ECONOMIC NEWS: Fed survey reports steady growth with low inflation

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The U.S. economy is growing at a modest to moderate pace and there are few signs that inflation is going to increase and slow the gains.

That’s what the Federal Reserve said in its latest Beige Book report, which covers the period from Aug. 29 to Oct. 6. The report describes current economic conditions across the central bank’s 12 districts.

The Fed acknowledged that the recent hurricanes caused many problems in the portions of the country that they affected.

“The Richmond, Atlanta, and Dallas districts reported major disruptions from hurricanes Harvey and Irma in some areas and sectors, including transportation, energy and agriculture,” the Fed said.

Elsewhere, however, the economy fared reasonably well.

“Manufacturing activity and non-financial services expanded modestly to moderately in most districts. Retail spending rose slowly, while vehicle sales and tourism increased in most districts. Residential construction continued to increase, and growth in commercial construction was up slightly, on balance.”

The Fed said labor markets “were widely described as tight. Many districts noted that employers were having difficulty finding qualified workers, particularly in construction, transportation, skilled manufacturing, and some health care and service positions. These shortages were also restraining business growth.”

The Fed said price pressures remain modest. “Several districts noted increased manufacturing input costs, but in most cases these weren’t passed through to selling prices. Retail prices generally increased slightly.”

Separately, the New York Fed said its Empire State manufacturing index climbed to a three-year high of 30.2 in October from 24.4 in September.

“Forty-four percent of respondents reported that conditions had improved over the month, while 14 percent reported that conditions had worsened,” the Fed said in a statement. “The new-orders index fell seven points, but at 18.0, pointed to solid gains in orders. The shipments index advanced 11 points, to 27.5, its highest level in several years.”

The Conference Board reported an 0.2 percent decline in its Leading Economic Index in September — the first drop in a year — and said the storms were a factor, but the board did not suggest that the economy is faltering.

“The U.S. LEI declined slightly in September for the first time in the last 12 months, partly a result of the temporary impact of the recent hurricanes,” Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said in a statement. “The source of weakness was concentrated in labor markets and residential construction, while the majority of the LEI components continued to contribute positively. Despite September’s decline the trend in the U.S. LEI remains consistent with continuing solid growth in the U.S. economy for the second half of the year.”

The housing market delivered mixed news. The National Association of Realtors said Friday that existing-home sales rose 0.7 percent, to a seasonally adjusted annual rate of 5.39 million units, in September.

Nonetheless, NAR chief economist Lawrence Yun said closings declined on an annual basis for the first time in more than a year.

“Home sales in recent months remain at their lowest level of the year and are unable to break through, despite considerable buyer interest in most parts of the country,” he said in a statement.

“Realtors this fall continue to say the primary impediments stifling sales growth are the same as they have been all year: not enough listings — especially at the lower end of the market — and fast-rising prices that are straining the budgets of prospective buyers.”

“Sales activity likely would have been somewhat stronger if not for the fact that parts of Texas and South Florida — hit by hurricanes Harvey and Irma — saw temporary, but notable declines,” Yun added.

The NAR said the median existing-home price for all housing types in September was $245,100, up 4.2 percent from the same month last year ($235,200). September was the 67th straight month that prices have shown year-over-year increases.

“A continuation of last month's alleviating price growth, which was the slowest since last December (4.5 percent), would improve affordability conditions and be good news for the would-be buyers who have been held back by higher prices this year,” Yun said.

The Commerce Department said housing starts declined 4.7 percent in September, to a seasonally adjusted annual rate of 1.13 million, although starts were 6.1 percent higher than in the same month a year earlier.

MarketWatch said a positive development in the report was that single-family-home starts were 9.1 percent higher for the year through September, although they declined for the month.

The government said housing permits fell 4.5 percent in September, to a seasonally adjusted annual rate of 1.22 million, from August and were 4.3 percent below the September 2016 rate of 1.27 million.

Sentiment among home builders rose in October. The National Association of Home Builders/Wells Fargo Housing Market Index rose four points, to 68. The trade group said the reading was the highest since May.

“This month’s report shows that home builders are rebounding from the initial shock of the hurricanes,” NAHB chairman Granger MacDonald, a home builder and developer from Kerrville, Texas, said in a statement. “However, builders need to be mindful of long-term repercussions from the storms, such as intensified material price increases and labor shortages.”

“It is encouraging to see builder confidence return to the high 60s levels we saw in the spring and summer,” NAHB chief economist Robert Dietz said. “With a tight inventory of existing homes and promising growth in household formation, we can expect the new-home market to continue to strengthen at a modest rate in the months ahead.”

Among the economic reports due this week is the September report on new-home sales, which the Commerce Department will issue Wednesday. On Friday the department will release its third-quarter report on the nation’s Gross Domestic Product and the University of Michigan will report its final Consumer Sentiment Index for October.

Consumer confidence has been strong this year, and a solid October report would bode well for businesses as the holiday shopping season gets going.

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