Fed's Beige Book: All Districts Expand Modestly or Moderately>

--Harvey Expected to Cause Disruptions, Too Soon to Tell Full Impact

--Consumer Spending Increased In 'Most' Districts, Non-Auto Retail

--Input Costs Rising; Pass-Through To Selling Prices 'Limited'

By Karen Mracek     

     WASHINGTON (MNI) - All 12 Federal Reserve districts reported modest 

or moderate economic growth in the past two months, the latest Beige 

Book survey showed Wednesday, up from the 10 reporting those levels of 

growth in the previous period. 

     The survey -- which informs the Federal Open Market Committee at 

its Sept. 19-20 meeting -- was conducted by the Chicago Fed before Aug. 

28 and the landfall of Hurricane Harvey which devastated Houston, the 

U.S.'s fourth largest city, and other areas along the Gulf Coast. 

     While the hurricane had not yet hit land, the survey said it 

"created broad disruptions to economic activity" in the Dallas and 

Atlanta districts, although it was "too soon to gauge the full extent of 

the impact." 

     Many firms were closing or expecting to close due to flooding, and 

one-fifth of the oil and natural gas production in the Gulf of Mexico 

was offline, the survey said in a special section. 

     Overall, with all districts reporting favorable growth conditions, 

the report seems to give the FOMC the greenlight to go forward with 

plans to announce the end of reinvestments at the September meeting. 

That meeting, which is not expected to see an increase in the fed funds 

rate, will be accompanied by an update to the Summary of Economic 

Projections and a press conference by Fed Chair Janet Yellen. 

     Consumer spending increased in most districts, with gains in 

non-auto retail sales and tourism, the survey said. Auto sales were 

reportedly mixed. Capital spending increased in some districts and 

manufacturing expanded "modestly" on balance, it said. 

     The Beige Book noted "prices rose modestly overall across the 

country," with input and materials costs increasing, "most notably for 

freight, lumber and steel." 

     However, the report continued, "a number of districts indicated 

that pass-through to downstream prices was limited, with increases in 

input prices exceeding gains in selling prices." 

     This is consistent with lower-than-expected inflation readings over 

the past few months -- the top concerns for policymakers as they weigh 

a third rate hike this year. 

     The survey noted "labor markets were widely characterized as 

tight," with employment growth having "slowed on balance, ranging from a 

slight to modest rate in most districts." 

     Part of this was due to the inability to get find workers, as "many 

districts indicated that businesses were having difficulty filling 

openings at all skill levels." 

     Despite the tight labor markets, the majority of districts reported 

"limited wage pressures and modest to moderate wage growth." The bright 

spot was the Dallas and San Francisco districts where "labor shortages 

were pushing up wages." 

     Firms in the Atlanta district, for example, "continued to implement 

various methods to attract and retain top talent, often in lieu of wage 

increases," the survey said. This includes offering flexible work hours 

and locations, more vacation time and training opportunities. However, 

"some contacts" noted these non-wage compensation methods "were losing 

their effectiveness." 

     The Beige Book survey, while mostly positive, highlighted the 

possible large economic impact of natural disasters such as Hurricane 

Harvey. A special section on the hurricane noted the storm affected fuel 

and petrochemical production with 15 refineries shutdown completely, and 

some areas experienced gasoline shortages. 

     Besides Harvey, the continental U.S. is in the path of Hurricane 

Irma, and possibly two other Atlantic storms. The Federal Reserve also 

released at 2 p.m., along with other banking regulators, recommendations 

for banks in impacted areas. 

     "The agencies realize that the effects of natural disasters on 

local businesses and individuals are often transitory and prudent 

efforts to adjust or alter terms on existing loans in affected areas 

should not be subject to examiner criticism," the release said.                                  

--MNI Washington Bureau, +1 202-371-2121; email: 

karen.mracek@marketnews.com-- 

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