The latest Beige Book suggests that the U.S. economy is still growing near its long term trend, but that the drag from a stronger dollar and weaker energy prices, along with the slowdown in emerging market (EM) economies — most notably China, are still having a major impact on the manufacturing sector. In addition, our analysis of the Beige Book confirms that there has been some spillover of weakness from the energy and manufacturing sectors to other parts of the economy in recent months. Comments in the Beige Book also continue to indicate that some upward pressure on wages is beginning to emerge; but the wage pressures are not accelerating, which should keep the Federal Reserve (Fed) from raising interest rates aggressively this year.

Overall, the Beige Book described the economy as expanding at a “modest or moderate” pace in 7 of the 12 districts, a downshift from the 9 of 12 citing “modest or moderate growth” in the January 2016 Beige Book. In general, optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book, as it has for the past two years or so, but pessimism is running high in the energy producing regions of the U.S. The Beige Book is a qualitative assessment of the…

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