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The Importance of the Fed’s Beige Book for Investors

PART:
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Part 3
The Importance of the Fed’s Beige Book for Investors PART 3 OF 5

Fed’s Beige Book: Economic Activity in October and November

Overall economic activity

According to the November Fed Beige Book, economic activity in the United States continued to improve at a modest pace in October and through mid-November. Reports from the 12 Fed districts pointed to a slight improvement in the economic outlook for the review period. With the holiday season approaching, the sales outlook remained optimistic despite flat consumer spending in the retail (XRT) and auto sectors.

Fed’s Beige Book: Economic Activity in October and November

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Sector-based breakdown of economic activity

The Beige Book reported an increase in activity in the transportation sector, but the Fed districts of New York and San Francisco reported minor softening of activity. Wildfires in Northern California were cited as reasons for the reduction in shipping (SEA) volumes. Growth for the real estate sector (XHB) was reported to be slow, especially in the residential real estate sector.

The bright spot in the Beige Book was continued expansion in manufacturing activity, with the survey in all districts pointing toward continued expansion in the sector. The Fed districts of Philadelphia and St. Louis showed signs of a slowdown in manufacturing (XLI) activity. An expansion in the manufacturing sector is considered a positive sign for the US economy.

Implications for the December rate hike

A positive outlook for economic activity is likely to give confidence to FOMC (Federal Open Market Committee) members and give them the go-ahead for a rate hike (BND) at their December 12–13, 2017, meeting. There are a few more economic reports to be released before the meeting. They’re expected to remain in an expansive territory and not likely to deter a rate hike.

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