July Fed Beige Book Shows More Underperforming Districts: 'The Economy Will Experience That Soft Landing'

The Federal Reserve’s latest Beige Book, covering late May through early July, showcases ongoing slight to modest economic growth in most Districts.

However, the report reveals seven Districts noting growth while five experiencing flat or declining activity, marking an uptick in Districts with stagnant or reduced economic performance compared to the previous period.

Household spending has remained largely unchanged during the period. “It looks like the economy will experience that soft landing as pricing pressures ease and consumers moderate spending patterns,” Jeffrey Roach, chief economist for LPL Financial, commented.

Roach anticipates businesses becoming more selective in their hiring, potentially leading to smaller payrolls. He advises investors to focus on new orders, unemployment claims, and select commodity prices as leading indicators of future economic growth.

Key Insights from July’s Fed Beige Book

Consumer Spending and Retail

• Overall Activity: Household spending was steady, with varied consumer behavior across different regions.
• Auto Sales: The automotive sector showed mixed results, hindered by a cyberattack on dealerships and persistently high interest rates.
• Travel and Tourism: This sector continued its steady growth, aligning with seasonal expectations.

Manufacturing and Services

• Nonfinancial Services: Service demand saw slight growth, with regional variations.
• Manufacturing: Activity ranged from moderate growth to noticeable declines, reflecting broader economic uncertainties.
• Transportation: Retail restocking efforts contributed to a slight increase in transportation activity, but tight capacity in ocean shipping drove up spot rates.

Lending and Real Estate

• Credit Standards: Most Districts reported subdued demand for consumer and business loans, influenced by tight credit conditions.
• Housing Market: Residential and commercial real estate markets showed only slight changes, with some regions reporting stabilization and others noting continued softness.

Energy and Agriculture

• Energy Activity: The sector’s performance varied by region.
• Agriculture: Conditions were mixed, influenced by sporadic droughts and other environmental factors.

Labor Markets

• Employment: Overall, employment levels increased slightly. However, certain sectors, particularly manufacturing, saw declines due to reduced new orders.
• Labor Availability: There was a reported improvement in labor supply across most Districts, although skilled-worker shortages persisted.
• Wage Growth: Wages grew at a modest to moderate pace, with some slowing observed due to increased worker availability and reduced competition for employees.

Prices

• Price Increases: Prices generally rose at a modest pace, with several Districts highlighting consumer resistance to higher prices, leading to narrower profit margins.
• Retail Discounts: Retailers continued to offer discounts to attract cost-conscious consumers.
• Input Costs: While most Districts reported stabilizing input costs, Atlanta noted significant increases in prices for copper and electrical supplies.

Notable District Developments

• Boston: Modest growth with slight price and wage increases. Residential real estate improved; commercial activity flat.
• New York: Stable activity with easing labor market. Slight increases in consumer spending and inventory; home sales constrained.
• Philadelphia: Slight growth driven by nonmanufacturing sector. Modest wage and price inflation; mixed future growth expectations.
• Cleveland: Slight decline in activity. Consumer spending and demand for manufactured goods softened.
• Richmond: Slight growth with modest consumer spending and increased leisure travel. Wage growth outpaced price growth.
• Atlanta: Flat activity with stable labor markets and eased wage growth. Mixed trends in transportation and energy.
• Chicago: Slight growth with modest employment and wage increases. Slight rises in consumer and business spending; manufacturing and construction declined.
• St. Louis: Slight growth with mixed consumer spending. Stable agriculture due to high rainfall.
• Minneapolis: Slight decline with moderate wage pressures. Mixed consumer spending and improvements in construction.
• Kansas City: Moderate growth driven by robust consumer spending. Stable employment; strong labor market-supported wage growth.
• Dallas: Slight growth led by nonfinancial services, finance, and energy. Weaker housing demand and retail sales; stable manufacturing.
• San Francisco: Stable activity and employment with slight wage and price growth. Declines in retail sales; mixed trends in services, manufacturing, and real estate.

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Image created using artificial intelligence via Midjourney.