The Beige Book -- reports from the Fed's 12 regional banks based on data collected prior to November 19 -- indicated that 10 regions reported growth, up from eight in the previous report.
Five regions, including Boston and San Francisco, grew "at a slight to modest" pace, while five others, including New York and Chicago, reported a "somewhat stronger pace of economic activity."
Manufacturing: Still A Growth Engine
The Fed said "manufacturing activity continued to expand in almost all Districts, with relatively strong growth seen in metal fabrication and the automotive industries."
"Metal fabrication increased in Chicago, Kansas City, Dallas, and San Francisco. Contacts in automotive industries reported gains in Boston, Cleveland, Richmond, Atlanta, and Chicago. The Boston, Kansas City, and San Francisco Districts reported increased sales for high-technology manufacturers, though Dallas noted that growth in orders and production in high-technology industries had slowed from earlier in the year," the Fed said.
For retail spending, the Fed said most districts registered an improvement, with the exception of Boston, Cleveland, Richmond and St. Louis, where results were mixed. "More seasonably cool weather was credited for boosting sales in the New York and Dallas Districts. Grocers reported rising sales in Cleveland and Richmond, while sales dropped off in San Francisco. Purchases of apparel improved in the Philadelphia, Chicago, and Dallas Districts. Expectations for the holiday shopping season were positive across Districts," the Fed said.
Some Improvement in Hiring
Concerning job growth, the Fed said, "hiring activity showed some improvement across most Districts, although employers are waiting for clearer signals of expanding business prospects before adding significantly to payrolls. A preference for part-time and temporary workers was reported in the Atlanta and Chicago Districts. Seasonal hiring in retail trade is expected to be higher this year in Chicago and San Francisco than in the previous two years."
On inflation, the Fed said "final goods and services were fairly stable across Districts despite rising input costs, especially for agricultural commodities, metals, and fuel. Companies in the Atlanta, Chicago, Kansas City, and San Francisco Districts reported a limited ability to pass through higher input costs to customers given the relative softness in demand." However, some manufacturers in Boston, Cleveland and Atlanta have announced plans to raise their product prices in the near future, the Fed added. Wage pressures were contained.
Concerning housing, the Fed said, "Housing markets remain depressed, with several Districts reporting further weakening during the past six weeks. Conditions in commercial real estate were mixed, and activity stayed at low levels. Agricultural conditions were generally favorable, with several Districts reporting yields nearing historic highs. Agricultural sales to off-shore buyers increased. Overall activity in the energy sector continued to expand."
Meanwhile, lending activity remained stable across most districts, the Fed indicated. "Credit quality has been steady to improving for most of the Districts that commented on it."
Data Unlikely to Change Fed's View on QE2
The Fed's latest Beige Book report and analysis revealed almost no data that's likely to divert the central bank from QE2, the second phase of its quantitative easing policy aimed at stimulating the U.S. economy. The report confirms that U.S. economic growth has increased, but the economy is still growing well below its potential and too slow to substantially lower the U.S.'s unemployment rate, currently 9.6%.
U.S. Federal Reserve Chairman Ben Bernanke has already indicated that both job growth and inflation are too low -- the latter getting dangerously close to unwanted deflation.
Top-line inflation over the past 12 months is running at an historically low 1.2% rate, and the core rate, which excludes food and energy prices, is a minuscule 0.6% -- the lowest year-over-year core rate since 1957 and down from the 0.8% full-year rate registered in September. That 12-month core rate is lower than what the U.S. Federal Reserve wants it to be on a full-year basis, and further declines would probably signal that deflation has kicked in.