Economy
Fed Beige Book: Businesses Forecast Modest Growth Despite Trade Concerns
Written by Tim Triplett
July 18, 2019
Economic activity continued to expand at a modest pace from mid-May through early July, although manufacturing production was generally flat, reported the Federal Reserve in its July 17 Beige Book. The Fed’s periodic survey of the market found businesses have a generally positive outlook for the coming months, with expectations of continued modest growth despite widespread concerns about the possible negative impact of trade-related uncertainty.
In most of the Fed’s 12 districts, sales of retail goods increased slightly overall, although vehicle sales were flat. Although some districts continued to report healthy expansion in the transportation sector, others noted that activity declined modestly. On balance, home sales picked up somewhat, but residential construction activity was flat. Nonresidential construction activity increased or remained strong in most reporting districts, and commercial rents rose.
On balance, employment grew at a modest pace. Labor markets remained tight, with contacts across the country experiencing difficulties filling open positions. The reports noted continued worker shortages across most sectors, especially in construction, information technology and health care. However, some manufacturing and information technology firms in the Northeast reduced their number of workers. A few reports highlighted concerns about securing and renewing work visas, flagging this as a source of uncertainty for continued employment growth.
The rate of price inflation was stable to down slightly from the prior reporting period. Districts generally saw some increases in input costs stemming from higher tariffs and rising labor costs. However, firms’ ability to pass on cost increases to final prices was restrained by brisk competition. Reduced supply boosted prices for some agricultural goods. Reports on transportation costs were mixed, with some districts noting increased upward pricing pressures, while others highlighted price declines due to reduced demand for shipping services. Prices for professional and business services fell slightly, and steel and lumber prices softened due to lower demand.
Highlights by Federal Reserve District
Boston: Economic activity expanded at a modest pace at the end of the second quarter of 2019. For manufacturers, tariffs and trade policy uncertainty were major issues. Wage and price pressure remained modest, however. Labor markets continued to be tight.
New York: Regional economic growth slowed to a modest pace. Despite tight labor markets, job creation slowed and wage growth was subdued. Increases in both input prices and selling prices have slowed. Manufacturing activity declined. Banks reported a pullback in loan demand, and the financial sector showed signs of softening.
Philadelphia: Business activity continued at a modest pace of growth. Trade uncertainty further delayed business investment, and wage increases edged higher as tight labor markets continued to constrain hiring. Still, inflation remained modest, and firms remained positive about the six-month outlook.
Cleveland: District economic activity was flat over the period. Demand for financial and nonfinancial services strengthened, but demand for manufacturing and freight softened. Employment increased modestly, mostly in professional and business services. Wages increased modestly, with growth in most sectors. Price inflation decelerated as materials costs, especially for steel, fell.
Richmond: The regional economy grew at a modest rate. Manufacturers reported a slight uptick in shipments and new orders. Port activity remained strong. Trucking volumes fell below seasonal levels. Nonfinancial services and tourism increased in recent weeks. Meanwhile, residential and commercial real estate sales, leasing, and lending picked up modestly. Labor markets remained tight and wages rose moderately.
Atlanta: Economic activity modestly improved. Labor market conditions remained tight. Overall, wage growth was steady. Firms noted rising input costs. Consumer spending was up since the previous report. Housing sales improved from low levels earlier this year. Manufacturing activity grew. Loan activity pulled back slightly.
Chicago: Economic activity was little changed. Employment increased modestly; business spending increased slightly; consumer spending and construction and real estate activity were flat; and manufacturing decreased slightly. Wages and prices rose modestly. More wet weather put further stress on farmers.
St. Louis: Economic conditions have improved slightly. Barge traffic picked up somewhat after being halted by recent flooding. St. Louis builders expect increased housing permits in the summer as they make up for time lost due to wet spring weather. Loan volumes continued to increase, but growth has slowed slightly.
Minneapolis: Ninth District activity grew at a modest-to-moderate pace. Labor demand was healthy, but restrained by lack of labor availability. Consumer spending rose, but saw conflicting activity. Commercial and residential construction rebounded after several slower months. Manufacturers described demand as stable overall, with some concerns about a slowdown. Heavy rainfall and flooding delayed crop planting, further hurting farmers.
Kansas City: District economic activity continued to grow at a slight pace. Retail and restaurant contacts reported moderately higher sales, and residential real estate sales remained robust. Manufacturing, wholesale trade, and professional and high-tech activity held steady, but transportation activity slowed modestly. Energy activity expanded slightly, while the agriculture sector was strained further by delayed planting and harvesting.
Dallas: Economic activity expanded moderately. Retail sales and drilling activity dipped, but growth picked up in nonfinancial services and manufacturing in June after softening in May. Input cost pressures increased in manufacturing likely due to tariffs. Hiring continued at a steady pace. Outlooks were mixed, with tariff and trade tensions driving up uncertainty.
San Francisco: Economic activity in the Twelfth District continued to expand at a moderate pace. Labor market conditions remained tight and wage growth was moderate. Conditions in manufacturing were mixed, while conditions in agriculture deteriorated modestly. Activity in residential real estate markets expanded moderately. Lending activity increased moderately.
Despite the economy’s solid outlook, Fed officials are still expected to reduce interest rates at their meeting later this month.
Tim Triplett
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