Fed’s July Beige Book shows more districts with poor performance: “The economy will experience a soft landing”

The Federal Reserve’s latest Beige Book, covering the period from late May to early July, shows continued slight to modest economic growth in most districts.

However, the report shows that seven districts are experiencing growth, while five districts are experiencing stagnant or declining activity. This means that districts with stagnant or lower economic performance are experiencing an increase compared to the previous period.

Household spending remained largely unchanged during this period. “It looks like the economy is experiencing a soft landing as price pressures ease and consumers moderate their spending,” Jeffrey RoachChief Economist for LPL Financial, commented.

Roach believes companies will become more selective in hiring workers, which could potentially lead to lower labor costs. He advises investors to focus on new orders, unemployment figures and certain commodity prices as leading indicators of future economic growth.

Key findings from the Fed’s July Beige Book

Consumer spending and retail

• Total activity: Household spending remained stable, although consumer behaviour varied across regions.
• Car sales: The automotive sector showed mixed results, impacted by a cyberattack on dealers and persistently high interest rates.
• Travel and tourism: This sector continued its steady growth and was in line with seasonal expectations.

Production and services

• Non-financial services: Service demand recorded slight growth, although there were regional differences.
• Manufacturing: Activity ranged from moderate growth to significant declines, reflecting broader economic uncertainties.
• transport: Efforts to replenish retail inventories contributed to a slight increase in transportation activity, but tight ocean shipping capacity pushed up spot rates.

Loans and real estate

• Credit standards: Most districts reported subdued demand for consumer and business loans due to tight credit conditions.
• Real estate market: Residential and commercial real estate markets showed only modest changes, with some regions reporting stabilization but others noting continued weakness.

Energy and Agriculture

• Energy activity: The development of the sector varied across regions.
• Agriculture: Conditions were mixed and influenced by sporadic droughts and other environmental factors.

Labour markets

• employment: Overall, employment increased slightly. However, some sectors, particularly manufacturing, saw declines due to lower incoming orders.
• Labor availability: Most districts reported an improvement in the labour supply, but a shortage of skilled workers continued.
• Wage growth: Wages increased at a modest to moderate pace, with some deceleration due to greater labour availability and less competition for workers.

Prices

• Price rises: Prices generally rose at a moderate pace, with several districts highlighting consumer resistance to higher prices, resulting in narrower profit margins.
• Retail discounts: Retailers continued to offer discounts to attract price-conscious consumers.
• Input costs: While most districts reported stabilization in input costs, Atlanta saw significant price increases in copper and electricity supplies.

Remarkable district developments

• Boston: Moderate growth with slight price and wage increases. Residential real estate market recovered, commercial activity stagnated.
• New York: Stable activity as labor market eases. Slight increases in consumer spending and inventories; home sales restrained.
• Philadelphia: Slight growth from the non-manufacturing sector. Moderate wage and price inflation; mixed expectations for future growth.
• Cleveland: Slight decline in activity. Consumer spending and demand for industrial goods declined.
• Richmond: Slight growth with moderate consumer spending and increased leisure travel. Wage growth exceeded price growth.
• Atlanta: Stagnant economy with stable labor markets and subdued wage growth. Mixed trends in the transportation and energy sectors.
• Chicago: Slight growth with modest employment and wage increases. Slight increases in consumer and business spending; decline in manufacturing and construction.
• St. Louis: Slight growth in mixed consumer spending. Stable agriculture due to high rainfall.
• Minneapolis: Slight decline with moderate wage pressure. Mixed consumer spending and improvements in construction.
• Kansas City: Moderate growth due to robust consumer spending. Stable employment, strong wage growth supported by the labor market.
• Dallas: Slight growth, especially in non-financial services, finance and energy. Weaker demand for housing and retail sales; stable manufacturing.
• San Francisco: Stable economic situation and employment with slight wage and price growth. Decline in retail sales; mixed trends in the services sector, manufacturing and real estate.

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Image created using artificial intelligence via Midjourney.