A succinct review of the Fed's Beige Book and regional comments on inflation and labor market

Sounding much more like a 1-1.5% type economic growth rate, the Fed’s Beige Book of 12 Districts said, “Most Districts reported slight or modest growth, while two noted no change in activity.”

As for that very bifurcated consumer we keep seeing evidence of, both in terms of where the spend is coming from and what it is being spent on, “Retail spending was flat to up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers.” The high cost of borrowing resulted in this, “Auto sales were roughly flat, with a few Districts noting that manufacturers were offering incentives to spur sales.”

The most interest rate sensitive part of the economy, housing of course, saw modest demand “and single family construction increased, though there were reports of rising rates impacting sales activity.”

We know what the priority of spend as been on but something to watch if it can continue. “Travel and tourism strengthened across much of the country, boosted by increased leisure and business travel, but hospitality contacts were mixed in their outlooks for the summer season.”

We also know that manufacturing remains under pressure and the Beige Book said “manufacturing activity was widely characterized as flat to up, though two Districts cited declines.” We know too that bank lending has been sluggish as “Tight credit standards and high interest rates continued to constrain lending growth.”

The real trouble remains in CRE, but I heard someone of real estate prominence today on TV repeat what a colleague has said before that the CRE market has bottomed. I can’t disagree more. The Beige Book said, “Conditions in the commercial real estate sector softened amid supply concerns, tight credit conditions, and elevated borrowing costs.” There is more pain to come I believe.

The Beige Book bottom line, “Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.”

From here, I’m going to focus on the inflation and jobs comments as we know that is what the Fed is most focused on, obviously with their Congressional mandates. There was definitely a pick up in those saying their input price pressures remain but they are getting more push back from their customers in passing it on. With the labor market, there is a clear slowdown in the pace of hiring but more options for those that want to hire and still difficulty in filling some skilled positions.