Highlights
The Fed's Beige Book for the period of late August through early October said,"Most Districts indicated little to no change in economic activity since the September report." The report is prepared by the St. Louis Fed. On net, the tone of the report is less positive than the prior one with overall conditions remaining stalled while the strength in the labor market prevents a slip into recession. The report noted,"The near-term outlook for the economy was generally described as stable or having slightly weaker growth. Expectations of firms for which the holiday shopping season is an important driver of sales were mixed."
Five districts characterized growth as slow, slight, or modest (Boston, Atlanta, Chicago, Minneapolis, and Dallas). Three districts described activity as unchanged, little changed, or stable (Cleveland, St. Louis, and San Francisco). Four said growth was weaker, or slightly contracting, declining or softening (New York, Philadelphia, Richmond, and Kansas City). For the October Beige Book, 42 percent of districts reported at least some growth compared to 58 percent in the prior report.
The generally softer conditions for some districts may reflect strike activity. Settlement of ongoing strikes especially the UAW strike that began September 15 should mean conditions are firmer afterward.
The Beige Book noted a broad cooling in the labor market since the prior report."Most Districts reported slight to moderate increases in overall employment, and firms were hiring less urgently." Churn in the labor market has eased with reports of"improvements in hiring and retention as candidate pools have expanded and those receiving offers have been less inclined to negotiate terms of employment." Nonetheless, finding and hiring skilled workers remains a challenge. There is a hint that the"great retirement" of the pandemic period is less of a factor for employers."A few highlighted that older workers are remaining in the labor force, either staying in their existing position or returning in a part-time capacity," the report said. Workers continue to see"modest to moderate" wage growth, although employers are regaining some negotiation power on other types of compensation.
Inflation is to be increasing"at a modest pace overall." Some"input cost increases have slowed or stabilized for manufacturers but continue to rise for services sector firms," the report said. The report noted increases in"fuel costs, wages, and insurance" as major contributors to rising prices for businesses, and that businesses have less ability to pass through higher costs"because consumers had grown more sensitive to prices." Importantly,"Overall, firms expect prices to increase the next few quarters, but at a slower rate than the previous few quarters. Several Districts reported decreases in the number of firms expecting significant price increases moving forward."
As Fed policymakers digest the information in the Beige Book along with the most recent economic data, the outlook for the October 31-November 1 FOMC meeting remains in doubt. Inflation is coming down, but less for services than for goods producers. Inflation in the non-housing services sector remains well above the Fed's 2 percent inflation objective. Still, inflation expectations are anchored and reflect confidence that disinflation will continue. The FOMC has room to pause in the rate hike cycle for a second meeting in a row. However, if policymakers decide to wait, they will also deliver a strong message that it is too soon to consider present interest rates as the top of the tightening cycle and that in any case, monetary policy will remain restrictive for some time to come.
Five districts characterized growth as slow, slight, or modest (Boston, Atlanta, Chicago, Minneapolis, and Dallas). Three districts described activity as unchanged, little changed, or stable (Cleveland, St. Louis, and San Francisco). Four said growth was weaker, or slightly contracting, declining or softening (New York, Philadelphia, Richmond, and Kansas City). For the October Beige Book, 42 percent of districts reported at least some growth compared to 58 percent in the prior report.
The generally softer conditions for some districts may reflect strike activity. Settlement of ongoing strikes especially the UAW strike that began September 15 should mean conditions are firmer afterward.
The Beige Book noted a broad cooling in the labor market since the prior report."Most Districts reported slight to moderate increases in overall employment, and firms were hiring less urgently." Churn in the labor market has eased with reports of"improvements in hiring and retention as candidate pools have expanded and those receiving offers have been less inclined to negotiate terms of employment." Nonetheless, finding and hiring skilled workers remains a challenge. There is a hint that the"great retirement" of the pandemic period is less of a factor for employers."A few highlighted that older workers are remaining in the labor force, either staying in their existing position or returning in a part-time capacity," the report said. Workers continue to see"modest to moderate" wage growth, although employers are regaining some negotiation power on other types of compensation.
Inflation is to be increasing"at a modest pace overall." Some"input cost increases have slowed or stabilized for manufacturers but continue to rise for services sector firms," the report said. The report noted increases in"fuel costs, wages, and insurance" as major contributors to rising prices for businesses, and that businesses have less ability to pass through higher costs"because consumers had grown more sensitive to prices." Importantly,"Overall, firms expect prices to increase the next few quarters, but at a slower rate than the previous few quarters. Several Districts reported decreases in the number of firms expecting significant price increases moving forward."
As Fed policymakers digest the information in the Beige Book along with the most recent economic data, the outlook for the October 31-November 1 FOMC meeting remains in doubt. Inflation is coming down, but less for services than for goods producers. Inflation in the non-housing services sector remains well above the Fed's 2 percent inflation objective. Still, inflation expectations are anchored and reflect confidence that disinflation will continue. The FOMC has room to pause in the rate hike cycle for a second meeting in a row. However, if policymakers decide to wait, they will also deliver a strong message that it is too soon to consider present interest rates as the top of the tightening cycle and that in any case, monetary policy will remain restrictive for some time to come.
Definition
This book is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.
Description
This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are the single most influential event for the markets. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity. Since the past recession, traders worry about the impact of the Beige Book on the timing of tapering quantitative easing.
Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.
Frequency
Eight times a year
If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity. Since the past recession, traders worry about the impact of the Beige Book on the timing of tapering quantitative easing.
Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.
Frequency
Eight times a year
