Fed Beige Book Supports Eventual Fed Rate Cuts
Survey findings point to slower growth and hiring as well as easing wage and input costs. Let's break it all down.
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* The Fed’s latest Beige Book shows improving conditions for eventual Fed rate cuts.
* Employers become more selective in their hiring, helping improve wage pressures.
* Consumer spending was unchanged, but retailers embraced discounts to spur demand.
The latest edition of the Fed’s Beige Book, which collects anecdotal comments from the various Fed member banks, has just been published — and in aggregate it finds the economy growing at a modest pace with inflation pressures continuing to improve.
Folks looking for the report to be supportive of rate cuts will like what they see. But as we share these comments, we would remind you this report is a collection of “soft data” derived from surveys and questionaries, not hard data like we saw in today’s Housing Starts and Industrial Production reports for June. While we will be mindful of the findings, when it comes to the economy and inflation, and potential implications, we will continue to put a greater emphasis on the hard data.
The Beige Book found job creation is likely to slow as employers become increasingly selective in their hiring, which should bring additional help to ease wage pressures. We would also note that five Fed banks cited “flat or declining activity,” up from three in the prior Beige Book report. Most Districts saw soft demand for consumer and business loans.
Looking ahead, expectations for the economy called for slower growth over the next six months due to uncertainty around the upcoming election, domestic policy, geopolitical conflict, and inflation. We are not surprised by this as it tends to be the case ahead of a presidential election. As more clarity develops on who is likely to take the seat and their potential policies, we’ll revisit those expectations.
The Labor Market and Wages
On balance, the report found overall employment rose at a slight pace with most Districts reporting employment was flat or up slightly, while a few reported modest employment growth. Skilled-worker availability remained a challenge across all Districts and labor turnover was lower, which reduced demand to find new workers. Looking ahead, contacts in several Districts expect to be more selective about who they hire and not backfill all open positions.
Turning to wages, the Beige Book found they grew at a modest to moderate pace in most Districts. Some Districts reported some slowing of wage growth due to increased worker availability and less competition for workers.
Prices and Inflation
Prices increased at a modest pace overall, with a couple of Districts noting only slight increases. Most noted that input costs were beginning to stabilize; however, the Atlanta Fed specifically noted products like copper and electrical supplies have seen a notable increase over this period.
The Consumer and Spending
While consumer spending was generally reported as showing little to no change, almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals. This tells us margins will be a big item to watch when the current earnings season tilts toward retailers and consumer-facing companies. In that backdrop, we find the differentiated business models at Costco COST and Amazon AMZN quite appealing.
At the time of publication, TheStreet Pro Portoflio was long COST and AMZN.
