By Steven K. Beckner

(MNI) – Lending support to Federal Reserve Chairman Ben Bernanke’s
recent comment that the recovery is “close to faltering,” the Fed’s
latest survey of economic conditions around the country finds a sluggish
pace of growth amid increased anxiety about the outlook, results
released Wednesday show.

The so-called “beige book” survey, based on what business and
banking contacts told the 12 Federal Reserve districts through Oct. 7,
found that “overall economic activity continued to expand.”

However, as summarized by the Chicago Federal Reserve Bank, “many
Districts described the pace of growth as ‘modest’ or ‘slight.”

And contacts “generally noted weaker or less certain outlooks for
business conditions,” according to the beige book, which will be
reviewed by the Fed’s policymaking Federal Open Market Committee at its
Nov. 1-2 meeting, at which the FOMC will undergo an quarterly important
revision of its three-year economic projections for growth, unemployment
and inflation.

With regard to the latter, the survey found that firms are still
passing through cost increases from earlier in the year, but that
current cost pressures are diminishing. Meanwhile, with labor markets
still weak, wage pressures are described as “subdued.”

The Fed report said “consumer spending was up slightly in most
Districts, with auto sales and tourism leading the way in several of
them.” However, excluding autos, “a large number of Districts reported
that non-auto retail sales were flat to down.”

Business spending “increased somewhat, particularly for
construction and mining equipment and auto dealer inventories, but many
Districts noted restraint in hiring and capital spending plans,” the
report said, adding, “contacts in a number of Districts reported that a
weaker and more uncertain economic outlook had increased caution and was
weighing on future spending plans.”

The beige book found that manufacturing and transportation activity
“increased on balance,” but non-financial services were “mixed.”

Despite some “slight improvement,” commercial and residential real
estate “remained weak,” according to the survey.

The Fed said financial services “weakened,” and business loan
demand weakened amid “tight” loan standards. On the other hand, it said,
“several Districts indicated that strong competition among banks for
high quality borrowers was leading to lower rates and fees for these
customers.”

While the survey did not find much evidence of accelerating
inflation, it also did not reflect strong disinflationary pressures in a
climate of considerable slack in resource use.

“Respondents indicated that labor market conditions were little
changed, on balance, in September,” said the beige book. “Several
Districts cited only limited and selective demand for new hires.”

The Cleveland, Richmond, Atlanta, Chicago, and Kansas City Federal
Reserve Banks noted that “firms in some sectors that were hiring more
broadly (such as manufacturing, transportation, and energy) were also
experiencing difficulties in finding appropriately skilled or qualified
labor.”

But in the Boston, Richmond, Atlanta, and Chicago Districts,
contacts said “hiring was being restrained by elevated uncertainty or
lower expectations for their future growth.”

And so “most Districts reported that wage pressures remained
subdued,” with the exception of workers with specialized skills or in
areas where firms were having difficulty finding workers.

On the price front, the report said, “most Districts reported a
general decline in commodity prices, including prices of oil and
industrial metals.”

“Many Districts indicated that there continued to be some further
passthrough of past increases to wholesale prices,” it continued.
“Though retail contacts noted a hesitation to increase prices with
demand still weak, many Districts reported increased pass-through of
costs in the retail sector, particularly for food and cotton-based
goods.”

** Market News International **

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