The Federal Reserve just released its Beige Book summation of economic activity across the country, and there were few surprises. Indeed, this issuance was in keeping with the central bank's increasingly transparent treatment of the nation's economic outlook and the bank's monetary policy.
To wit, the Fed maintained that economic activity expanded moderately in late April and early May, with few shifting patterns of growth. The lone exception among the 12 Federal Reserve Districts was the Dallas District, where overall economic activity was speeding up at a solid pace.
Specifically, fabricated metals, heavy industrial machinery, and electronics equipment were noted as areas of particular strength. By contrast, consumer spending was somewhat soft, as were non-auto-related retail sales. Meantime, homebuilding and home sales were increasing modestly and nonresidential construction remained sound.
Also gaining was employment, with Dallas leading the way once again, while prices were rising, as well, in most Districts. The uptick in costs could be seen in materials, notably steel, aluminum, oil, oil derivatives, lumber, and cement. Higher labor costs also were noted in some Districts.
All in all, this was a reassuring issuance, and one that had little impact on an already strong stock market performance today. In fact, the Dow Jones Industrial Average, higher by some 330 points as the report was released, moved little in the first few minutes following publication. This suggests that the Street expects little deviation by the Fed in its upcoming monetary meeting.
In sum, our thinking continues to be that the Fed will raise interest rates at its mid-June get together, and then hike rates again in September. A December hike remains an open question depending on the tone of the upcoming economic growth and inflation data. For now, there seems a better than even chance the bank will hold off on a December rate increase.
— Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
