Reports from the twelve Federal Reserve Districts indicate that economic activity continued expanding across most regions and sectors during the reporting period from July to mid-August. What does the September Beige Book tell us about the U.S. economy and how can it affect the gold market?

Eleven districts reported moderate to modest growth. Only the Cleveland district witnessed slight growth. Although the energy sector was flat or down in all districts, manufacturing was generally positive, with the exception of the declines in New York and Kansas City. The most important change in comparison to the July Beige Book is that several districts reported increasing wage pressures caused by labor market tightening. Sure, the Beige Book is only anecdotal, however, it may provide some insight into the next FOMC meeting. If the Fed sees increasing wage pressures in the employment report, it may finally hike interest rates.

According to the ADP report, a precursor to today’s non-farm payroll report, 190,000 jobs were created in August, slightly below consensus of 200,000 jobs, however, at a slightly faster pace that in the prior month. This means that the labor market continues to improve, despite all the uncertainty in the stock market.

It is not the end of positive news. According to the Bureau of Labor Statistics, labor productivity increased 3.3 percent on an annual basis during the second quarter of 2015, while U.S. construction spending rose in July to the highest level in more than seven years.

The take-home message is that the September Beige Book and other recent data from the real economy will not halt the march to a September rate hike. If there is any march, of course, since it is much easier to cut than to hike interest rates and the market probability of a September rate hike significantly decreased after the recent stock market turmoil. The September rate hike would be negative for the price of gold in the short term, however, probably less than it is commonly believed, because the financial conditions in the U.S. have been tightening for several months in anticipation of the Fed’s move.

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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