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posted on 12 July 2017

July 2017 Beige Book: Reading Between The Lines - Rate Of Economic Expansion Slowed?

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated "the pace of growth ranging from slight to moderate". The previous report stated "economies continued to expand at a modest or moderate pace from early April through late May".

Analyst Opinion of this month's Beige Book

Seems like the rate of growth slowed from the last report. Slight is a slower rate of growth than moderate. The definition of slight:

small in degree; inconsiderable.

"a slight increase"

synonyms: small, modest, tiny, minute, inappreciable, negligible, insignificant, minimal, remote, slim, faint, razor-thin; informalminuscule; de minimis;

Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession. The Beige Book completely missed the 2001 recession, and was late in seeing the Great Recession.

This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before June 30, 2017. The summary for this release:

Overall Economic Activity
Economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate. In addition, the majority of Districts expected modest to moderate gains in the months ahead. Consumer spending appears to be rising across a majority of Districts, led by increases in nonauto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts. Manufacturing and nonfinancial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report. Loan demand was steady to increasing in most Districts. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas. Agricultural conditions were mixed across the nation as moisture conditions varied considerably; several Districts continued to report weakness in dairy and some crop sectors due to low prices. Energy activity generally improved since the last survey, particularly for oil and natural gas. Coal production remained sluggish although higher than year-ago levels.

Employment and Wages
Employment across most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels. Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors. Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring. Wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.

Prices
Prices continued to rise modestly in the majority of Districts, and a few Districts noted that price pressures had eased slightly. Several Districts reported higher construction materials costs and freight prices, while gasoline prices fell. Retail prices held steady or slightly increased, and the manufacturing sector noted steady to modestly rising input costs. Low agricultural prices were causing stress for some farmers, although some food retailers reported improved margins due to lower commodity prices. Home prices continued to increase in most Districts.

Highlights by Federal Reserve District

Boston
Economic activity in the First District expanded at a modest pace in recent weeks. Hiring activity was mixed, proceeding at a moderate pace on average. Wage increases remained moderate with not much variation. Prices were mostly stable with some noteworthy exceptions. Contacts were cautiously optimistic concerning prospects for further growth.

New York
Economic growth has picked up to a modest pace in recent weeks. Labor markets have tightened further, as hiring has picked up. Input cost pressures have become somewhat less widespread, while selling prices continued to rise modestly. Housing markets have strengthened, whereas commercial real estate markets have softened slightly.

Philadelphia
Overall, economic activity appeared to slow to a slight pace of growth, as consumer spending declined sharply for apparel, and demand softened for autos, new home construction, and nonresidential construction. Most other sectors continued to grow at a modest pace. On balance, employment and wages continued to grow modestly, and prices grew only slightly.

Cleveland
Reports from business contacts were somewhat less positive, and the overall pace of growth was modest. Price and cost pressures eased slightly. Labor markets continued to tighten. Manufacturing activity increased, but at a slower pace, especially for consumer packaged products. Demand for IT services was particularly strong.

Richmond
Economic activity expanded modestly, but at a somewhat faster pace. The manufacturing sector improved further, which boosted the transportation sector as more goods were moved through ports and around the country. Retail sales increased and tourism and travel reports were mostly upbeat. Construction and real estate markets continued to improve modestly. Labor markets remained tight, and price increases were modest.

Atlanta
Economic activity modestly expanded since the previous report. Labor market tightness continued. On balance, wage growth remained steady. Input costs were subdued. Consumer spending softened. Home sales increased and prices appreciated modestly. Nonresidential construction increased; however, multifamily construction showed signs of slowing. Manufacturing activity grew, albeit at a slower pace.

Chicago
Growth picked up to a moderate pace and prices rose modestly. Employment, business spending, and manufacturing grew at moderate rates, while consumer spending and construction and real estate activity increased modestly. Conditions were little changed in the financial and agricultural sectors.

St. Louis
Economic activity has slightly improved since our previous report. Employers reported minimal hiring due to difficulties finding qualified candidates putting upward pressure on both wages and benefits. There were positive developments on consumer spending as contacts reported a rebound in sales after a string of weak reports.

Minneapolis
Ninth District economic activity increased modestly during the reporting period. Professional services, commercial construction, manufacturing, energy, and mining saw growth, while employment was held back by tight labor availability. The already struggling agricultural sector weakened as severe drought conditions spread through the Dakotas and Montana.

Kansas City
Economic activity in the Tenth District expanded moderately in June, and most sectors expected additional gains in the months ahead. Consumer spending, manufacturing, services, construction and energy activity increased since the previous survey. The pace of growth in the energy sector was anticipated to ease slightly. The agriculture sector remained weak, with subdued farm revenue and low commodity prices.

Dallas
Economic activity grew moderately in the Eleventh District, and outlooks remained positive. Growth in retail sales decelerated, but there were reports of sales improving in energy-related areas and in the border region. Activity in the energy sector expanded further, partly driving increased manufacturing production. Demand for staffing services remained strong. Apartment demand improved following a sluggish first-quarter.

San Francisco
Economic activity in the Twelfth District continued to expand at a moderate pace. Overall price inflation was flat, while upward wage pressures strengthened. Sales of retail goods were modest, and growth in the consumer and business services sectors remained strong. Conditions in the manufacturing sector improved. Activity in the residential housing market was robust. Conditions in the financial services sector remained solid.

Fed's Words When Economy is entering a Recession

For the recession starting December 2007, here is the lead up summary words from the Beige Books:

  • 28Nov2007 - "expanding"
  • 16Jan2008 - "increasing moderately"
  • 05Mar2008 - "growth slowed"
  • 16Apr2008 - "weakened"

For the March 2001 recession which ended in November 2001, here are the Beige Book summary words:

  • 17Jan2001 - "economic growth slowed"
  • 07Mar2001 - "sluggish to modest economic growth"
  • 02May2001 - "slow pace of economic activity"
  • 13Jun2001 - "little changed or decelerating"
  • 08Aug2001 - "slow growth or lateral movement"
  • 19Sep2001 - "sluggish"
  • 24Oct2001 - "weak economic activity"
  • 28Nov2001 - "remained soft"
  • 16Jan2002 - "remained weak"

Source: Federal Reserve



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