Fed's Beige Book Warns Of Declining Auto Sales, Sees Rising Benefit Costs Limiting Wages

While the Fed's traditionally drab Beige Book is routinely ignored by the market, especially on blockbuster days like today when Janet Yellen turns dovish again and then speaks for nearly 4 hours in the Senate, this time there were several notable highlights in the just released July edition, not least of all the apparent downgrade of the low end of overall economic activity, which for the first time described the pace of growth as "slight to moderate" versus its staple "modest to moderate." 

Of note, while the Fed described consumer spending as "rising across a majority of Districts, led by increases in non-auto retail sales and tourism" it did caution that there appears to be "some softening in consumer spending, particularly in auto sales which declined in half of the Districts." Ironically, contrary to what the Fed reports every week in its H.8 statement where C&I loan growth is virtually unchanged on an annual basis, it said that "loan demand was steady to increasing in most Districts." Perhaps in poke at Trump's plans to revitalize the coal industry, the Fed also remarked that "coal production remained sluggish although higher than year-ago levels."

Discussing the most sensitive topic for the Fed, employment and wages, the Beige Book noted that while "most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels." On the whole, however, labor markets tightened further, particularly in the construction and IT sectors. The Fed also observed that there were reports of a shortage of qualified workers across a broad range of industries "which had limited hiring." Apparently, it has still not dawned on anyone that one can overcome such shortages by raising wages.

On the topic of prices, the Fed noted that several Districts reported higher construction materials costs and freight prices. It also warned that "low agricultural prices were causing stress for some farmers, although some food retailers reported improved margins due to lower commodity prices." Meanwhile, not surprisingly, "home prices continued to increase in most Districts" while "retail prices held steady or slightly increased."

Finally, below are some of the more notable anecdotes by region:


  •  A manufacturer of cardboard boxes was hiring additional workers without raising wages, but noted that finding qualified workers was difficult because production jobs increasingly involve using computers
  • A cardboard box manufacturer reported 10 percent year-over-year growth resulting from increased e-commerce

New York:

  • Broadway theater attendance and revenues were reported to be fairly strong in May and June
  • Broadway theaters noted rising ticket prices, with the average price up 10-15 percent from a year earlier


  • Staffing contacts reported spending more time and money on recruiting labor and refilling positions after the initial hire quit, sometimes after just a few days. Workers appear to have less loyalty to the job, and more job-hopping is showing up on résumés


  • Freight haulers mentioned difficulty recruiting enough qualified drivers despite increasing driver wages recently
  • Freight haulers saw increased demand from oil and gas and strong demand from construction material producers


  • A few firms reported increased productivity resulting from recent new equipment purchases, and they expected further efficiency gains once employees were trained on operating the equipment
  • A few contacts in D.C. and Maryland cited concerns over slowing federal procurement spending


  • Firms continued to deploy various tactics in an effort to find and develop pipelines of talent and retain workers; for example, developing partnerships with workforce development entities, schools, and military bases, expanding internal and external training and apprenticeship programs, strengthening recruiting efforts, and seeking out retirees to return to work
  • Firms continued to explore or deploy technology as viable future replacements for labor, especially in hard-to-fill jobs


  • A staffing firm that primarily supplies manufacturers with production workers reported a slight decline in billable hours

St. Louis:

  • Manufacturing contacts in Louisville and Memphis reported difficulties finding experienced or qualified employees, with some citing candidates’ inability to pass drug tests or to consistently report to work
  • A science and technology contact reported that rising costs of benefits have limited increases in wages


  • Average wages for 18 Minnesota construction unions saw annual increases of between 3.3 percent and 5 percent in recent three-year contracts negotiated in May

Kansas City:

  • Restaurant contacts reported slight declines in both input and selling prices


  • Rail cargo rose, led by strong gains in shipments of fracking sand and grains, although shipments of petroleum products and motor vehicles continued to decline

San Francisco:

  • Wage pressures for skilled software engineers intensified further as competition for programmers with experience in cybersecurity and cloud computing remained fierce
  • Contacts reported that they increasingly filled job openings with older workers who were reportedly seeking health-care benefits or supplemental income
  • Residential construction activity continued to be strong in much of the District, slowed only by a lack of available land and labor


realmoney2015 Kaiser Sousa Wed, 07/12/2017 - 14:35 Permalink

Wages are not keeping up with inflation. We all know this, but don't always fully understand it. Our minimum wage would be $49/hr if we had real money: https://m.facebook.com/story.php?story_fbid=816047088569440&substory_in… holds it's value and cannot be printed out of thin air. The same goes for silver. To help promote real money and educate on the evils of the Federal Reserve, we sell candles with silver coin prizes. Enter to win a 1oz Gold Eagle (est value $1200+) when you buy a candle with a silver coin prize: www.scentsaverscandles.comWhen we go back to real money, most of our problems will greatly improve. EndtheFed!

In reply to by Kaiser Sousa

gruden Delving Eye Wed, 07/12/2017 - 16:44 Permalink

 A manufacturer of cardboard boxes was hiring additional workers without raising wages, but noted that finding qualified workers was difficult because production jobs increasingly involve using computers  The key is in that sentence right there.  They want workers with a higher level of skill, but want to pay wages for lower skilled workers.I always love it when companies say "We can't find qualified workers" but the part they leave off is "...for the price we're willing to pay."Maybe the employment market is turning into a big illiquid market.

In reply to by Delving Eye

junction Kaiser Sousa Wed, 07/12/2017 - 14:48 Permalink

Of course, the solution to the labor problem is to bring in tens of thousand of "Syrians" into the USA, non-English speaking refugees whose job skills are limited to dope dealing, strong arm robbery and knowledge of Sharia law.  That was Hillary's plan before she managed to lose the election. 

In reply to by Kaiser Sousa

Batman11 Wed, 07/12/2017 - 14:52 Permalink

Hollowing out the West and building the Asian Century.The cost of living = housing costs + healthcare costs + student loan costs + food + other costs of livingPurchasing power = wages – (taxes + the cost of living)The minimum wage must cover the cost of living.Maximising profits requires low wages.The cost of living is very high in the West, which makes it a home for high end business where a lot of value is added and high wages can be paid.Everything else is more profitably done abroad apart from low end service sector jobs that must be done locally.   The cost of living effect is greatest in the US (where it’s very high) and the US is seeing its middle class disappear the fastest.

Anteater Batman11 Wed, 07/12/2017 - 14:55 Permalink

...Sees Rising New Car Prices Limiting SalesWhen I graduated college a decent new car was $2500 and a new house was $25,000.Today, 45 years later, a basic new car is $25,000 and a 'starter-home' is $250,000.Over that same time period, I went from $11 an hour, to max out at $48.50 an hour.10x prices rise -versus- 4.4x wages rise. Ipso facto all you Ziopigs: Markets ... crash.

In reply to by Batman11

rejected Anteater Wed, 07/12/2017 - 15:42 Permalink

When I graduated college a decent new car was $2500 and a new house was $25,000.Yea, but today we have all the necessities,,, internet! Digital Radio! Remote Start! 24inch wheels! TeeVee's!  Phones!Houses have the internet of things so you can monitor the refrigerator temp. from work! turn off the coffee pot! turn on the oven!  Watch your darlings take a shower in case they might slip and fall! Open the garage door from the freeway! Unlock the house from the driveway! Adjust temp. of each room from work!  All from your iPhone for only $200 per month.Does all those important things that eliminate stress while at work stocking shelves. Ask a millennial,,, they know all about eliminating stress.

In reply to by Anteater