The strong US dollar weighed on manufacturing and tourism spending in the United States while the economy continued “modest” expansion in recent weeks, the Federal Reserve says in a new report.
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Activity picked up modestly in half of the Fed’s regional bank districts and moderately in just three regions – Minneapolis, Dallas and San Francisco, according to the Fed’s beige book, which provides an anecdotal snapshot of the economy.
Policies meant to stimulate overseas economies have helped push up the value of the dollar against other currencies, effectively making American-made goods more expensive for global customers while lowering the cost of imports into the U.S.
But tepid wage growth, a key worry of the Fed as a sign of remaining slack in the market, was “mostly subdued” except for pockets of increased wage pressures.
Fed Chair Janet Yellen has said the Fed may raise short-term interest rates before the end of the year should the economy continue to expand.
“Producers continued to cite weak oil and gas activity along with a strong dollar as key reasons for the sluggish activity”, the report said. Boston and Richmond Districts also reported increases in economic activity while only the Kansas City District noted a slight decline in economic output.
The Beige Book for August arrives ahead of the Federal Reserve’s meeting on October 27-28.
Though there was a few strength in the auto, aerospace and transportation equipment industries, metals industries were hit by the strong dollar and competition from China.
Almost all Fed districts reported rising residential home prices and more sales volume since the previous Beige Book report was issued.
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In the Big Apple, revenues at both hotels and Broadway theaters reportedly have slipped below comparable 2014 levels, and sales are down at shops frequented by foreign buyers, the report said. On Monday, governor Lael Brainard said “the risks to the near-term outlook for inflation appear to be tilted to the downside”, though she didn’t offer a prediction for the timing of the first rate increase.
