Fed Beige Book Reveals Holiday Cheer For US Economy: Tourism Spending Runs Hot, But Real Estate Worries Surface

The Federal Reserve's latest Beige Book, a collection of economic information collected by each Federal Reserve District through Jan. 8 paints a picture of steady growth for the U.S. economy, with consumers displaying notable demand resilience during the holiday season.

“Consumers delivered some seasonal relief over the holidays,” according to the Fed Beige book released Wednesday. This trend notably exceeded expectations in three districts including New York, which “noted strong holiday spending on apparel, toys, and sporting goods.”

Holiday season trends boosted air freight volumes linked to e-commerce in Richmond, while Philadelphia experienced a rise in credit card lending.

Additionally, increased leisure travel was a common theme across several districts, with a notable mention of New York City being exceptionally lively, as described by a tourism industry contact.

The St. Louis district reported strong growth in leisure travel, with contacts citing an optimistic outlook for the coming year.

Sectoral, Regional Economic Divergences: While consumer spending and travel demand provided a reason for optimism, the Beige Book’s narrative was not uniformly positive across all sectors and regions.

“Nearly all Districts reported decreases in manufacturing activity,” the Beige Book stated.

High interest rates continue to impose limitations on auto sales and real estate deals, although the potential of rate decreases has sparked a sense of hope across various sectors.

Business outlooks ranged from neutral to pessimistic in the Dallas Fed District, highlighting weakening demand as a primary concern.

In the Kansas City District, the commercial real estate sector faced challenges, with transactions being suppressed and loan modification activities hindered by lender apprehensions.

Market Reactions: The SPDR S&P 500 ETF Trust SPY, mirroring the S&P 500, attempted to rebound from its daily lows at 2:15 p.m. ET, yet it remained down by 0.8% during the session.

Office REITs experienced a sell-off, resulting in the VanEck Office and Commercial REIT ETF DESK declining by 3.6%, marking its most substantial one-day loss since early October.

Tech stocks continued to underperform, with the Invesco QQQ Trust QQQ down 1%. The real estate sector saw notable laggards on Thursday. The sector’s gauge, as tracked by the Vanguard Real Estate ETF VNQ, tumbled 2.3%. More substantial losses were observed in specific companies, with Boston Properties Inc. BXP, Healthpeak Properties Inc. PEAK, Vornado Realty Trust VNO and Kilroy Realty Corporation KRC all witnessing declines ranging from 4% to 5%.

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Federal Reserve Chair Jerome Powell. Photo courtesy of the Federal Reserve.