Beige Book Finds "Slight To Modest" Continued Increase In Economic Activity

Five months after the May Beige Book was shocked at the economic devastation across the US, things continue to improve according to the latest assessment from various regional Fed, which said in today's just released August edition of the Beige Book that "economic activity continued to increase across all Districts, with the pace of growth characterized as slight to modest in most Districts", an improvement from last month's Beige Book which found that "gains were generally modest and activity remained well below levels prior to the COVID-19 pandemic." The latest Fed report also found that manufacturing activity generally increased at a moderate pace - as confirmed by the latest PMI and ISM data.

Some more details from the latest report, first looking at residential, CRE activity, consumer spending, auto sales and agriculture conditions:

  • Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories.  Banking contacts also cited increased demand for mortgages as the key driver of overall loan demand.
  • However, commercial real estate conditions continued to deteriorate in many Districts, with the exception being warehouse and industrial space where construction and leasing activity remained steady.
  • While consumer spending growth remained positive, some Districts reported a leveling off of retail sales and a slight uptick in tourism activity.
  • Demand for autos remained steady, but low inventories have constrained sales to varying degrees.
  • Reports on agriculture conditions were mixed, as some Districts are experiencing drought conditions.

The various Fed districts characterized the outlooks as generally optimistic or positive, but "with a considerable degree of uncertainty." Also notable is that restaurateurs in many Districts expressed concern that cooler weather would slow sales, as they have relied on outdoor dining, something we discussed two weeks ago when we found that once it gets below 40, outdoor dining is set to halt.

Ominously, banking contacts in many Districts expressed concern that delinquency rates may rise in coming months, citing various reasons; however, delinquency rates have remained stable.

Next, the Beige Book looked at jobs and wages:

  • Employment increased in almost all Districts, though growth remained slow. Employment gains were reported most consistently for manufacturing firms, although firms continued to report new furloughs and layoffs.
  • Most Districts continued reporting tight labor markets, attributing it to workers’ health and childcare concerns, with many firms consequently offering increased schedule flexibility; a few Districts, however, noted some firms were finding it easier to hire workers.
  • Wages increased slightly in most Districts, often tied to firms’ difficulty finding workers, especially for low-wage or high demand jobs.
  • Some firms reported returning wages (and raises) to normal levels, but many reported more stable wages.

Finally, a look at the most important variable in this day and age of Average Inflation Targeting, namely prices:

  • Prices rose modestly across Districts since the previous report. Input costs generally increased faster than consumer prices; however, some sectors—notably construction, manufacturing, retail, and wholesale—passed along the higher costs to consumers.
  • Overall, consumer prices across Districts rose modestly, with the notable exceptions of food, automobiles, and appliances, which increased significantly. Retail gasoline prices declined.
  • Input costs increased at  varying degrees, mostly led by increases in materials costs, particularly steel and lumber. Multiple Districts reported continued additional costs for firms due to COVID-19, including personal protective equipment, sanitation equipment, testing equipment, and technology needed for remote work.
  • Changes in row crop prices were mixed, while Districts reported declines in prices for animal proteins.

One notable aspect of the latest Beige Book: at just 41  instances of "covid" , "virus" or "coronavirus", this was not only a big drop from the 52 last month, but also the fewest mentions of the disease since the start of the pandemic.

And another amusing fact: after initially calling the disease either "COVID-19" or "coronavirus" interchangeably, the Fed no longer mentions "coronavirus" at all, instead opting for the far more politically correct "COVID-19"