Fed’s Beige Book: ‘Varied’ Economic Growth in Fed Districts

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Economic expansion continued in the US in late-February and March, but the pace of growth was described as “varied” by Fed District Banks in the Beige Book report released Wednesday. Link.

The report, prepared by the Chicago Fed based on information collected on or before April 7, indicated that “most Districts said that economic growth was in the modest to moderate range and that contacts expected growth would remain in that range going forward.”

Consumer spending: Overall, it was described as increasing “moderately,” while retailers “generally remained optimistic about the outlook for growth over the remainder of the year..” While several districts noted continued generous discounts and promotions, favorable credit conditions, and low gasoline prices as factors were supportive of growth, “contacts in the Chicago District again expressed disappointment that low gas prices and improving labor markets were not providing more of a boost to consumer spending.”

Labor market: Conditions were reported as strengthening as “most districts again reported job gains, with only Cleveland indicating a decline in overall employment.” But as has been noted in other updates, “Energy companies continued to reduce their workforces, with reports of layoffs coming from Cleveland, Atlanta, St. Louis, Minneapolis, and Dallas.” Difficulty in filling various positions in low- and high-skilled jobs areas was also noted, including “difficulty finding quality retail workers (Boston), low-skilled manufacturing workers (Boston and Chicago), construction workers (Cleveland, Richmond, Atlanta, and San Francisco) and skilled professionals in occupations such as information technology, accounting, engineering, and customer service (Richmond and Atlanta).”

Manufacturing: Manufacturing activity increased in most Districts in late February and March. “Contacts described the overall pace of growth as moderate in Richmond and Chicago, while growth was more modest in Philadelphia, St. Louis, and San Francisco. Only Cleveland and Kansas City reported declines in activity,” the report said.

Agriculture: “Mixed” conditions for agriculture were noted, as “Chicago, St. Louis, Minneapolis, Kansas City, and Dallas reported poor prospects for agricultural profitability because product prices remained low and input costs remained relatively high.” Prices were lower across all districts compared to year-ago for cotton, corn, soybeans, wheat, hay, rice, cattle, chickens, eggs, hogs, and milk. While some noted “relief in input costs since the previous period, with lower costs for diesel, fertilizer, and farmland rents,” others noted that “costs for chemicals went up and seed costs remained elevated.” Flooding was noted in Richmond and Atlanta districts. The only mention of the US dollar in the general commentary came from the San Francisco district where they noted the “elevated dollar held back agricultural exports.” But San Francisco also reported “improved agricultural activity as ample rains enhanced growing conditions and reduced the impacts of the ongoing drought in California.”

Energy & Natural Resources: Once again, the sector was described as “mixed to negative across Districts.” Specifically, the report observed, “Oil and gas production continued to fall in Atlanta, Kansas City, and Dallas, though contacts in some Districts reported signs that the declines were close to an end. Contacts in Cleveland and Atlanta noted that natural gas prices were under pressure because the warm winter left inventories elevated. Cleveland and Dallas reported that persistently low energy prices were hurting the financial positions of energy firms. Coal output declined in Richmond and St. Louis. In contrast, some idled iron mines in Minneapolis reported plans to reopen soon.”

Comments: Expansion in the US economy continues, but there appear to be some headwinds that are continuing to keep activity from moving beyond “modest to moderate” in terms of economic growth. The agriculture and energy sectors remain under pressure, even though there may be some signs that pressure is abating or close to abating on the energy side. Relief on the cost side for agriculture was also cited, but the sector also continues to see impacts from the US dollar. All in all, this still paints a picture of a US economy that is growing, but not at a overly strong rate. This should translate into another steady interest rate decision by the Fed at the FOMC meeting in two weeks.

NOTE: This column is copyrighted material; therefore reproduction or retransmission is prohibited under U.S. copyright laws.