Beige Book Downgrades US Economy Outlook To “Slight-To-Modest”

Wednesday, April 17, 2019
By Paul Martin

by Tyler Durden
Wed, 04/17/2019

One month after the Beige Book described the slowing US economy as an already downgraded “slight-to-moderate”, the Federal Reserve again took down its assessment for the US, and while a few Districts reported some strengthening, the outlook among contacts in reporting Districts is for “slight-to-modest” growth in the months ahead, suggesting that this time it is the top end of the range that has come down from its traditional “modest-to-moderate” baseline.

Looking at overall economic activity, reports on consumer spending were “mixed but suggested sluggish sales for both general retailers and auto dealers” although at least foreigners are enjoying the US as “reports on tourism were generally more upbeat.” The Fed addressed another sensitive issue, namely loan growth, noting that “reports on loan demand were mixed, but indicated steady growth”, refuting the assessment by the latest Senior Loan Officer Survey, which concluded that loan demand has continued to shrink.

Predictably, trade concerns remained an issue, and while reports on manufacturing activity were favorable, “contacts in many Districts noted trade-related uncertainty.” Looking at housing, “most Districts reported stronger home sales, although some Districts noted low demand for higher-priced homes.” In a troubling development, the Fed now acknowledges the weakness in US farms, stating that “agricultural conditions remained weak, with contacts expressing concerns over the impact of current and future rainfall and flooding.”

One place where the economy continued to hum is in the labor market, and according to the Beige Book, “employment continued to increase nationwide, with nine districts reporting modest or moderate growth” even as the other three reporting slight growth. Furthermore, a majority of districts cited shortages of skilled laborers, most commonly in manufacturing and construction, while wages for both skilled and unskilled positions generally grew at about the same pace as earlier this year.

Additionally, based on anecdotes from the New York Fed. “Two employment agency contacts noted a large and widening gap between salary demands and salary offers, noting that this has led some employers to miss out on good candidates.” Additionally, “manufacturers were said to be holding the line on wages, while service firms have become somewhat more flexible.”

Curiously, quantifying the shift in the economy, while respondents no longer appear as concerned about trade, with “Tariff” talk sharply reduced, mentions of “slowness” have also shrunk which is unexpected in light of the overall deterioration in the broader outlook.

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