Fed districts share outlook, differ in growth areas

In the latest edition of the Beige Book, reports from Federal Reserve districts generally suggested that the economy expanded at a modest pace through the end of August.

The Beige Book is a summary of commentary on the current economic conditions by Federal Reserve district, and is published several times a year. Each Federal Reserve Bank gathers anecdotal information in its district through reports from bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. This September’s summary of the 12 district reports was prepared at the Federal Reserve of Atlanta.

Overall Economic Activity
Although concerns regarding tariffs and trade-policy uncertainty continued, most businesses remained optimistic about the near-term outlook. Generally speaking, auto sales and tourism activity grew or remained steady, consumer spending was mixed, and transportation activity softened.

No surprises, either, when it comes to housing and real estate: in most districts, home sales remained tight due to inventory levels, and new-home construction activity remained flat, as did commercial real estate construction and sales activity. The pace of leasing increased slightly over the prior period.

Overall manufacturing activity was down slightly from the previous report. Agricultural conditions remained weak as a result of the combination of unfavorable weather conditions, low commodity prices, and trade-related uncertainties. Lending volumes grew modestly across several districts. Reports on activity in the nonfinancial services sector were positive, with reporting districts noting similar or improved activity from the last report.

Employment and Wages
Districts indicated that employment grew at a modest pace overall, keeping pace with activity during the previous reporting period. While employment growth varied by industry, some districts noted manufacturing employment was flat at best, echoing the sentiments on manufacturing activity. Firms and staffing agencies reported tightness across various labor market segments and skill levels, which continued to constrain growth in overall business activity.

Wage growth remained modest to moderate, similar to the previous reporting period. Districts continued to report strong upward pressure on pay for entry-level and low-skill workers, as well as for workers in the technology, construction, and some professional services fields. Some districts noted employers offering other incentives such as enhanced benefits offerings, flexible work arrangements, and signing bonuses to attract and retain employees in addition to wage increases.

Prices
Districts indicated modest price increases since the last report. Retailers and manufacturers in some districts reported slight increases in input costs, and although there was some ability to pass on slight increases in input costs to the consumer through price increases, manufacturers indicated a limited ability to raise prices. Tariff fears persisted, although the direct impact was mixed, and some districts anticipated that the effects would not be felt for a few months yet.

District-Specific Highlights

Boston
Economic activity expanded at a modest pace, although some manufacturers saw declines. Tourism and the staffing sector reported strength, along with commercial real estate markets. Residential real estate inventories were down and contacts noted bidding wars.

New York
Regional economic growth continued at a modest pace. Job creation was sluggish, but labor markets remained tight and wage growth picked up a bit, along with manufacturing activity. Prices continued to rise modestly. Residential rental markets firmed. Banks reported a rebound in loan demand, but the financial sector overall showed signs of softening.

Philadelphia
Business activity continued at a modest pace of growth, although contacts noted difficulty in finding qualified labor, and wage increases remained moderate.

Cleveland
Economic activity was steady over the period, and employment remained stable overall, with moderate wage increases. Consumer spending picked up, while manufacturing and freight activity slowed down. Prices were little changed.

Richmond
The economy continued to grow at a modest rate. Manufacturers and trucking companies saw some declines in shipments. Ports, tourism, and nonfinancial service firms generally indicated increasing activity. Residential and commercial real estate markets were stable to improving modestly. Labor markets remained tight, wages rose modestly, and prices increased at a moderate rate.

Atlanta
Economic activity moderated slightly over the reporting period. Labor market tightness persisted. Wage growth remained steady and input costs rose slightly. Retail sales and tourism activity were mixed. Real estate sales and construction were down from a year ago. Manufacturing activity softened. Banking conditions remained steady.

Chicago
Economic activity increased slightly, but financial conditions were little changed. Consumer spending, employment, and business spending increased slightly, while manufacturing and construction and real estate were little changed. Wages and prices rose slightly. Farm income prospects improved some, but remained poor for most agriculture sectors.

St. Louis
Farming conditions remain strained by low commodity prices and lingering effects from spring flooding. The was an increase in construction activity and barge traffic continued to improve, but air cargo traffic decreased slightly from a year ago. Although economic conditions remained unchanged, contacts’ economic outlook for the remainder of the year turned slightly pessimistic.

Minneapolis
Labor demand remained healthy but employment was flat, as labor availability continued to constrain hiring. Manufacturing grew slightly, but was beginning to show some signs of softening. Agricultural conditions remained weak due to poor weather during planting, while commercial construction grew strongly.

Kansas City
District economic activity edged up in the latter part of the summer. Consumer spending increased modestly, with gains in retail, auto, restaurant and tourism sales. Real estate activity also expanded, but residential construction activity slowed. Manufacturing activity declined slightly, while activity held steady in the energy sector. The agricultural sector remained weak, with low prices and trade uncertainty weighing on farm income.

Dallas
Economic activity continued to expand moderately. Retail sales were flat and drilling activity dipped, but output growth strengthened in manufacturing. Selling price increases were modest, as most firms were limited in their ability to pass through higher costs. Hiring continued at a steady pace. Outlooks were mixed, with tariffs, trade tensions, stock market volatility, and slowing global growth fueling uncertainty.

San Francisco
Economic activity continued to expand at a moderate pace. The labor market remained tight and wage growth was moderate. Price inflation was largely stable. Sales of retail goods increased notably, as did activity in the consumer and business services sectors. The manufacturing and agricultural sectors slowed somewhat. Activity in residential and commercial real estate markets expanded moderately, and lending grew further.

The next Beige Book report is scheduled for Oct. 16.