Fed Beige Book: US Economy Shows Slight to Modest Growth, Inflation Outlook Mixed, Labor Market Robust
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Fed Beige Book: US Economy Shows Slight to Modest Growth, Inflation Outlook Mixed, Labor Market Robust
The Federal Reserve's latest Beige Book shows that U.S. economic activity improved modestly from late May to June, with 11 of the 12 Federal Reserve districts recording growth.
Navigating Web3 tides with focused insightsWritten by: Yang Chen, WallstreetCN
The latest Beige Book released by the Federal Reserve on Wednesday slightly supports its recent shift to a hawkish stance. U.S. economic activity achieved slight to moderate growth in recent weeks, with employment levels in most districts remaining unchanged or nearly unchanged.
The report noted that from late May to June, U.S. economic activity improved moderately, with 11 of the 12 Federal Reserve Districts seeing slight to moderate growth in economic activity, while the San Francisco district saw no change. This growth rate was slightly better than the June report, when economic activity expanded in 10 districts, remained flat in 1, and declined in 1.
Overall price levels showed moderate increases, with 9 districts reporting moderate price growth, 2 districts reporting strong price growth, and 1 district reporting slight price growth; compared to the previous reporting period, price growth in all districts was either the same or slowed. The Federal Reserve stated in the report:
"Some business contacts attributed these cost increases to the Middle East conflict; others mentioned tariff factors. Consumer prices continued to rise, and a few districts indicated that business contacts noticed their customers becoming more sensitive to prices."
The report is based on information collected by the 12 regional Federal Reserve Banks before July 6 and was compiled by the Federal Reserve Bank of Chicago.
Divergence in Inflation Trends, Energy Prices Become Key Variable
Several Federal Reserve officials have expressed concern over high inflation and warned that interest rates may need to be raised this year. However, Fed Chair Walsh and New York Fed President Williams recently expressed relatively moderate views on the inflation outlook.
The report pointed out that due to the Middle East situation injecting additional volatility into energy prices, there is divergence in forecasts for the inflation outlook. The report stated:
"Expectations for price growth over the next few months vary across districts, with contacts in some areas expecting inflation to remain at current pace, while contacts in other areas expect inflation to slow somewhat, thanks in part to falling fuel prices."
Due to a decline in gasoline prices in recent weeks, the monthly inflation rate slipped in June. A temporary peace agreement reached between the US and Iran once gave American households a moment of respite, but the subsequent resumption of hostilities led to oil prices surging again. The report noted:
"Contacts generally expect the economy to continue expanding in the coming months, but multiple districts pointed out that uncertainty regarding the outlook for fuel costs has increased."
Labor Market Robust, Wages for Skilled Technical Workers Rise in Some Districts
In terms of the labor market, the report showed that employment and wage increases were slight to moderate, though some districts saw wage increases due to competition for skilled technical workers.
Employment levels increased, with five districts seeing slight, moderate, or steady growth in employment, while seven districts saw little to no change in employment. In the previous report, only one district saw slight, moderate, or steady growth in employment.
Employment levels rose in multiple industries, including manufacturing, construction, and retail. Across industries, it is difficult to find skilled workers, especially technicians and skilled tradespeople. Wage growth was modest in most districts, with minimal wage growth in two districts. Some wage increases were attributed to intensified competition for skilled workers.
Economic Conditions by District
Boston: Manufacturing firms reported a slight increase in staff; retail and hospitality sectors indicated seasonal hiring was higher than last summer. Service sector employment was overall stable, though one firm conducted small-scale layoffs of some white-collar employees due to efficiency improvements from AI.
New York: Driven by tourists of the FIFA World Cup, tourism activity in New York City remained strong, with hotel occupancy rates and room rates rising, and some restaurants and bars saw strong sales due to demand for viewing the matches. The number of international flight passengers, which was weak earlier in the spring, also rebounded.
Philadelphia: Respondents indicated that activities related to data centers, artificial intelligence, and defense manufacturing continued to grow strongly.
Cleveland: Real estate developers indicated that demand for affordable housing increased, while demand for high-end residential properties remains strong.
Richmond: Port trade activity recovered to moderate growth levels after slowing in previous periods.
Atlanta: Transportation demand grew moderately. Truck brokerage firms indicated that as excess capacity formed during the pandemic was gradually absorbed, industry conditions steadily improved, with shipping volume exceeding the year-ago period for the first time since 2021.
Chicago: Respondents indicated that more aggressive retail promotions boosted consumer spending, partly because Amazon Prime Day and other competitor promotions were moved up to June instead of the usual July.
St. Louis: Respondents generally expected that businesses would continue to pass on higher costs to consumers in the coming months.
Minneapolis: Multiple respondents mentioned that rising gasoline prices curbed overall consumer spending; meanwhile, consumer payment methods are shifting from cash and debit cards to credit cards, and credit card fees further squeezed corporate profits, having a greater impact especially on small businesses.
Kansas City: Employers indicated they are willing to train job seekers who lack technical skills, but recruiting talent lacking soft skills such as communication and collaboration is more difficult.
Dallas: Human resources firms indicated that hiring demand increased across the board across industries and skill levels. One respondent stated that June was the best month since before the pandemic outbreak.
San Francisco: Price-sensitive consumers continue switching to cheaper alternatives. A respondent in Southern California indicated that in-store consumers are not only reducing purchases of high-priced food items but also reducing the quantity of goods purchased.
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