Fed Beige Book: Overall Economy is Up

Written by Becca Moczygemba

 The US Federal Reserve said that overall economic activity has inched up since May in its latest Beige Book Report released on July 12.

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 newest report by the Fed on the state of the economy, said that we can expect slow economic growth in the coming months. The outlook in the previous issue was slightly more optimistic.

Five districts reported modest growth in economic activity. Another five districts remained the same with no change, and two districts noted a slight decline. Manufacturing increased in half of the districts, while the other half reported a decline.

Employment gained some traction between May and July, with most districts reporting some job growth. Though there is still some difficulty finding people to fill positions, hiring is becoming more selective, according to the report. Health care, transportation, and hospitality sector jobs have been especially difficult to fill. Notably, the report said there have been unusually high turnover rates, which seem to be returning to pre-pandemic levels.

Consumer prices rose modestly overall, the Beige Book said. Some areas were hesitant to raise prices due to consumer sensitivity, but others noted solid demand and were able to preserve margins.

District Highlights From the July 2023 Beige Book

Boston – Modest increases in employment and stable prices helped provide Boston with an optimistic outlook. The district’s manufacturing sector was optimistic, but is still struggling to fill positions. However, it has improved since the same period one year prior. The report noted one semiconductor manufacturer who said its sales were up 12% year-over-year, thanks to the automotive industry. The manufacturer expects higher demand in 2024 with new AI developments on phones and computers.

New York – Economic activity has stabilized thanks in part to a strengthening labor market. In the previous report, inflationary pressures were still being felt in the second district, but have since eased. Manufacturing saw an increase in overall activity, including improved supply availability. Distribution and manufacturing businesses are optimistic about the next six months. Though the housing market was strong, low inventory continues to be a challenge. The finance sector continues to experience tighter credit conditions, resulting in a higher number of declined loans.

Philadelphia – Business activity continues to slide in the third district, including a moderate decline in manufacturing. According to the report, the measurement for new orders was in the negative for the 13th consecutive month. However, manufacturers have a positive outlook on the next six months after experiencing fewer supply chain disruptions. Labor availability continues to improve, but employment decreased slightly. Overall economic growth is expected to be restrained in the coming months, the report said.

Cleveland – There has been little to no change in the fourth district since the previous report. High interest rates has led to delayed projects, decreases in loan approvals, and low growth in manufacturing orders. However, some manufacturers reported working through substantial backlogs. Steel manufacturers noted fewer orders compared to previous months due to an unexpected slowdown in the early part of July. Businesses in the construction sector said that steel and lumber prices were falling, while concrete prices were on the rise. Nonresidential construction and real estate activity remained slow, including the softening of investments in the commercial real estate market. The near-term outlook is cautiously optimistic.

Richmond – Employment grew moderately but businesses continue to struggle to fill positions. New orders decreased as manufacturing activity slowed down. Ports in the fifth district have noticed the slowing of imports. Retailers and manufacturers report steady inventory levels and are not placing as many new orders. Exports are strong, especially agricultural exports. Like other districts, demand for commercial loans softened and commercial real estate was mixed. Commercial retail and industrial growth grew but multifamily building slowed.

Atlanta – Growth in the sixth district continues to crawl, the report said. Construction input costs decreased with the price of steel and lumber retreating to prices similar to pre-pandemic. Wholesalers reported resistance from customers regarding price increases. Multifamily activity softened, but single home sales rose despite increased sales prices. Labor availability has improved, but the report notes challenges filling corporate positions, skilled construction, and healthcare openings. Some manufacturers continue to operate shorthanded and run overtime to meet customer needs. Other manufacturers report lower demand and stable employment levels.

Chicago – Though manufacturing demand was down in May and June, steel orders edged up. Orders placed by automotive and construction industries contributed to new orders. Less demand in the aerospace segment created a lower need for fabricated metals. The auto industry reported steady production, but machinery sales declined in response to less demand from the auto industry. Results for the agriculture sector were mixed. A drought has caused volatile crop prices, pushing the price of corn down and the price of soybeans and wheat up. Overall, real estate activity in the seventh district was down. The report notes an expected slowdown for this district in the coming year.  

St. Louis – For the second consecutive issue, economic conditions have not changed since the previous report. While employers reported less turnover, there are still struggles to fill positions. Technology improvements have aided in supplementing labor shortages. Residential real estate ticked up, but commercial real estate has not been as fortunate. Public construction remains stable, but private construction projects are subsiding. Manufacturing activity in Missouri and Arkansas has grown moderately with new orders and less strain on the supply chain. The outlook for manufacturing is positive for the near future, according to the report.   

Minneapolis – Drought conditions have also affected the ninth district. Though corn and soybean crops have been good, wheat crops were in poor condition when harvested. Manufacturing received mixed reviews. One metal fabricator reported strong activity, and that it could take on more work if it had the right workers. Heavy equipment manufacturers noted fewer orders. Customers are opting to repair older equipment rather than replacing it because of higher financing costs. Employment has grown since the last report was issued, but availability still remains low. The construction sector noted growth with the expectation to grow even more in the coming months. Both residential and commercial real estate have softened.

Kansas City – Little change was reported for the tenth district. The labor market remained relatively stagnant and the outlook for the next six months is similar. Manufacturing activity softened, reacting to a decline in demand and fewer backlogs. Manufacturers expect conditions to continue to weaken in the coming months. The report noted that home builders suggested increased activity since the last issue. A slower commercial sector could lend employees to the residential arena and boost home sales. Activity in the energy segment was down, respectively. Active rigs dropped due to softening oil and gas prices. Despite access to credit, energy companies appear to be holding off on capital expenditures.

Dallas – Economic growth in the district grew yet again at a modest pace partly due to growth in single-family housing and the service sectors. Energy sentiment was down with a decline in oil and gas wells. The energy sector is expected to increase oil-focused drilling, but not as much for natural gas. Labor inched up in the service sector but stabilized in manufacturing. Labor shortages continue to be an issue for health care in the 11th district. Manufacturing slowed in response to fewer new orders in machinery and transportation equipment, but there was an increase in fabricated metals. Strong demand in residential properties continues to improve the real estate sector. Construction lead times have improved, though the outlook is cautiously optimistic.

San Francisco – Activity in the 12th district slowed, according to the report. Labor availability improved, but continues to be a challenge for the health care and hospitality sectors. Price increases persevere, causing reports of higher inflation across various industries and products such as utilities, insurance, used automobiles, health care, and construction materials. Manufacturing fell to the wayside, but conditions in the metal industry were relatively unmoved. Commercial real estate was softer than residential due to limited credit availability, but businesses in Utah noted strong demand from industrial and retail spaces. The state of financial institutions remained unchanged, still hanging on to tighter credit conditions.

By Becca Moczygemba,

Becca Moczygemba

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