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Market CommentariesThe Beige Book Provides Few Surprises

 

The U.S. Federal Reserve released its latest Beige Book economic summation within the past hour, and that issuance, which is used by the nation's central bank in formulating monetary policy for the next FOMC meeting (scheduled for later this months) revealed few surprises. The stock market's response, as a result, was rather muted, with the uneven quality displayed by the leading averages earlier today, following three straight days of noteworthy gains, continuing. 

Essentially, the Beige Book, which covers business conditions across the nation's 12 Fed Districts, indicated that economic activity has continued to expand at a modest pace across most regions. (The Beige Book covered the time period from mid-May through the end of June.) Exceptions were Cleveland, which noted relatively stable conditions, and the Minneapolis District, which had observed moderate expansion in business activity.

Breaking down the report, we see that labor market conditions remained stable, as employment continued to grow modestly, while wage pressures remained modest to moderate, reflecting the nominal increase in average hourly wages, reported earlier for the month of June. Overall, price pressures remained slight, suggesting that the Fed continues to have plenty of flexibility in its interest rate maneuvers. Also, consumer spending was generally positive, but with selective signs of softening.

In other areas, manufacturing was mixed, but generally improving; real estate activity continued to strengthen; but the energy sector remained weak, in spite of the notable increases in oil prices over the past five months, or so. The outlook was generally positive across wide swaths of the nation's economy, including the pivotal retail category. Expectations are that growth will remain modest in the months to come.   

Looking at the report, in its entirety, there seems to have been few surprises, and the data would suggest that there are no new pressures on the lead bank to either step up the pace of monetary tightening or eschew any measures to restrict credit for some time to come. Our thinking remains that the Fed will continue to go slowly on the monetary front, especially in view of the recent Brexit vote, and that, at most, we will see one rate increase this year.

The stock market did little, as noted, in response to this release and the gains of the past three days appear to be holding up, but traders also seem to not be in any rush to add to them. 

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