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posted on 06 September 2017

September 2017 Beige Book: Reading Between The Lines - Rate Of Economic Expansion Improved

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated "expanded at a modest to moderate pace across all twelve Federal Reserve Districts in July and August". The previous report stated "the pace of growth ranging from slight to moderate".

Analyst Opinion of this month's Beige Book

Seems like the rate of growth marginally improved from the last report.

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 Chicago based on information collected on or before August 28, 2017. The summary for this release:

Overall Economic Activity
Economic activity expanded at a modest to moderate pace across all twelve Federal Reserve Districts in July and August. Consumer spending increased in most Districts, with gains reported for nonauto retail sales and tourism, but mixed results for vehicle sales. Capital spending also increased in several Districts. Manufacturing activity expanded modestly on balance. That said, reports were mixed regarding auto production, and contacts in many Districts expressed concerns about a prolonged slowdown in the auto industry. Both residential and commercial construction increased slightly overall. Low inventories of homes for sale continued to weigh on residential real estate activity across the country, while commercial real estate activity increased slightly. Activity in the energy and natural resources sector was generally positive prior to shutdowns arising from Hurricane Harvey. Agricultural conditions were mixed overall, with drought conditions reported in multiple Districts. Business and consumer loan demand grew at a modest pace in most Districts, with a number of banks reporting rising competition from both other banks and non-bank lenders.

Employment and Wages
Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts. Labor markets were widely characterized as tight. There were reports of worker shortages in numerous industries, most notably in manufacturing and construction. Firms in the Atlanta, St. Louis, and Minneapolis Districts said that they had turned down business because they could not find the necessary workers. Many Districts indicated that businesses were having difficulty filling openings at all skill levels. In spite of the tight labor market, the majority of Districts reported limited wage pressures and modest to moderate wage growth. That said, there were reports from firms in the Dallas and San Francisco Districts that labor shortages were pushing up wages.

Prices rose modestly overall across the country. Input and materials costs generally increased, most notably for freight, lumber, and steel. In contrast, movements in energy and agricultural commodity prices were mixed. A number of Districts indicated that pass-through to downstream prices was limited, with increases in input prices exceeding gains in selling prices. Home prices moved up overall, as low inventories put upward pressure on prices in many regions.

A Special Note on the Impact of Hurricane Harvey
Hurricane Harvey created broad disruptions to economic activity along the Gulf Coast in the Dallas and Atlanta Districts, although it was too soon to gauge the full extent of the impact. Many firms and organizations in the affected areas closed due to flooding. A fifth of the oil and natural gas production in the Gulf of Mexico was offline, and many onshore producers in the Eagle Ford region temporarily stopped production. Harvey also affected fuel and petrochemical production, forcing fifteen refineries in the region to shut down temporarily and several others to operate at reduced capacity. Some areas experienced gasoline shortages, and supply was expected to remain tight in the Southeastern United States because of pipeline disruptions. Contacts in the Richmond District indicated that spot freight prices jumped after the storm, as freight was being redirected around the country. The Port of Charleston expected increased volumes in coming weeks as freight traffic is routed away from the Port of Houston.

Highlights by Federal Reserve District

Business reports indicated that revenues at most manufacturing and retail firms continued to expand modestly to moderately. Staffing firms, however, cited revenue declines, which they blamed on limited labor supplies. Prices were stable and wages were up very little. Residential real estate markets were constrained by inventories. Respondents continued to cite a positive outlook.

New York
Economic growth picked up to a moderate pace in recent weeks, and labor markets remained tight. Input prices continued to rise moderately, while selling prices were flat to up modestly. Housing markets strengthened, whereas commercial real estate markets were steady.

Economic activity resumed a modest pace of growth, with trends improving for nonauto retail sales, new home construction, and nonresidential construction and leasing. Manufacturing growth softened and auto sales declined further. Other sectors continued to grow modestly. On balance, employment and wages continued to grow modestly, and prices resumed a modest pace of growth.

Business activity picked up to a moderate pace during the past few weeks. Manufacturers and construction contractors saw rising payrolls and wage pressures. Higher wages were attributed to growing employee turnover. Motor vehicle production trended lower at District assembly plants. The trucking industry was concerned about the effect of electronic logging requirements on freight capacity.

The economy continued to expand modestly. Reports on consumer spending and real estate and construction were not as consistently positive. Manufacturers noted stronger new orders, and ports and freight haulers were seeing increased volumes. Lending was up slightly while nonfinancial services firms saw moderate growth. Labor markets improved moderately and prices rose modestly.

Economic activity rose modestly since the previous report. Labor markets remained tight but wage growth was unchanged. Retailers, excluding auto dealers, noted an increase in sales levels. Home sales increased and prices continued to rise modestly. Credit remained readily available for qualified borrowers.

Growth slowed to a modest pace. Employment, consumer spending, business spending, and manufacturing production all grew at modest rates, while construction and real estate activity increased slightly. Wages and prices rose modestly. Conditions were little changed in the financial sector and worsened some in the agricultural sector.

St. Louis
Economic activity improved at a modest pace. Contacts continue to hold a generally optimistic outlook for the remainder of 2017. District bankers continued to report moderate growth in demand for new loans and a modest uptick in delinquency rates.

Economic activity grew modestly. Consumer spending was mixed, but tourism was having a good summer season. Manufacturing continued on an upward trend, and residential construction saw growth that likely would have been stronger if not for tight labor, which was holding back employment in general. Home sales lagged in most regions due to low inventories, and drought was negatively affecting farmers.

Kansas City
Economic activity in the Tenth District increased modestly. Manufacturing and other business services expanded at a moderate pace, and energy activity continued to increase modestly. Consumer spending was mostly flat, with modest growth expected. Agricultural conditions weakened, but at a slower pace, and farm income and farmland values remained subdued.

Economic activity grew moderately. Activity in the energy sector held steady, and contacts expected the rig count to stay flat or dip through year-end. Manufacturing output strengthened, and growth in retail sales accelerated, in part due to a rebound in auto sales. Crop prices were generally below breakeven levels.

San Francisco
Economic activity continued to expand at a moderate pace. Overall price inflation was flat, while upward wage pressures intensified and labor market conditions tightened further. Growth in consumer and business services remained strong. Activity in the manufacturing sector expanded at a moderate pace. Activity in the residential real estate sector remained robust. Lending activity expanded modestly.

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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