The latest Federal Reserve Beige Book shows that from late May to June, economic activity in the United States improved moderately, with 11 out of 12 Federal Reserve districts experiencing growth.
Written by: Yang Chen, Wall Street Insight
The latest Beige Book released by the Federal Reserve on Wednesday slightly supports its recent hawkish stance change. In recent weeks, U.S. economic activity has seen modest to moderate growth, with employment levels in most regions changing little or remaining almost unchanged.
The report indicates that from late May to June, economic activity in the U.S. improved moderately, with 11 of the 12 Federal Reserve districts experiencing slight to moderate growth, while one district in San Francisco remained unchanged. This growth rate is slightly better than in the June report, when 10 districts were expanding, 1 district was flat, and 1 district experienced a decline.
Overall price levels showed a moderate increase, with 9 districts reporting modest price growth, 2 districts reporting strong price growth, and 1 district reporting slight price growth; compared to the previous reporting period, price growth in all districts was the same or slowed down. The Federal Reserve stated in the report:
“Some business contacts attributed these rising costs to conflicts in the Middle East; others mentioned tariff factors. Consumer prices continue to rise, with a few districts noting that business contacts have observed an increase in customer sensitivity to prices.”
This report is based on information collected from the 12 regional banks of the Federal Reserve before July 6 and is prepared by the Chicago Fed.
Inflation Trends Divergent, Energy Prices a Key Variable
Several Federal Reserve officials have expressed concerns about high inflation and warned that interest rates may need to be raised this year. However, Federal Reserve Chairman Waller and New York Fed President Williams recently expressed a more moderate outlook on inflation.
The report points out that due to the Middle East situation injecting additional volatility into energy prices, there are divergent predictions regarding the inflation outlook. The report states:
“Districts have different expectations for price growth in the coming months, with some contacts in certain regions expecting inflation to remain at the current pace, while contacts in other regions expect inflation to slow down, partly thanks to falling fuel prices.”
Due to a drop in gasoline prices in recent weeks, the monthly inflation rate for June declined. A temporary peace agreement reached between the U.S. and Iran had provided American households with a brief respite, but the subsequent resumption of hostilities led to a spike in oil prices again. The report states:
“Contacts generally expect the economy to continue expanding in the coming months, although several districts noted that uncertainty surrounding fuel costs has increased.”
Labor Market Robust, Wages for Skilled Workers Rising in Some Districts
In terms of the labor market, the report shows that employment and wage increases are modest to moderate, although some districts have seen wage increases due to competition for skilled workers.
Employment numbers have increased, with five districts experiencing slight, moderate, or steady growth in employment, while seven districts saw little change in employment numbers. In the previous report, only one district reported slight, moderate, or steady growth in employment.
Several sectors, including manufacturing, construction, and retail, have seen employment numbers rise. Industries are struggling to find skilled workers, particularly technicians and craftsmen. Wage growth across most regions was limited, with two districts seeing very little wage growth. Some wage increases are attributed to intensified competition for skilled workers.
Economic Conditions by Region
Boston: Manufacturing firms report a slight increase in employee numbers; retail and hospitality sectors noted seasonal hiring is above last summer. Overall employment in the service industry is stable, though one firm laid off a small number of white-collar employees due to AI improving efficiency.
New York: Driven by FIFA World Cup visitors, tourism activity in New York City remains strong, with rising hotel occupancy rates and room prices; some restaurants and bars perform well due to demand from people watching the events. The number of international flight passengers, which was weak in spring, has also rebounded.
Philadelphia: Respondents reported that activities related to data centers, artificial intelligence, and defense manufacturing continue to grow strongly.
Cleveland: Real estate developers noted an increase in demand for affordable housing, while demand for high-end residential housing remains strong.
Atlanta: Transportation demand is growing moderately. Trucking brokers report that as the capacity excess created during the pandemic is gradually absorbed, industry conditions are steadily improving, with shipping volumes exceeding those of the same period last year for the first time since 2021.
Chicago: Respondents noted that more aggressive retail promotions boosted consumption, partly due to Amazon Prime Day and other competitors bringing promotions forward to June instead of July as in previous years.
St. Louis: Respondents generally expect that in the coming months, businesses will continue to pass on higher costs to consumers.
Minneapolis: Multiple respondents mentioned that rising gasoline prices are suppressing overall consumer spending; simultaneously, consumers are shifting from cash and debit cards to credit cards, and the credit card fees are further squeezing business profits, especially affecting small businesses more.
Kansas City: Employers report a willingness to train job seekers who lack technical skills, but found it harder to recruit talents lacking communication, collaboration, and other soft skills.
Dallas: Human resources firms report a widespread increase in hiring demand across industries and skill levels. One respondent noted that June was their best month since before the pandemic.
San Francisco: Price-sensitive consumers continue to shift to cheaper alternatives. A respondent from Southern California noted that in-store consumers not only reduced purchases of high-priced foods but also began to cut down on the quantity of items purchased.
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