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Fed Report Shows ‘Cautious Optimism’ for National Economy

Sentiment is ""cautiously optimistic"" surrounding the future of the nation's economy, although the federal government shutdown was cause for some concern, according to the Federal Reserve's ""Beige Book"":http://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201310.htm released this week.


Revealing economic conditions in each of the ""Federal Reserve's"":http://www.federalreserve.gov/default.htm 12 districts, the report found ""modest to moderate"" economic expansion across the nation over the reporting period from August 27 through October 7.

Reports of the housing market were generally positive--with markets growing or at least not faltering in most markets.

The Philadelphia District was the one exception. In fact, the district's business activity decelerated recently, and ""[t]he slowdown was most evident in the housing sectors,"" according to the Beige Book.

Homebuilders in the Philadelphia district reported declining sales, traffic and new contracts, while existing-home sales also slowed to a ""modest pace of growth.""

Overall, residential construction increased at a ""moderate"" pace, while nonresidential construction trailed behind. Multifamily construction outpaced single-family construction in several districts.

Real estate activity--both commercial and residential--""largely continued to improve,"" though activity was mixed across the districts, according to the report.

Lending remained ""modest."" Rising interest rates were of some concern, but not in all districts. Affordability has not been threatened in the Dallas District, and the Boston [COLUMN_BREAK]

District reported rising rates served as motivation for potential buyers to buy quickly before rates rise higher.

Overall, the financial sector was ""little changed,"" though demand for consumer loans slowed while demand for business loans rose slightly.

While some districts experienced a falloff in mortgage lending, originations rose in the Philadelphia, Richmond, and Dallas districts.

While consumer spending ""grew modestly,"" auto sales were strong, and retail growth was steady. The retail sector is looking forward to a strong holiday season, according to the report.

The tourism sector was vulnerable to the government shutdown. In particular, Richmond noted the temporary closing of several tourist attractions. However, as of the report, hotels did not report resulting cancellations.

Business spending increased ""modestly,"" with employment growth ""modest."" Uncertainty surrounding the Affordable Care Act and future fiscal policy may be holding back hiring, but nonetheless, the Federal Reserve found skilled labor is in high demand.

Manufacturing experienced ""modest"" growth spurred by activity in the automotive and aerospace industries, but the New York, Richmond, and Chicago districts' manufacturing sectors did not fare well.

Price and wage pressure were low overall.

Responding to the Beige Book, Erik Johnson, senior U.S. economist at HIS Global Insight said, ""Assuming that the shutdown is soon lifted and the debt ceiling is raised, as reports today have indicated, we expect modest improvements in the growth picture over the rest of the year.""

""The sequester is clearly hurting growth, but the economy's underlying fundamentals are solid,"" Johnson added.

As the federal government reopens for business, some uncertainty should fall away.

In eight of the 12 Federal Reserve districts, the overall economy grew at rates similar to the previous reporting period. However, growth declined in Chicago, Kansas City, Philadelphia, and Richmond.


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