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Troubling Views in Beige Book

Economic activity expanded in September and early October, but at a slower pace than in August.


Federal Reserve's

latest regional survey didn't have much to offer the bulls, providing instead a picture of a rather sluggish U.S. economy.

Reports from the 12 Fed banks, presented in a document known as the beige book, suggest economic activity continued to expand in all districts in September and early October but at a slower pace than in August.

Growth was similar to that observed in the last beige book in Atlanta, Boston, Chicago, Minneapolis, New York, Philadelphia and St. Louis, but the economy grew at a weaker rate in the Cleveland, Dallas, Kansas City, Richmond and San Francisco districts. The expansion was generally described as "moderate," "modest" or "mixed," the Fed said Wednesday.

The latest beige book was prepared at the Dallas Fed and was based on information collected by Oct. 5. The report summarizes the views of business people and other contacts outside the central bank and is not meant as a commentary on what Fed officials think.

Even though consumer spending rose, "reports were uneven and suggest growth was slower in September and early October than in August," the beige book stated. The manufacturing and service sectors continued to expand, but growth weakened, mostly for products and services related to home construction and real estate transactions.

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Several manufacturing and service firms reported that lighter domestic demand was offset by strong sales to global markets. The weak dollar has been benefiting U.S. exporters.

Residential real estate markets softened further, and most Fed districts reported additional declines in home sales, prices and construction. Financial institutions reported an increase in delinquencies and a slight deterioration in credit quality.

Most regions saw more business lending, but a decline or slower growth in consumer lending. Additionally, contacts in several industries indicated a "higher-than-usual degree of uncertainty about the outlook for economic activity," the beige book said.

"Many real estate contacts expect housing markets to remain subdued for several months," it continued. "At firms without direct ties to real estate and construction, contacts are still wary that credit tightening and slowing construction might slow activity in their industry, but there is cautious optimism because few see much evidence of such spillovers at this time."

Fed policymakers will next meet to discuss rates at a two-day gathering set for Oct. 30-31, and the beige book could heighten the chance of another reduction. At the last meeting in September, the bankers cut their target fed funds rate by 50 basis points to 4.75% in an effort to keep business activity healthy and the economy heading upward.

The entire beige book can be found by

clicking here.