Fed's Beige Book Tells Tale of Moderate Economic Improvement

The housing market continued its robust expansion, benefitting from low mortgage interest rates. On balance, commercial real estate conditions in the hotel, retail and office sectors deteriorated somewhat, while activity in the multifamily sector remained steady and the industrial segment continued to strengthen, the report said.

A slight uptick in oil and gas production and energy consumption was noted in some districts. Agricultural conditions improved since the previous report and transportation grew modestly in many districts.

Employment levels rose slowly and were mixed by industry and by skill levels. Labor shortages were noted for low-skill occupations and skilled trade positions. Wages rose modesty for high demand positions as competition for employees intensified. Wage increases are expected to “persist or pick up” across most districts in the next several months.

Inflation indicators were closely watched with nonlabor costs rising moderately and significant increases noted for steel and lumber prices. Rising fuel costs and capacity constraints caused transportation costs to increase.

“Reports on pricing power were mixed, with some retailers and manufacturers affected by input cost increases reporting the ability to pass prices through, while many others were unable to raise prices,” said the Federal Reserve in its report. “Several Districts reported anticipating modest price increases over the next several months.”

District Highlights as Reported in the February 2021 Beige Book:

Boston – Economic activity remained mixed in the First District, with strong performance at manufacturers and ongoing weakness at hospitality outlets. Labor markets were tight for skilled workers. Manufacturers faced new upward pressures on input prices. Single-family home sales increased further. Contacts in the restaurant and hotel industries expressed a more optimistic outlook.

New York – The regional economy declined modestly, with particular weakness in the service sector. The labor market has remained sluggish, though wage growth accelerated. Businesses reported further acceleration in prices, as well as increasingly widespread supply disruptions. Contacts across a wide variety of sectors expressed increased optimism about the near-term outlook.

Philadelphia – Business activity rebounded to a modest pace of growth during the current Beige Book period. COVID-19 cases waned and restrictions eased, but economic disruptions continued. On the whole, activity remained below levels attained prior to the pandemic. Employment rebounded – growing slightly – as wage growth and prices picked up to modest and moderate paces, respectively.

Cleveland – The District’s economy regained momentum, reflecting declining numbers of coronavirus infections and various fiscal support measures. That said, activity remains below pre-pandemic levels for most firms, and supply chain disruptions restrained output for many firms. Such disruptions also led to sizable increases in nonlabor costs. Hiring activity remained modest, although a greater share of firms reported they were raising wages.

Richmond – The regional economy continued to grow modestly. Manufacturing activity picked up, as did port and trucking transportation. Travel and tourism also rose in recent weeks. Retail sales, on the other hand, declined. The housing market remained strong and commercial real estate leasing rose modestly. Employment increased slightly while wages were little changed. Prices increased moderately in recent weeks.

Atlanta – Economic activity expanded modestly. Labor market conditions improved, and wage pressure was subdued. Some nonlabor costs rose. Retail spending was steady. Tourism and hospitality activity rose slightly. Residential real estate demand increased, and home prices rose. Commercial real estate conditions were mixed. Manufacturing activity improved. Conditions at financial institutions were stable.

Chicago – Economic activity in the Seventh District increased modestly. Manufacturing and consumer spending increased moderately; business spending and construction and real estate increased slightly; and employment was little changed. Wages and prices rose modestly. Financial conditions were little changed. Contacts expected agricultural income to be solid in 2021.

St. Louis – Reports from contacts indicate that economic conditions have been generally unchanged since the previous report. Overall, the outlook among contacts continued to improve and is generally optimistic. Contacts noted a high degree of uncertainty about the pace of recovery, which they linked to vaccine rollout and efficacy.

Minneapolis – District economic activity increased modestly. Hiring demand rose, but employment growth remained flat, likely due to labor supply constraints and workers’ hope of being rehired by previous employers. Manufacturers expected a recent uptick in business to carry forward, while construction and real estate were seeing hot and cold activity across the District. Conditions for minority and women-owned businesses remained difficult.

Kansas City – Economic activity expanded slightly, with gains in most sectors. Stronger retail, restaurant, and healthcare sales drove consumer spending higher in January, but consumers pulled back in February. Activity rose in manufacturing, professional and high-tech services, wholesale trade, residential real estate, energy and the agriculture sectors. Contacts were generally optimistic about future growth, driven in part by the COVID-19 vaccine rollout.

Dallas – The District economy expanded at a moderate pace, though output in most industries remained below normal levels. Unprecedented winter storms and widespread power outages in mid-February severely disrupted economic activity, though the impact is mostly expected to be transitory. The housing market continued to be a bright spot, and energy activity improved further. Employment rose and wages increased moderately. Outlooks were generally positive, but uncertainty persisted.

San Francisco – Economic activity in the District expanded at a modest pace as labor markets deteriorated somewhat. Wages and inflation picked up. Retail sales improved, but activity in the services sector declined moderately due to ongoing pandemic-related restrictions. Conditions in the agricultural and manufacturing sectors strengthened modestly. Residential construction and lending activity continued to be strong.