Recent US Economic Outlook

The Federal Reserve's Beige Book report for July 12, 2023, provides an insightful look into the current economic conditions across the 12 Federal Reserve Districts. This blog post will summarize the key findings of the report and discuss their implications.

Overall Economic Activity

The report indicates that overall economic activity has seen a slight increase since late May. Five Districts reported slight or modest growth, five noted no change, and two reported slight and modest declines. Consumer spending reports were mixed, with growth generally observed in consumer services. However, some retailers noted shifts away from discretionary spending.

Tourism and travel activity were robust, with hospitality contacts expecting a busy summer season. Auto sales remained unchanged or exhibited moderate growth across most Districts. Manufacturing activity edged up in half of the Districts and declined in the other half.

Banking conditions were mostly subdued, as lending activity continued to soften. Despite higher mortgage rates, demand for residential real estate remained steady, although sales were constrained by low inventories. Construction for both residential and commercial units was slightly lower on balance.

Labour Markets

Employment increased modestly during this period, with most Districts experiencing some job growth. Labor demand remained healthy, though some contacts reported that hiring was getting more targeted and selective. Employers continued to have difficulty finding workers, particularly in health care, transportation, and hospitality, and for high-skilled positions in general.

However, many Districts reported that labor availability had improved and that some employers were having an easier time hiring than they were having previously. Employers also reported that the unusually high turnover rates in recent years appear to be returning to pre-pandemic norms. Wages continued to rise, but more moderately.

Prices

Prices increased at a modest pace overall, and several Districts noted some slowing in the pace of increase. Consumer prices generally increased, though reports differed in the extent to which firms were able to pass along input cost increases. Contacts in some Districts noted reluctance to raise prices because consumers had grown more sensitive to prices, while others reported that solid demand allowed firms to maintain margins.

District Highlights

The report also provides a detailed overview of economic activity in each of the 12 Federal Reserve Districts. For instance, business activity in Boston expanded at a slight pace, with modest increases in employment and roughly even prices. In New York, regional economic activity stabilized after a period of weakness. Labor market conditions were strong, with some firming in recent weeks.

In contrast, business activity in Philadelphia continued to decline slightly. Consumer demand ticked down, although elevated profit margins buoyed overall sales figures. Employment fell slightly despite improved labor availability.

Conclusion

The Beige Book report paints a picture of an economy that is slowly recovering, with modest growth in some areas and stability or slight declines in others. Labor markets are improving, but employers are still struggling to find skilled workers. Prices are increasing at a modest pace, with some signs of slowing.

The report underscores the importance of monitoring economic conditions across the country, as regional variations can have significant implications for the overall economy. It also highlights the ongoing challenges facing businesses and workers as they navigate the post-pandemic economic landscape.