It’s probably not enough to move the needle on monetary policy, but the U.S. Federal Reserve sees signs of recovery in the U.S. economy.

The Fed’s latest “beige book” report says that data from the 12 Fed districts “indicate that the economy continued to improve, on balance”, with economic activity in the Boston, Cleveland, Atlanta, Dallas, and San Francisco districts increasing at a slight to modest pace, and a somewhat stronger pace of growth experienced in New York, Richmond, Chicago, Minneapolis, and Kansas City. Philadelphia and St. Louis reported business conditions as mixed.

Manufacturing activity continued to expand in almost all districts, and reports also showed steady to increasing activity for professional and non-financial services. Reports on consumer spending tended to be positive, it said. “Nonetheless, several districts noted that households remain price sensitive and focused on buying necessities,” the Fed said.

“Expectations for the holiday shopping season were generally positive, with several districts expecting higher sales when compared to year-ago levels,” it said, and sales of new cars and light trucks were higher.

However, housing markets remain depressed, it noted, lending activity remained stable, prices were fairly stable, and hiring activity “showed some improvement” across most districts.

“Today’s Beige Book report provides anecdotal evidence of the continued improvement in the U.S. economy,” notes RBC Economics. “With that said, today’s report indicates that hiring, while showing some improvement, continues to be fairly limited and prices pressures continue to remain subdued. Given this backdrop, we do not expect the Fed to make any changes to its highly accommodative monetary policy stance at its upcoming meeting as it works to support the continued recovery and ensure that inflation returns to levels that are consistent with the Fed’s mandate.”

TD Economics says that the report, “should be well received by the Fed heading into their next meeting”, as it signals that improvements are underway. However, it also points out that with no indication that prices are on the rise, “it seems unlikely that the Fed would consider scaling back its current purchase programs until this trend reverses course.”

“While there is clearly some positive inertia underlying the U.S. economic recovery, this report also reminds us of a few concerning trends that cannot be ignored. Home prices are declining again across many parts of the country, which will negatively impact the net worth of households and dampen confidence,” TD says.

“Further, there are some indications that a cheap dollar has buoyed international tourism, boosted demand for transportation services, and helped agriculture exports. If the dollar’s recent rally is sustained as Europe continues to grapple with debt concerns, many of these simulative forces could quickly fade,” it adds.

IE