The Fed’s Beige Book released on March 6 compiled the reports from the 12 Districts through February 25. The Kansas City Fed prepared the report. Ten Districts reported expansion along the slight-to-moderate spectrum and two (Philadelphia and St. Louis) were essentially at neutral for growth. The overall tone of the report showed growth to be more tenuous across the Districts. Some of that might be attributed to lingering effects of the 35-day partial government shutdown, but not all regions were visibly affected by the shutdown. Also, there was about a month between when the government reopened in January and the end of the comment period which should have been enough to see activity return to more-or-less normal.
It is difficult not to conclude that the economy is broadly operating at a lower level in the first two months of 2019. However, it would also be an overstatement to suggest there had been a significant deterioration with 83% of Districts reporting at least some growth. It is possible that there will be some lagged effects from the shutdown that will turn around in the coming weeks before the next Beige Book is released on April 17 at 14:00 ET.
In any case, the labor market does not seem to have felt the effect of slower growth. Employment “with modest-to-moderate gains in a majority of Districts and steady to slightly higher employment in the rest,” the report said. “Labor markets remained tight for all skill levels,” it added, with shortages of labor leaving jobs unfilled. All Districts reported continued wage increases with “A majority of Districts” saying wages were moderately higher. Non-wage benefits continued to increase as well.
Prices remained rising at a “modest-to-moderate pace” with “several Districts” reporting input costs outpacing the ability to pass on increases. Scattered increases from tariffs are still present on “certain goods and services”.
The FOMC will read this report for what it is – confirmation that the economy has eased up on the pace of growth without losing the underlying moderate expansion. It justifies their past rate decisions and present “patient” stance regarding further removal of interest rate accommodation. Expectations of a rate move at the March 19-20 were nil and the anecdotal evidence only affirms that.
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