Fed’s Beige Book Shows K-Shaped Split Deepens Among Consumers
US economic activity was little changed in recent weeks, though overall consumer spending declined further except among higher-end shoppers, the Federal Reserve said.
Employment declined slightly and prices rose moderately, according to the US central bank’s Beige Book survey of regional business contacts released Wednesday.
“Outlooks were largely unchanged overall,” the Fed said. “Some contacts noted an increased risk of slower activity in coming months, while some optimism was noted among manufacturers.”
The report was based on information collected by the Fed’s 12 regional banks through Nov. 17 and compiled by the Federal Reserve Bank of Dallas.
Multiple districts, including New York, Atlanta and Minneapolis, reported that spending among upper-income consumers was resilient.
“Contacts noted that higher-income customers were unconstrained, but ‘customers in the middle to lower end of the financial spectrum are tightening the belt,’ said one contact,” according to the Minneapolis Fed.
The report offered something for officials on both sides of the policy debate.
Hiring Freezes
While there was an increase in layoff announcements, more districts said businesses were deploying labor-saving tactics like hiring freezes and attrition instead of cutting workers directly. While there was an increase in layoff announcements, more districts said businesses were deploying labor-saving tactics like hiring freezes and attrition instead of cutting workers directly.
On prices, tariffs were still a concern for businesses, especially those in manufacturing and retail, who reported widespread input cost pressures. Multiple firms reported tighter margins or financial strain related to tariffs, but some also said prices had declined due to reduced demand or delayed or reduced tariff rates.
“Looking ahead, contacts largely anticipate upward cost pressures to persist but plans to raise prices in the near term were mixed,” the Fed said.
Wage increases have been broadly in line with the Fed’s inflation goal in recent months, but the report noted that firms in the manufacturing, construction and health-care sectors saw “moderate” wage pressure.
A staffing company in the Philadelphia district said immigration policies, which have drastically slowed the number of new workers entering the country, are causing many managers to raise wages to compete for a smaller pool of workers.
Shutdown Impact
The report was mostly compiled during the government shutdown, which ended Nov. 12. It noted that some retailers said the shutdown had a negative impact on consumption. There was also increased demand for food assistance partly due to the disruption in the distribution of SNAP benefits while the government was closed, community organizations reported.
Anecdotal reports on how businesses and consumers are faring have drawn more attention in recent months because the shutdown disrupted the collection and reporting of key economic data. Fed officials won’t have most labor market and inflation figures for October and November until after their December meeting.
The dearth of official national-level data has contributed to a splintering among Fed officials over whether to lower interest rates next month.
Market bets for the December meeting have whipsawed between a cut and holding rates steady, though the odds of a cut are now at around 80% after two policymakers who often hew closely to Chair Jerome Powell’s preferences signaled they’d support lowering rates.
Source : Bloomberg.com
