Here's what Steve Hansen from Econintersect.com has to say:
The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated "the pace of expansion equally split between modest and moderate". The previous report stated "the economy expanded at a modest to moderate pace from early January through mid-February".
Analyst Opinion of this month's Beige Book
Seems like the rate of growth is unchanged. Still the Fed is not saying the economy is strong. He adds this cautionary note
* Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession. The Beige Book completely missed the 2001 recession, and was late in seeing the Great Recession.
The survey of contacts across the Fed's 12 districts includes several anecdotes on the US economy and was prepared ahead of the policy meeting in May.
"Labor markets remained tight, and employers in most districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers," the Beige Book said.
The unemployment rate fell to a postcrisis low of 4.5% in March, signaling that fewer people were on the jobs market for hire. For highly skilled workers, that shortage means they can negotiate their compensation more aggressively and switch to a better-paying employer if necessary.
"A larger number of firms mentioned higher turnover rates and more difficulty retaining workers," the Beige Book said. The Fed closely watches the quits rate, which is near a postrecession high of 2.2%, as a gauge of how confident workers are in finding new jobs when they resign.
[A counter-opinion insert:
"This week's Fed's Beige Book said that labor markets are getting “tight.” That's econo-talk for “workers want more money.” They may get it. . .
I prefer to listen to the market’s opinion over that of economists, and I’m pleased to see the bond market pull back some. It shouldn’t be too easy for bond investors to outpace stock investors. The bond folks need to be kept on their toes. The 10-year yield got up to 2.5% this week. That’s about double the yield from six months ago. This is part of an ongoing rotation as money leaves safe assets and is gradually finding a home in riskier ones. That could be a major theme this year.
Source: Crossing Wall Street ]
The Beige Book maintained that the economy continues to expand at a modest pace, supporting the Fed's view that it can raise borrowing costs two more times this year. Ahead of the release of the Beige Book, traders saw a 41.8% chance that the Fed would raise rates at its meeting in June, according to Bloomberg's World Interest Rate Probability Data.
Here's the Beige Book's full text:
Overall Economic Activity
Economic activity increased in each of the twelve Federal Reserve Districts between mid-February and the end of March, with the pace of expansion equally split between modest and moderate. In addition, the pickup was evident to varying degrees across economic sectors. Manufacturing continued to expand at a modest to moderate pace, although growth in freight shipments slowed slightly. Consumer spending varied as reports of stronger light vehicle sales were accompanied by somewhat softer readings in non-auto retail spending. Tourism and travel activity generally picked up. On balance, reports suggested that residential construction growth accelerated somewhat even as growth in home sales slowed, in part due to a lack of inventory. Nonresidential construction remained strong, but became more mixed in some regions; leasing activity generally improved at a more modest pace. More than half of the reports suggested that loan volumes increased, while only one said they were down modestly. Non-financial services generally continued to expand steadily. Energy-related businesses noted improved conditions while agricultural conditions varied.
Employment and Wages
Employment expanded across the nation and increases ranged from modest to moderate during this period. Labor markets remained tight, and employers in most Districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers. Modest wage increases broadened, and reports noted bigger increases for workers with skills that are in short supply. A larger number of firms mentioned higher turnover rates and more difficulty retaining workers. A couple of Districts reported that worker shortages and increased labor costs were restraining growth in some sectors, including manufacturing, transportation, and construction. Businesses generally expected labor demand to increase moderately in the next six months, and looked for modest wage growth.
Prices
On balance, prices rose modestly since the previous report. Input prices generally increased at a modest rate and outpaced gains in selling prices, which rose only slightly. Price increases were noted for some building materials, such as lumber and concrete, whereas metal prices remained fairly stable. Retail prices rose moderately, on the whole. Energy prices were flat to slightly lower. Reports on agriculture prices varied, with increases in cotton, peanuts, chickens, and hogs, and declines for corn and wheat. Home prices generally moved slightly higher. Businesses mostly expected mild to moderate price growth to persist in the next several months.
Highlights by Federal Reserve District
FED RESERVE BANK OF SAN FRANCISCO
Summary of Economic Activity Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of mid-February through March. The labor market continued to tighten, wage pressures picked up further, and inflation increased modestly. Sales of retail goods improved moderately, and growth in the consumer and business services sectors remained strong. Manufacturing activity changed little on balance, and conditions in the agriculture sector improved modestly. Contacts reported continued strong activity in residential real estate markets, while conditions in the commercial sector slowed to a modest pace in some regions. Lending activity grew at a moderate pace.
Employment and Wages
The labor market continued to tighten, and wage pressures picked up further. Contacts reported record-high demand, as well as wage increases, for engineers with experience in cloud computing. Contacts also noted that technology and non-technology sectors are increasingly competing for workers with the same advanced skills. In the financial services sector, wages for unskilled entry-level positions increased markedly. Labor shortages in the construction industry persisted, driving up wages for skilled workers. Demand for labor in the agriculture industry continued to outpace supply, putting upward pressure on wages. One contact noted that growers continue to automate production where possible. Contacts in the pharmaceutical manufacturing industry reported relocating workers and operations to lower-cost locales outside of the District.
Prices
Overall, inflation increased modestly over the reporting period. Prices for construction materials continued to climb as construction activity remained strong. Increasing wage costs pushed up hotel rates and prices for associated services such as parking and food and beverage services. Shipping costs increased moderately. Contacts in the retail food and beverage industry reported that increases in labor costs were passed through to consumers. Prices of agricultural commodities picked up modestly. Branded pharmaceutical price increases remained subdued, while strong competition held down prices for generic drugs. Improved economies of scale reduced cloud computing costs, while prices for high-end smartphones and tablets continued to trend downward. Wholesale food retailers reported slight year-over-year deflation.
Retail Trade and Services
Activity in the retail sector improved moderately over the reporting period. Overall, retail sales experienced steady growth, but consumer preferences continued to shift from buying in-store to using e-commerce. Vehicle sales rebounded strongly from a weak start to the year, and dealers reported low inventories of used vehicles. Sales of retail beverage products were stable, although an unusually wet winter in the West somewhat slowed foot traffic at many vendors. Optimism among grocery retailers boosted capital expenditures on store improvements and new location openings.
Activity in the consumer and business services sector remained strong. Shipping volumes continued to expand at a solid pace, and contacts noted that volume growth was particularly strong for lower-priced e-commerce goods. Demand for business IT services strengthened, driven by increased investments in cloud services, mobility, and big data solutions in the financial services, manufacturing, and health-care sectors. Contacts in the hospitality industry reported that overall sales improved, but mentioned that hotel stays were lower than expected due to changes in immigration policy and increased scrutiny of foreign arrivals. Demand for restaurant services remained sluggish, but the industry remains hopeful that the recent slump in sales is transitory and expects sales to increase in the coming months as the weather improves and consumers receive tax refunds.
Manufacturing
Manufacturing activity was mixed across sectors but largely flat on balance over the reporting period. Conditions in the semiconductor industry were healthy, and consolidation in the industry picked up significantly. Orders for new commercial aircraft were up over the same period last year, while shipments remained stable. On balance, exports of manufactured goods continued to be held back by the strong dollar. However, demand for domestic steel picked. Overall, contacts reported that capacity utilization in the manufacturing sector remained below long-run averages.
Agriculture and Resource-Related Industries
Activity in the agriculture sector grew modestly over the reporting period. Increased water availability in the West boosted yields for some crops. A greater-than-anticipated snow cover in parts of the West spurred ranchers to increase herds' food allowances, boosting the demand for hay. Oil production remained stable in Alaska, but relatively low oil prices have slowed investment substantially. The strong dollar held back exports for some agricultural products. On balance, growers anticipate that rising global economic activity will yield additional demand for domestic exports this year.
Real Estate and Construction
Conditions in real estate markets remained stable, and activity remained strong in most of the District. Demand for residential real estate remained robust in most parts of the District. Overall, contacts reported that construction activity was slowed only by a lack of available land, labor, and materials. Sales of new and existing homes were robust, and inventories remained low, with one contact in Seattle reporting that new property listings remained on the market for only a couple of days. A few contacts outside of major metropolitan areas reported that recent increases in mortgage rates had caused demand to slow modestly, although it remained strong. House prices and rents continued to increase, particularly in cities, where some contacts noted that both rose at a faster pace than wages. In some regions, activity in the commercial real estate sector slowed to a modest pace. In Alaska, residential and commercial construction activity declined, as commercial investment stalled and overall economic activity remained sluggish.
Financial Institutions
Lending activity grew at a moderate pace over the reporting period. Loan demand continued to expand at a moderate pace, and contacts reported that competition on pricing and fees remained high. Deposits expanded moderately and were sufficient to finance lending activities. On balance, credit quality remained strong, but one contact pointed to some loosening of underwriting standards. Commercial banks' net interest margins improved modestly with recent increases in broad market rates. One contact in the Pacific Northwest reported that the continued growth of credit unions threatened smaller community banks in their region.
Source: Business Insider
* Fed's Words When Economy is entering a Recession
For the recession starting December 2007, here is the lead up summary words from the Beige Books:
- 28Nov2007 - "expanding"
- 16Jan2008 - "increasing moderately"\
- 05Mar2008 - "growth slowed"
- 16Apr2008 - "weakened"
For the March 2001 recession which ended in November 2001, here are the Beige Book summary words:
- 17Jan2001 - "economic growth slowed"
- 07Mar2001 - "sluggish to modest economic growth"
- 02May2001 - "slow pace of economic activity"
- 13Jun2001 - "little changed or decelerating"
- 08Aug2001 - "slow growth or lateral movement"
- 19Sep2001 - "sluggish"
- 24Oct2001 - "weak economic activity"
- 28Nov2001 - "remained soft"
- 16Jan2002 - "remained weak"
Source: Federal Reserve
