Four months after the May Beige Book was shocked at the economic devastation across the US, things continue to improve according to the latest assessment from various regional Fed, which said in today’s just released August edition of the Beige Book that “economic activity increased among most Districts, but gains were generally modest and activity remained well below levels prior to the COVID-19 pandemic” while manufacturing rose in most Districts – as confirmed by the latest PMI and ISM data – and which coincided with increased activity at ports and among transportation and distribution firms.
Some more details from the latest report, first looking at consumer spending and residential activity :
- Consumer spending continued to pick up, sparked by strong vehicle sales and some improvements in tourism and retail sectors.
- But many Districts noted a slowing pace of growth in these areas, and total spending was still far below pre-pandemic levels.
- Commercial construction was down widely, and commercial real estate remained in contraction. Conversely, residential construction was a bright spot, showing growth and resilience in many Districts.
- Residential real estate sales were also notably higher, with prices continuing to rise along with demand and a shortage of inventory. In the banking sector, overall loan demand increased slightly, led by solid residential mortgage activity.
- Agricultural conditions continued to suffer from low prices, and energy activity was subdued at low levels, with little expectation of near-term improvement for either sector.
In its assessment, the report noted that “while the overall outlook among contacts was modestly optimistic, a few Districts noted some pessimism. Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country.”
Next, the Beige Book looked at jobs and wages:
- Employment increased overall among Districts, with gains in manufacturing cited most often. However, some Districts also reported slowing job growth and increased hiring volatility, particularly in service industries, with rising instances of furloughed workers being laid off permanently as demand remained soft.
- Firms continued to experience difficulty finding necessary labor, a matter compounded by day care availability, as well as uncertainty over the coming school year and jobless benefits.
- Wages were flat to slightly higher in most Districts, with greater pressure cited among lower-paying positions. Some firms also rescinded previous pay cuts.
- Others, however, have looked to roll back hazard pay for high-exposure jobs, though some have chosen not to do so for staff morale and recruitment purposes
Finally, a look at the most important variable in this day and age of Average Inflation Targeting, namely prices:
- Price pressures increased since the last report but remained modest. While input prices generally rose faster than selling prices, they were moderate overall.
- Notable exceptions included inputs experiencing demand surges or supply-chain disruptions, such as structural lumber, for which prices spiked.
- Several Districts also reported that costs for personal protective equipment and inputs to it remained elevated.
- Freight transportation rates rose in several Districts due to a resurgence in demand.
- In contrast, contacts in multiple Districts cited weak demand or lack of pricing power as a factor behind slower growth in retail or other selling prices.
One notable aspect of the latest Beige Book: at 52 instances of “covid” or “coronavirus”, there was a tiny increase from the 50 instances in July and unchanged from the 52 in May.
This suggests that the Fed’s concern about the pandemic remains not only elevated but consistent, if on a slightly rising trajectory.