U.S. Federal Reserve Beige Book

Ksenia Bushmeneva, Economist | 416-308-7392

Date Published: July 17, 2019

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Beige Book points to modest growth amid lingering uncertainty  

  • Today's Beige Book showed that economic activity increased at a modest pace across all Federal Reserve Districts from mid-May to early-July, little changed from the previous reporting period.
  • Broadly, manufacturing activity was flat or slightly weaker, but a few Districts noted signs of a modest pickup (Atlanta, Dallas and Richmond). 
  • The labor market continued to be characterized as tight, with the shortage of workers especially acute in construction, information technology, and health care. However, employment growth has moderated somewhat relative to the previous reporting period, and some manufacturing and IT firms in the Northeast were reportedly scaling down their payrolls. There were also some concerns among businesses about securing and renewing work visas, which was flagged as a risk. Compensation growth was unchanged, with wages increasing at a modest-to-moderate pace but entry-level wage growth has strengthened.         
  • In terms of consumer spending, retail sales were said to have increased slightly, even though vehicle sales were flat. Tourism activity was solid.
  • Assessment of activity in residential construction and real estate was mixed. Sales of homes have picked up somewhat, but homebuilding remained flat. Things were somewhat hotter outside of the residential sector, with nonresidential construction increasing or remaining strong in most Districts.  
  • Inflation was reported as stable to down slightly from the prior reporting period. Prices for steel and lumber softened due to lower demand. Elsewhere, businesses reported some upward pressure in input costs stemming from tariffs and the rising cost of labor, but reported limited ability to pass those increases to consumers due to stiff competition.    
  • Trade uncertainty remained top of the mind for survey respondents: "tariffs" were mentioned 33 (vs. 37 times previously) in the report, and "uncertainty" was mentioned 21 times (vs. 19 times previously). However, despite substantial concern among respondents about the trade-related risks, the outlook for the coming months was positive "with expectations of continued modest growth".   

Key Implications

  • This as another steady-as-she-goes Beige Book report. While trade uncertainty continue to rear its head in business surveys, particularly on the manufacturing side, overall domestic economy continue to hold up reasonably well with activity running at the not-so-hot – not-so-cold pace. 
  • Overall, we expect economic growth to moderate in Q2, and today's edition of the Beige Book appears to be consistent with this view. As the temporary factors that boosted headline growth in Q1 reverse course this quarter, growth is likely to come in around 2%.
  • From the Fed's standpoint this report doesn't provide much new information, largely reflecting developments which have already been communicated by other data releases. While the domestic economy continues to hold up quite well and consumer spending is expected to rebound in Q2, crosscurrents and risks remain elevated. This is likely to prompt the Fed to take out an insurance cut at the end of July.