The Federal Reserve’s September Beige Book indicates that the economy continues to improve. This summary covers the period from the end of June through August 28th. Little of the impact from hurricane Harvey was captured in this summary. It was mentioned that the flood caused many firms to close, a fifth of the oil and gas production in the Gulf of Mexico was offline and that 15 refineries were forced to temporarily curtail production. In addition gasoline shortages were reported in the South and Southeast because of freight and pipeline disruptions.
The Beige Book, this report is published eight times per year. Each Federal Reserve bank gathers anecdotal information on current economic conditions in its district through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. In this report we distil the 32 page Beige book into a 800 word summary.
The economy continued to expand in all 12 districts at a modest to moderate pace. On balance, manufacturing continued to expand at a modest pace. Tight labor markets are reducing the rate of hiring and causing wages to rise in some districts. There were reports of labor shortages in numerous industries most notably in construction and manufacturing. Dallas and San Francisco reported that labor shortages were pressuring wages. Some firms reported that they had to turn away work because of scarcity of skilled workers.
Consumer spending increased for retail sales and tourism but with mixed results for automotive sales. Concern was expressed about the possibility of a prolonged slowdown in the automobile industry. The overall housing market and commercial construction markets improved slightly. Low home inventory is weighing on real estate activity in many regions, pushing prices higher. Activity in the energy and natural resources sector was generally positive prior to shutdowns arising from Hurricane Harvey. Banks reported increasing competition for loans from non-bank lenders as both business and consumer demand grew at a modest pace in most districts. Activity in the energy and resource sectors of the economy was positive, (prior to any refinery / pipeline closures attributable to hurricane Harvey).
Price inflation was reported as modest across most regions of the country. Material costs for freight, lumber and steel were highlighted as witnessing price increases. Energy and agriculture commodity prices on the other hand were reported as mixed. A number of businesses reported difficultly in passing through higher input prices to the downstream.
Figure 1 shows a map of the U.S highlighting the 12 districts. The abbreviated district summaries below were reproduced from the Federal Reserve Beige Book.
Boston- Business reports indicated that revenues at most manufacturing and retail firms continued to expand modestly to moderately. Staffing firms cited revenue declines, which they blamed on limited labor supplies. Prices were stable and wages were up very little. Residential real estate markets were constrained by inventories. Respondents continued to cite a positive outlook.
New York- Economic growth picked up to a moderate pace in recent weeks, and labor markets remained tight. Input prices continued to rise moderately, while selling prices were flat to up modestly. Housing markets strengthened, whereas commercial real estate markets were steady.
Philadelphia- Economic activity resumed a modest pace of growth, with trends improving for non-auto retail sales, new home construction, and nonresidential construction and leasing. Manufacturing growth softened and auto sales declined further. Other sectors continued to grow modestly. On balance, employment and wages continued to grow modestly, and prices resumed a modest pace of growth.
St. Louis- Economic activity improved at a modest pace. Contacts continue to hold a generally optimistic outlook for the remainder of 2017. District bankers continued to report moderate growth in demand for new loans and a modest uptick in delinquency rates.
Cleveland- Business activity picked up to a moderate pace during the past few weeks. Manufacturers and construction contractors saw rising payrolls and wage pressures. Higher wages were attributed to growing employee turnover. Motor vehicle production trended lower. The trucking industry was concerned about the effect of electronic logging requirements on freight capacity.
Minneapolis- Economic activity grew modestly. Consumer spending was mixed, but tourism was having a good summer season. Manufacturing continued on an upward trend, and residential construction saw growth that likely would have been stronger if not for tight labor, which was holding back employment in general. Home sales lagged in most regions due to low inventories, and drought was negatively affecting farmers.
Richmond- The economy continued to expand modestly. Reports on consumer spending and real estate and construction were not as consistently positive. Manufacturers noted stronger new orders, and ports and freight haulers were seeing increased volumes. Lending was up slightly while nonfinancial services firms saw moderate growth. Labor markets improved moderately and prices rose modestly.
Kansas City- Economic activity increased modestly. Manufacturing and other business services expanded at a moderate pace, and energy activity continued to increase modestly. Consumer spending was mostly flat, with modest growth expected. Agricultural conditions weakened, but at a slower pace, and farm income and farmland values remained subdued.
Atlanta- Economic activity rose modestly. Labor markets remained tight but wage growth was unchanged. Retailers, excluding auto dealers, noted an increase in sales levels. Home sales increased and prices continued to rise modestly. Credit remained readily available for qualified borrowers.
Dallas- Economic activity grew moderately. Activity in the energy sector held steady, and contacts expected the rig count to stay flat or dip through year-end. Manufacturing output strengthened, and growth in retail sales accelerated, in part due to a rebound in auto sales. Crop prices were generally below breakeven levels.
Chicago- Growth slowed to a modest pace. Employment, consumer spending, business spending, and manufacturing production all grew at modest rates, while construction and real estate activity increased slightly. Wages and prices rose modestly. Conditions were little changed in the financial sector and worsened some in the agricultural sector.
San Francisco- Economic activity continued to expand at a moderate pace. Overall price inflation was flat, while upward wage pressures intensified and labor market conditions tightened further. Growth in consumer and business services remained strong. Activity in the manufacturing sector expanded at a moderate pace. Activity in the residential real estate sector remained robust. Lending activity expanded modestly.
At Gerdau, we scrutinize the Federal Reserve Beige book report looking for information on how the economy is performing nationally and regionally and clues to possible policy changes going forward.