Highlights
Overall economic conditions remained soft in the Beige Book for the period between early October and mid-November, but there was some improvement from the prior report. Four districts reported at least some growth (Boston, Cleveland, Richmond, and Chicago), four said conditions where neither growing nor contracting (Atlanta, St. Louis, Minneapolis, and San Francisco), and four reported weaker conditions (New York, Philadelphia, Kansas City, and Dallas). The federal government shutdown was only mentioned as a factor in a few districts. It does not seem to have affected activity overall except for a mention of disruptions in SNAP benefits on demand for food assistance. Economic activity presents a mixed picture across sectors and the outlook remains cautious.
The FOMC will consider the contents of the Beige Book when it meets on December 9-10. Not all the data reports delayed by the government shutdown will be caught up by then. The November data reports for employment, CPI, PPI, and retail sales will not be available before the meeting. Fed policymakers will once more have to rely on a mix of private and regional numbers to determine how best to set policy and balance the demands of the dual mandate for maximum employment and price stability. The Beige Book is some of the most current evidence the FOMC will have to weigh.
The Beige Book said, Employment declined slightly over the current period with around half of Districts noting weaker labor demand. Despite an uptick in layoff announcements, more Districts reported contacts limiting headcounts using hiring freezes, replacement-only hiring, and attrition than through layoffs. The indicates that the situation in the labor market remains one of limited hiring but also limited firing that leaves the unemployment rate around the middle of the 4.0-5.0 percent range. Historically this is consistent with a healthy labor market well-supported by economic expansion.
If the labor market remains in decent shape, the outlook for inflation is less favorable. The Beige Book said, Prices rose moderately during the reporting period. Input cost pressures were widespread in manufacturing and retail, largely reflecting tariff-induced increases. Some Districts noted rising costs for insurance, utilities, technology, and health care. The extent of passthrough of higher input costs to customers varied, and depended upon demand, competitive pressures, price sensitivity of consumers, and pushback from clients. Fed Chair Jerome Powell has said that the FOMC's base case is for the tariff-related price pressures to abate, although that is proving not to be a one-and-done situation. Until the FOMC majority is confident that the uptick in inflation is not going to become entrenched, the characterization of inflation as somewhat elevated will remain. This argues that price stability requires continued restrictive monetary policy.
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