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Fed's Beige Book Says U.S. Economy Expanded At Modest Pace

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With the Federal Reserve's next monetary policy decision looming, the central bank's Beige Book released Wednesday said the U.S. economy expanded at a modest pace through the end of August.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, will be used by Fed officials to make their decision on interest rates at a two-meeting on September 17th and 18th.

The report noted continued concerns regarding tariffs and trade policy uncertainty but said the majority of businesses remain optimistic about the near-term outlook.

The consumer has recently been seen as a resilient source of strength for the U.S. economy, although the Beige Book described the reports on consumer spending as mixed.

The Beige Book also said overall manufacturing activity was down slightly from the previous report, which may add to concerns about manufacturing after yesterday's disappointing report from the Institute for Supply Management.

The ISM said its purchasing managers index fell to 49.1 in August after dipping to 51.2 in July, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to edge down to 51.0.

With the bigger than expected decrease, the PMI indicated a contraction for the first time since August of 2016 and hit its lowest level since January of 2016.

The Fed also said home sales remained constrained in the majority of districts due primarily to low inventory levels.

Ahead of the Labor Department's closely watched monthly jobs report on Friday, the Beige Book said districts reported modest job growth overall, on par with the previous reporting period.

While employment growth varied by industry, the Fed said some districts noted manufacturing employment was flat to down.

The Beige Book said the pace of wage growth remained modest to moderate, with some districts noting efforts to attract and retain employees in addition to wage increases, including enhanced benefits offerings, work arrangement flexibility, and signing bonuses.

On the inflation front, the Fed said districts indicated modest price increases since the last Beige Book, which was released in mid-July.

Reports on the impact of tariffs on pricing were described as mixed, with some districts anticipating that the effects would not be felt for a few months.

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