| The Beige Book, formally called the Summary of Commentary on Current Economic Conditions, is a report published eight times a year by the United States Federal Reserve Board. It is a fairly influential report, as it is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee, which can ultimately influence a decision on interest rates.
The most recent survey, based on information collected from mid-May through the end of June, indicated that overall growth of the economy (across most of the 12 Fed districts) was in line with the expected “modest pace” growth.
We reviewed the report in detail and below are the key takeaways we see:
- Prices and wages: the pressure of wage increases was prevalent across all districts, but grew modestly since the last report. However, the strongest pressure was linked to skilled workers, which proved to be difficult-to-fill positions. Price movements in the 12 districts were also very nominal. Output prices—with the exception of housing— hardly saw any upward movement, while input prices saw a mixed to moderate increase across all the districts.
- Employment: Since the last Beige report, job growth saw a steady but modest rise due to cautious hiring across a number of districts. Despite a strong demand for skilled labor across different fields like IT, biotechnology and healthcare services among others, positions were difficult to fill. Employment in manufacturing was more or less stable across all districts, but retail emerged as the only weak spot.
- Consumer spending: Overall consumer spending remained quite positive during the survey, despite exhibiting some signs of softening up. General retail sales reported mixed performance in terms of growth, as some districts saw slight to modest declines while others reported a modest to moderate growth. Despite low gasoline prices, most of the districts reported slowdown in automobile sales compared to the previous reporting period, but still remained at fairly high levels. The outlook for both general retail and automobiles looked quite optimistic. Strong growth in the travel and tourism activities in districts like Richmond, Chicago and Kansas City helped negate sluggishness in some districts, thus overall travel and tourism spending exhibited modest to moderate growth across all districts during the period.
- Manufacturing and other business activity: During the reporting period, manufacturing experienced mixed performance. Some districts saw a decline in manufacturing activity while some saw almost nil to a slight increase, but overall growth was mostly slow to moderate and some districts reported a rebound following a decline in the previous reporting period. Aircraft and automobile manufacturing were two of the strongest sectors, while manufacturers tied to the energy sector continued to report weakness. Non-financial sectors saw slight to modest growth during the reporting period while the professional business services sector in some districts reported an uptick. Healthcare remained the hottest sector across most states, while the transportation sector reported a mixed bag of performance.
- Real estate and construction activities: Steady job growth and an increase in the wage rate led to a rise in the demand for residential real estate, and coupled with low inventories it led to stronger performance of the sector compared to the previous reporting period. Single family homes were the hot property across districts, and despite inventory issues and rising prices, recorded moderate growth in sales. Commercial sales and leasing activity remained mostly stable or improved slightly in almost all districts, while commercial construction activity and multifamily construction recorded a mixed bag of performance.
- Banking and finance activities: Growing demand for houses coupled with steady job growth led to an increase in overall loan demand, although the pace of growth varied from ‘steady’ to slow across districts. Residential lending was the pick of the lot, but commercial real estate loans and consumer lending had its share of increased demand in certain districts, while auto loans saw a decline. Although overall asset quality improved across districts, most of the districts continued with relaxed lending standards for all sectors except energy.
- Agriculture and natural resources: Agricultural activity was mixed, but was deemed to be generally improving. Although the natural resources and energy sectors were still weak performers, the outlook for oil and gas is slowly improving in some districts.
Bottom Line for Investors
After a dismal start to the year, the overall undertone of the recent Beige Book report suggests that the outlook for the economy is positive, but that growth will be slow. In other words, pretty consistent progress.
Stable labor market conditions with modest job growth, modest to moderate wage pressure, increased consumer spending, strengthening real estate activity and an upsurge in loan activities are expected to support the growth of the economy for the rest of the year.
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