Fed Beige Book: Manufacturing Flat to Up

Written by Becca Moczygemba

Overall economic activity saw little change in April and early May, while manufacturing activity was flat to up in most Federal Reserve Districts, and supply chain issues continued to improve, the Federal Reserve said in its latest Beige Book report.

FedResThe Beige Book is a compilation of information on current economic conditions, gathered by each district Federal Reserve Bank, and is published eight times per year.

The latest checkup, released on May 31 by the Fed on the state of the economy, said that expectations for future growth deteriorated a bit, but there is still an optimistic outlook on a further uptick in activity.

Four districts reported low increases in activity, six reported no change, and two saw moderate declines. High inflation and the end of pandemic benefits drove an increased need for social services and housing for lower income households, the report said. However, financial conditions were stable or somewhat tighter in most districts.

Though employment has grown, there are still reports of a lack of qualified workers available to fill positions. Staffing firms reported decreased demand, and some firms reported a hiring freeze or layoffs due to anticipating weaker demand or uncertainty about the economic outlook, according to the report.

Consumer prices rose due to demand and rising costs, as did home prices and rent. While firms anticipate continued price increases in the coming months, many districts reported a slowed rate of increase, the report said.

District Highlights From the May 2023 Beige Book

Boston – The economic outlook for Boston was reported as cautiously optimistic. Business activity was flat, but moderate revenue increases were recorded in retail, restaurant, and manufacturing sectors. Employment weakened due to low demand and reports of labor cuts. Wage increases slowed overall, and firms anticipate a mild decline. Firms expect to eventually raise prices in 2023 in response to ongoing cost pressures. Commercial real estate saw a decline in activity, while residential inched up. However, residential real estate is not expected to see exponential growth in the future because of very low inventory.

New York – Economic growth slowed moderately in the latest reporting period, as inflationary pressures persist. Solid labor demand can be attributed to demand for individuals with leadership and technology skills. However, companies in the construction, finance, and transportation sectors cooled off, leaving some businesses feeling uncertain about the future. Price increases are holding steady with input and selling prices. Conditions in the finance sector continue to deteriorate with tightening of credit conditions and decrease in loan demand.

Philadelphia – Business activity continued to subside. Manufacturing, among other sectors, appeared to decrease moderately.  Employment is growing amidst increased employee availability.  Real estate has cooled off in response to high interest rates, allowing home price to continue to rise. Commercial construction saw a slight jump, but expect future projects to wane.

Cleveland – Business activity in this sector was relatively flat, but reports varied by sector. The housing market has stabilized despite elevated interest rates, but the commercial real estate market appears to be struggling. Demand for manufactured goods was stable, owing in part to demand for aerospace equipment and heavy trucks and trailers. Real estate and construction has stabilized in response to the stabilization of interest rates. Though stabilized, the elevated interest rates are negatively impacting commercial real estate.

Richmond – Economic activity overall was stable, as was the manufacturing sector. Imports of consumer goods and automobiles affected volume for the ports, though export volumes were strong. Labor, real estate, construction, and non-financial services sectors reported modest growth. Employment saw slight growth despite a tight labor market, but firms reported little wage growth.

Atlanta – Economic activity slowed to a crawl. Labor markets eased reducing wage pressures. Consumer spending and tourism remained above pre-pandemic levels. Retail sales and leisure travel softened, though travel and hospitality firms reported strong demand. Non-labor costs have stabilized and housing demand remains strong. Energy firms noted solid demand and increased growth. Agricultural conditions remain weak.

Chicago – Economic activity was flat in April and early May. Employment and prices increased moderately. Consumer spending and business spending saw little movement. Agriculture expectations were not met as prices for corn and soybeans dropped. Manufacturing demand and backlogs softened, with steel orders increasing moderately. One steel service center reported low inventories due to high interest rates making it expensive to hold inventory. Banking and finance sectors tightened.

St. Louis – Economic conditions have not changed since the previous report. While unemployment remains low, there were reports of difficulties hiring workers. Wages and prices have increased, and consumer spending has a weak outlook. Manufacturing has ticked up and firms are receiving new orders. Real estate, construction, banking and finance, agriculture and natural resources all saw no change since the last reporting period.

Minneapolis – The region’s economy has grown modestly. While the labor market grew, so did the pressure for higher wages. Prices saw a low increase, reporting no change in input costs. The price of lumber and certain steel products decreased. Manufacturing increased slightly, specifically with agricultural equipment. Construction and real estate were flat overall. Agriculture reported a rise in income.

Kansas City – Very little change was reported for May. Consumer spending for restaurants, travel, and entertainment, which was attributed to the success of local sports teams despite an increase in prices. Manufacturing reported low change in volumes, but the number of new orders and production backlogs saw a mild decline. Agriculture was strong in May but appears to have plateaued. The pace of hiring was modest and an increase in applications allowed firms to become more selective with hiring.  

Dallas – Economic growth in the district grew at a modest pace partly due to growth in the retail and service sectors. Energy sentiment was mixed with stable oilfield activity but a decline in natural gas. Manufacturing saw little to no expansion as new orders continue to drop. One firm said customer inventories were high due to overstocking the previous year. Input costs were up but are low for manufacturing. Residential real estate was solid but weaker compared to one year prior.

San Francisco Economic activity saw moderate growth. Employment was stable and labor market conditions were tight. Price increases grew, but at a slower pace. Retail sales saw growth, specifically in food, beverage, furnishings, appliances, and apparel. Economic uncertainty led customers to be more selective with their purchases. Real estate and construction slowed, though there is still a stable demand for single-family homes. Manufacturing activity was strong for food, metal fabrication, and heavy machinery. Financial institutions continue to stick with higher interest rates and tighter lending standards, leading to uncertainty in the banking sector.

By Becca Moczygemba,

Becca Moczygemba

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