While largely considered among the less relevant of Fed indicators, once one gets beyond the traditional “modest to moderate expansion pace” summary of the economy, the Fed’s Beige Book release does in fact contain informative, and oftentimes useful anecdotes about the state of the economy as disclosed to the Federal Reserve. And since the latest, February, beige book comes at a time of major economic overhaul, it contained several particularly notable observations.
At the headline level, the Beige Book confirmed what is largely known, i.e., that the economy continues to expand at “a modest to moderate pace from early January through mid-February.” Some other observations:
- Consumer spending expanded modestly since the last report.
- Retail sales increased at a subdued pace across most of the nation, with a number of Districts noting an ongoing shift from in-store to internet purchasing.
- Auto sales varied widely, but were said to be up in most Districts.
- Tourism activity was mixed but mostly stronger.
- Manufacturing activity accelerated somewhat, with most Districts characterizing the pace of growth as moderate.
- The energy sector showed modest growth in early 2017, and transportation activity was steady to somewhat higher across the nation.
- Home construction and sales continued to expand modestly in most Districts, while residential rental markets were mixed.
- Home prices were steady to up modestly in most Districts, and a number of Districts noted low inventories of existing homes.
- Commercial real estate construction grew modestly, and sales and leasing activity grew moderately. Lending activity was steady to somewhat higher.
And yet, at the very end of the economic activity summary was this somewhat surprising note: “Businesses were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report.” So was this the beginning of the end of the hope trade? Perhaps, although following today’s blow off top in the S&P, the trade may have reset itself again.
On the topic of employment and wages, the Beige Book had the following observations:
- Labor markets remained tight in early 2017, with some Districts noting widening labor shortages
- A number of Districts noted that staffing firms were seeing brisk business for this time of year, and one noted more conversions from temporary to permanent workers
- A number of Districts noted that shortages of skilled workers—particularly engineers and IT workers—were driving up their wages, and there were also some reports of labor shortages in the leisure and hospitality, construction and manufacturing industries
- Employment grew moderately in most of the nation, though three Districts characterized growth as modest and two reported that it was little changed.
As for pricing pressures, the Fed said that these were little changed from the prior report, and added that “most Districts reported that selling prices were up modestly or moderately, though four indicated that prices had largely leveled off. Input prices were up modestly, on balance.”
It also reported that energy prices and farm prices were mixed but mostly steady, on balance, while prices for construction materials climbed in a number of Districts. Overall, businesses said they expected both input prices and selling prices to increase modestly in the months ahead. Considering the surge in headline inflation on the back of surging energy prices in recent weeks, it is not exactly clear if the Fed was looking at the same data as us.
That said, what was most interesting in the Beige Book was not the comprehensive summary but what the various districts reported. It was here that the Fed revealed anecdotes about the impact of the stronger dollar, concerns about the repeal of Obamacare, Atlantic City casino revenues, retailer fears about online competition, shipping container volumes, the impact of immigration policy on labor supply and even a sharp drop in Broadway theater attendance.
The key observations:
- Several Districts indicated concern about the affects of the strong dollar.
- Boston: Some hotel and restaurant groups feel that the executive order limiting travel from certain countries may have adverse business effects as the United States may not be perceived as a welcoming country. One healthcare staffing firm, for example, lost a substantial number of listings a few weeks ago when one of its clients issued a hiring freeze in Boston, waiting to see what happens with Obamacare.
- New York: An agency in New York City reported brisk hiring from small to medium sized financial firms. Tourism activity has shown signs of continued softening, with Broadway theaters reporting sharp declines in attendance in January and especially February, and hotels generally reporting lower occupancy rates
- Philadelphia: Contacts at the Jersey Shore indicated that peak summer bookings are filling up earlier each year. Even casino revenues in Atlantic City have finally begun to register some year-over-year gains on a more consistent basis
- Cleveland: A data analytics firm reported that brick-and-mortar retailers generally are experiencing 1.5 percent to 3 percent price declines. One factor driving the declines is competition from their Internet counterparts
- Richmond: Port officials reported record strength in container volume since the previous Beige Book. At one port, volume was described as “off the charts,” and another had its best month ever for loaded containers
- Atlanta: Many commercial contractors indicated that the pace of nonresidential construction activity had increased from a year ago, with many reporting backlogs greater than one year
- Chicago: An auto dealer expressed concerns that standards were loosening further for sub-prime auto financing
- St. Louis: Contacts reported moderate wage growth since the previous report. On net, 63 percent of contacts reported wages were slightly higher or higher than a year ago
- Minneapolis: Casino-related revenues in Deadwood, S.D., suffered a significant decline — as much as 25 percent at some operators — leaving one industry spokesperson to comment that the drop was “alarming”
- Kansas City: The number of active oil and gas drilling rigs continued to increase modestly, primarily in Oklahoma and New Mexico
- Dallas: Energy contacts were unanimously negative in their expectations about the impact of the proposed border adjustment tax on their firms. One clothing retailer said sales in border cities and energy-related areas remained sluggish
- San Francisco: Contacts in the agriculture sector noted that proposed changes in immigration policy could limit labor supply, particularly during harvest season, and drive up wage costs
via http://ift.tt/2mLHzit Tyler Durden