Beige Book Signals "Slow" Growth Downgrade As Tariff Turmoil Wanes

The Fed downgraded its assessment of the US economy through its Beige Book surveys from "modest to moderate" growth, characterizing the economy as growing only "slight to moderate."

In the last Beige Book, eight of 12 districts said growth was “modest to moderate,” while Wednesday's report said 10 saw it as “slight-to-moderate” and two reported “flat economic conditions.”

“About half of the districts noted that the government shutdown had led to slower economic activity in some sectors,” according to the report released Wednesday in Washington.

Additionally, based on anecdotal information collected by the 12 regional Fed banks through Feb. 25, The fed noted that consumer spending was also held back by harsh winter weather and higher costs of credit.

Quantifying the shift, it appears "Tariff" talk has reduced but "slowness" has surged...

Critically, the word "strong" appeared 37 times, compared to 58x in the January 16 version and 83x in the October 24, 2018 version. Meanwhile, incidence of the root word "weak-" rose to 34, up from 13x seven weeks ago and 19x in the October version.

Source: Jeoff Hall

Bloomberg summarizes the following key anecdotes from this week's Fed’s Beige Book:

Boston: A semiconductor manufacturer facing big declines in demand from China put a hiring freeze in place, but they were reluctant to institute layoffs since it takes three to six months to train new workers.

New York: Broadway theaters continued to report strong year-over-year gains in revenues and especially attendance, which was up nearly 20 percent from a year earlier in both January and early February.

Philadelphia: Philadelphia hotels were challenged compared with last year; the Eagles’ 2019 playoff run included no home games, then the government shutdown closed several national park attractions, reducing tourism activity in the city.

Cleveland: One auto retailer noted that sales of new vehicles had decreased slightly because of higher prices, while the demand for used vehicles increased.

Richmond: The Washington, D.C., area saw a sharp drop in visitors during the shutdown

Atlanta: New discoveries in the Gulf of Mexico contributed to increased activity in offshore exploration and production.

Chicago: Numerous contacts attributed slower sales to the harsh winter weather that occurred over the reporting period.

St. Louis: Louisville contacts in higher education noted that enrollments are down as the employee-friendly labor market has led potential students to enter the workforce instead of pursuing a college degree.

Minneapolis: A district contact noted that RV sales saw a slowdown in the second half of 2018 and that he anticipated “2019 being down again” by roughly 5 percent due to higher interest rates and higher unit costs.

Kansas City: Regional energy firms expected the expansion of LNG pipeline capacity later this year to help accommodate increased production.

Dallas: Consumer lending ticked up, which one contact attributed to loan requests from workers affected by the recent government shutdown.

San Francisco: A steel manufacturer in Oregon noted strong activity in the industry due to lower competition from abroad arising from trade policy actions.

The bottom line is that the report is likely to support the decision by many Fed officials to pledge patience on future interest-rate hikes amid a healthy, but slightly slowing, economic expansion.