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Thursday, March 28, 2024

Beige Book Downgrades US Economy Outlook To “Slight-To-Modest”

Courtesy of ZeroHedge. View original post here.

One month after the Beige Book described the slowing US economy as an already downgraded “slight-to-moderate”, the Federal Reserve again took down its assessment for the US, and while a few Districts reported some strengthening, the outlook among contacts in reporting Districts is for “slight-to-modest” growth in the months ahead, suggesting that this time it is the top end of the range that has come down from its traditional “modest-to-moderate” baseline.

Looking at overall economic activity, reports on consumer spending were “mixed but suggested sluggish sales for both general retailers and auto dealers” although at least foreigners are enjoying the US as “reports on tourism were generally more upbeat.” The Fed addressed another sensitive issue, namely loan growth, noting that “reports on loan demand were mixed, but indicated steady growth”, refuting the assessment by the latest Senior Loan Officer Survey, which concluded that loan demand has continued to shrink.

Predictably, trade concerns remained an issue, and while reports on manufacturing activity were favorable, “contacts in many Districts noted trade-related uncertainty.” Looking at housing, “most Districts reported stronger home sales, although some Districts noted low demand for higher-priced homes.” In a troubling development, the Fed now acknowledges the weakness in US farms, stating that “agricultural conditions remained weak, with contacts expressing concerns over the impact of current and future rainfall and flooding.”

One place where the economy continued to hum is in the labor market, and according to the Beige Book, “employment continued to increase nationwide, with nine districts reporting modest or moderate growth” even as the other three reporting slight growth. Furthermore, a majority of districts cited shortages of skilled laborers, most commonly in manufacturing and construction, while wages for both skilled and unskilled positions generally grew at about the same pace as earlier this year.

Additionally, based on anecdotes from the New York Fed. “Two employment agency contacts noted a large and widening gap between salary demands and salary offers, noting that this has led some employers to miss out on good candidates.” Additionally, “manufacturers were said to be holding the line on wages, while service firms have become somewhat more flexible.”

Curiously, quantifying the shift in the economy, while respondents no longer appear as concerned about trade, with “Tariff” talk sharply reduced, mentions of “slowness” have also shrunk which is unexpected in light of the overall deterioration in the broader outlook.

In line with this observation, a Reuters diffusion index courtesy of Jeoff Hall, found that the root of the word “strong” appeared 54 times in today’s Beige Book, up from 37 in the March 6 version but down from 58 in the January 16 version. Incidence of “weak” was unchanged at 34 in both versions.

Below are some of the most notable Beige Book anecdotes from the various regional Feds, as picked by Bloomberg:

  • Boston: An automotive contact cited a labor shortage of certified mechanics, which with computer technology are now highly skilled and well-paying jobs requiring technical expertise, but not a four-year college degree
  • New York: Two employment agency contacts noted a large and widening gap between salary demands and salary offers, noting that this has led some employers to miss out on good candidates; Manufacturers, in particular, were said to be holding the line on wages, while service firms have become somewhat more flexible
  • Philadelphia: One contact noted that a late winter snowstorm had moved ski resorts above budget, while a high-end shore hotel had its best February ever
  • Cleveland: Contacts reported that lower-priced homes outsold more expensive homes
  • Richmond: A zoo reported raising prices amid confidence that business would remain strong
  • Atlanta: Some firms mentioned setting up satellite locations in larger, metropolitan cities or moving to more populated suburban areas to find workers
  • Chicago: Livestock prices, especially for hogs, moved up in response to China’s decision to include livestock purchases in the trade negotiations and because of a considerable decline in China’s hog herd due to disease
  • St. Louis: Contacts reported a dichotomy in the market: There is strong demand for lower-priced houses, while housing inventory comprises mostly higher-priced homes
  • Minneapolis: A survey of job openings found that statewide STEM openings rose by 15 percent in February over a year earlier
  • Kansas City: Recent severe flooding and blizzards throughout the district resulted in losses of cattle and stored crops as well as damage to roads, fields, and other infrastructure
  • Dallas: One energy sector contact noted that they were having to pay hot oil truck drivers $130,000 annually to retain them
  • San Francisco: A steel manufacturer in Oregon continued to note elevated capacity utilization relative to historical averages, due to lower competition from abroad

The bottom line: the Beige Book will further support the decision by the Fed to stay “patient” on future interest-rate hikes amid a healthy, but slight-to-modest economic expansion. 

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