WASHINGTON (MaceNews) – The Federal Reserve’s Beige Book survey of economic conditions coast to coast Wednesday picked up a continuing modest expansion with ripples of softening prices and wage growth amid some signs of weakening demand.
The wavering of some important indicators suggested a transition under way as rising interest rates recalibrate consumption and moderate expectations of future inflation. Two districts, St. Louis and Dallas, reported some declines. It was noteworthy that Covid 19 seemed to no longer be a determining factor.
The following is the Beige Book summary and district-by-district snapshots, with boldfacing added:
Overall Economic Activity
National economic activity expanded modestly on net since the previous report; however, conditions varied across industries and Districts. Four Districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions. Retail spending was relatively flat, reflecting lower discretionary spending, and auto dealers noted sustained sluggishness in sales stemming from limited inventories, high vehicle prices, and rising interest rates. Travel and tourist activity rose strongly, boosted by continued strength in leisure activity and a pickup in business travel. Manufacturing activity held steady or expanded in most Districts in part due to easing in supply chain disruptions, though there were a few reports of output declines. Demand for nonfinancial services rose. Activity in transportation services was mixed, as port activity increased strongly whereas reports of trucking and freight demand were mixed. Rising mortgage rates and elevated house prices further weakened single-family starts and sales, but helped buoy apartment leasing and rents, which generally remained high. Commercial real estate slowed in both construction and sales amid supply shortages and elevated construction and borrowing costs, and there were scattered reports of declining property prices. Industrial leasing remained robust, while office demand was tepid. Bankers in most reporting Districts cited declines in loan volumes, partly a result of shrinking residential real estate lending. Energy activity expanded moderately, whereas agriculture reports were mixed, as drought conditions and high input costs remained a challenge. Outlooks grew more pessimistic amidst growing concerns about weakening demand.
Labor Markets
Employment continued to rise at a modest to moderate pace in most Districts. Several Districts reported a cooling in labor demand, with some noting that businesses were hesitant to add to payrolls amid increased concerns of an economic downturn. There were also scattered mentions of hiring freezes. Overall labor market conditions remained tight, though half of Districts noted some easing of hiring and/or retention difficulties. Competition for workers has led to some labor poaching by competitors or competing industries able to offer higher pay. Wage growth remained widespread, though an easing was reported in several Districts. Some businesses said elevated inflation and higher costs of living were pushing wages up, coupled with upward pressure from labor market tightness. Contacts expect wage growth to continue as higher pay remains essential for retaining talent in the current environment.
Prices
Price growth remained elevated, though some easing was noted across several Districts. Significant input price increases were reported in a variety of industries, though some declines in commodity, fuel, and freight costs were noted. Growth in selling prices was mixed, with stronger increases reported by some Districts and a moderation seen in others. Some contacts noted solid pricing power over the past six weeks, while others said cost passthrough was becoming more difficult as customers push back. Looking ahead, expectations were for price increases to generally moderate.
Highlights by Federal Reserve District
Boston
Business activity in the First District was up slightly, employment increased modestly, and wage increases were moderate. Prices were mostly flat and pricing pressures eased. Travel and tourism enjoyed robust growth, while retail sales growth and manufacturing demand slowed somewhat. Real estate markets weakened further on rising interest rates. The outlook turned more pessimistic as recession fears spread.
New York
Economic activity contracted at a modest pace, while employment continued to grow modestly with labor shortages easing somewhat. Pricing pressures remained persistent, though wage growth slowed a bit. Tourism remained strong, while consumer spending was flat and manufacturing activity weakened slightly. Businesses were increasingly pessimistic about the outlook.
Philadelphia
Business activity remained flat during the current Beige Book period. Manufacturing, consumer spending, new home construction, and existing home sales declined. Employment grew slightly, but talk of a recession rose. Firms reported wage pressures continued to subside, but growth maintained a moderate pace. Price growth slowed to a moderate pace. Hiring, supply chains, and price growth remained key challenges for most firms.
Cleveland
Business activity was generally flat in the District, though reports varied considerably across sectors. Contacts were less optimistic about the near-term outlook amid persistent inflation and higher interest rates. Still, firms plan to add workers in coming months, though more are taking a wait-and-see attitude toward hiring. Upward cost and price pressures eased further, but the relief was uneven.
Richmond
Economic activity was little changed as consumer spending grew at a modest rate, but a number of sectors reported flat to somewhat declining growth. Employment grew moderately and the overall labor market remained tight. Many firms continued to report labor shortages, rising wages, and use of non-wage incentives to recruit and retain staff. Prices grew strongly on a year-over-year basis, but growth moderated slightly in recent weeks.
Atlanta
Economic activity expanded slightly. Labor markets improved, but wage pressures continued. Some nonlabor costs moderated. Year-over-year retail sales were flat. Leisure travel activity softened while business travel strengthened. Housing demand declined. Commercial real estate conditions were mixed. Manufacturing activity was strong. Transportation demand remained mixed. Banking conditions were steady.
Chicago
Economic activity was little changed. Employment increased moderately, business spending was up slightly, consumer spending was little changed, manufacturing declined slightly, and construction and real estate activity moved down modestly. Wages rose rapidly, as did most prices. Financial conditions tightened moderately. Agriculture profit expectations for 2022 remained positive. Inflation continued to put pressure on household budgets.
St. Louis
Economic conditions have declined slightly since our previous report. Although firms reported softening demand and increased price sensitivity, labor shortages continued to restrict activity. Firms struggled to pass on input price increases. Rising interest rates slowed homebuying activity and new construction. Contacts expect little improvement in supply chain issues and consumer demand in the upcoming months.
Minneapolis
The region’s economy expanded slightly since August. Employment grew slightly and wage pressures remained high. Inflationary pressures eased but stayed strong. Manufacturing growth continued, though some firms reported a softening in incoming orders. Consumer spending increased, but saw some weak spots. Home construction and sales remained soft, while commercial building and leasing activity improved slightly.
Kansas City
The Tenth District economy expanded at a modest pace. Employment grew moderately based on the momentum of past job postings, but showed signs of cooling. Contacts reported an increase in the use of gig work to supplement household income amid rapidly rising prices. Energy activity expanded at a robust pace. Drought conditions adversely impacted crop harvests in some District states, but financial conditions among farmers remained strong.
Dallas
Modest economic growth in the district continued overall, though declines were seen in retail sales, home sales, and lending. Employment grew solidly but wage growth eased slightly. Selling price growth eased slightly as well. Outlooks were generally pessimistic outside of the energy industry, with contacts voicing concern about inflation, labor shortages, and weakening demand.
San Francisco
Economic activity expanded modestly. Hiring activity grew at a modest pace amid tight labor market conditions. Wages and prices increased further, albeit at a slower pace. Retail sales grew and demand for services strengthened. Conditions improved modestly in the manufacturing sector but worsened somewhat in the agriculture sector. Residential real estate activity eased further, and lending activity dropped slightly.