to lead to a reduction in capital spending.

The energy sector was flat or down in all Fed districts. Respondents in the Kansas City and Dallas districts revised expectations to deal with a long term low-price environment for oil; meanwhile drilling activity rose slightly in Minneapolis, Kansas City, and Dallas despite depressed demand. In Cleveland, drilling activity in the Marcellus and Utica Shales fell further, to 60 percent of the peak level in the fourth quarter last year.

Most districts reported slight or modest growth in employment since the previous Beige Book. Boston reported little or no hiring except via its staffing sector, while Philadelphia, Cleveland, St. Louis, Minneapolis, and Dallas cited slight to modest increases in employment.

Wages were relatively stable with slight to moderate increases since the last report. Wages are increasing in some districts, however, as labor markets tighten.

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By Paul Ausick