Fed's Beige Book: Economic Activity Grows Despite Hurricanes -- Update

By Sharon Nunn and Sarah Chaney Features Dow Jones Newswires

Economic activity grew at a measured pace across the country in September and October, despite sector-wide disruptions caused by recent hurricanes in the Southern and Eastern U.S., according to a new report from the Federal Reserve.

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The pace of growth was split between moderate and modest among the Fed's 12 districts, the central bank said Wednesday in its latest gathering of anecdotal information about regional economic conditions, known as the beige book. The report's information was collected through Oct. 6.

The growth occurred alongside Richmond, Atlanta and Dallas districts reporting major disruptions from hurricanes that hit their areas. Dallas experienced an increase in auto sales because of storm-damaged vehicles and Richmond saw heightened manufacturing prices, particularly some raw materials. The Atlanta district reported hurricane-related effects on its energy, agriculture and tourism sectors.

Hurricane Irma had a particularly pronounced impact on Florida's tourism industry. For up to three weeks, hotels and restaurants on Florida's west coast remained closed because of power outages and downed trees, though the rest of the state was functional within a week. Some hotels and resorts in the Florida Keys could take six months to rebuild. But Georgia and Louisiana experienced an uptick in visitors, as Floridians fled the path of the hurricane.

More widely, employment growth was "modest on balance," and labor markets were already widely described as tight. Firms nationwide said they were still struggling to fill positions, particularly in construction, transportation, skilled manufacturing, and some health-care and service positions. Despite this labor-market tightness, most districts reported only modest to moderate wage pressure.

Overall inflation remained modest since the Fed's last report, matching other recent sluggish price-change readings. On the sector-level, transportation, energy and construction materials prices rose, though some districts attribute the increase to the recent storms.

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Hurricanes that hit the southern U.S. disrupted economic activity in late August and September. Job losses increased in affected areas, gasoline prices jumped and industrial production slumped as refineries and chemical plants on the Gulf Coast shut down. Wildfires currently affecting Northern California could also show up in some economic readings in the coming months.

Wednesday's beige book was released two weeks before the Fed holds its next policy meeting at which monetary-policy tightening, and its appropriateness, will be front and center. Fed officials have said they expect another short-term rate increase before the end of 2017, after already raising rates twice this year.

The Fed in late September announced it would begin to shrink the assets it purchased in the wake of the financial crisis, and the progress made thus far is likely to be up for discussion at the meeting too.

But the U.S. central bank faces a conundrum. Inflation has been sluggish, remaining below its 2% annual target for most of the past half-decade, despite a historically tight labor market and cheery consumer confidence that many economists and analysts had expected to generate stronger price growth. This report further affirms that conundrum.

The Fed's beige book report can be accessed at: https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm

Write to Sharon Nunn at sharon.nunn@wsj.com and Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

October 18, 2017 14:35 ET (18:35 GMT)