Fed Beige Book Signals Continued Economic Growth, Drop In Optimism

by Ike Obudulu Posted on January 16th, 2019

Washington: Economic activity has continued to increase in most of the U.S., according to the Federal Reserve’s Beige Book released Wednesday afternoon, although the report also hinted at a deterioration in optimism.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, said eight of the twelve districts reported modest to moderate growth.

With several districts reporting more holiday traffic compared with last year, the report said non-auto retail sales grew modestly, while auto sales were flat.

While the Fed said most districts indicated a continued expansion in manufacturing, the pace of growth slowed, particularly in the auto and energy sectors.

The central bank also said new home construction, existing home sales, and commercial real estate activity were all little changed.

Looking at the labor market, the Beige Book said employment increased across most of the country, with a plurality of districts reporting modest growth.

All districts noted that labor markets were tight and that firms were struggling to find workers at any skill level, the Fed said.

The report also said most districts reported modest to moderate increases in prices, although reports were mixed on whether firms could pass higher input costs on to customers.

In addition to rising materials and freight prices, a number of districts also said higher tariffs were a factory in cost increases.

Looking ahead, the Beige Book said outlooks generally remained positive, but many districts reported that contacts had become less optimistic.

The drop in optimism reflected increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.

The effect of the partial U.S. government shutdown, now in its fourth week, appeared to be muted while the information for the Beige Book was gathered.

The only mention of a shutdown-related impact came from the Chicago Fed, which said farmers and others were facing greater uncertainty due to the slowed release of government agricultural reports. Payments to farmers impacted by tariffs were also disrupted by the shutdown.

The Fed raised interest rates at its policy meeting last month, its fourth hike of 2018.

But with inflation showing no sign of rising above the Fed’s 2 percent target, and mounting worries about trade policy and slowing global growth, Fed Chairman Jerome Powell has said the central bank will take a “patient” approach to rate hikes this year.

And now, as the record-long government shutdown threatens growth further and the Fed begins preparing for its next policy meeting later this month, many of Powell’s fellow policymakers have echoed that sentiment.

The Beige Book offers a window into what policymakers are seeing and hearing in their own districts, information that they typically draw on when they stake out their own views of the economy at the Fed’s rate-setting meetings.

Powell in particular has said he pays close attention to such anecdotes to assess where the economy is heading before it is apparent in the data.

The latest Beige Book was prepared by the Chicago Fed based on information collected on or before Jan. 7, 2019.

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