Beige Book: Economic Activity Appears Stable

The newest report by the Fed on the state of the economy said that many contacts expect the economy to stabilize for the duration of the year.

Most districts reported modest growth in economic activity, imbalances in employment, and inhibited price growth.

District Highlights From the September 2023 Beige Book

Boston – There were modest increases in business activity, though real estate fell behind other sectors. Mortgage rates continued to rise at an above-average pace from a year earlier, adding to the shortage of home inventory. However, commercial real estate was stable. Many manufacturing contacts reported flat to softer sales. One semiconductor manufacturer recorded lower profits due to slower PC and smartphone sales.

New York – The second district saw steady economic activity, though the labor market has slowed. While manufacturing activity contracted, supply availability improved, and delivery times were stable. Both service and manufacturing firms reported an increase in input prices, with sales prices moving in tandem. The New York district reported a slow-but-stable commercial real estate market, while the residential market continues to struggle with increased mortgage rates.

Philadelphia – Overall business activity continues to slide in the third district. Employment improved along with labor availability. Contacts in the Philadelphia district reported fewer supply chain disruptions and lower input costs for goods, according to the report. Commercial real estate saw a small upswing, specifically in institutional, multifamily residential, and public infrastructure projects.

Cleveland – Employment improved by a small margin, while demand for manufactured goods dropped in the fourth district. “By contrast, steel manufacturers generally reported steady or increased orders following an expected seasonal slowdown spanning the first half of July,” the report said. One light vehicle manufacturer posted stronger orders from automakers. Auto manufacturers expect demand to soften in the coming months, according to the report. Material input costs remained stable from the previous reporting period. New home sales and nonresidential construction activity increased moderately and is expected to remain stable in the coming months.

Richmond – Auto sales were solid for this reporting period, according to Beige Book. The fifth district labor market remained tight, with firms doing what they could to recruit employees. “A bearings manufacturer reported that their skilled tradesmen were approaching retirement, so the company was trying to revitalize their apprenticeship program to train young adults out of high school and community colleges,” the report said.  Manufacturing has slowed overall in this area. A steel coater stated that the economy is in a “caution zone,” and their customers are only ordering products they know they can sell quickly, according to the report. Residential real estate saw a boost in competition from buyers because of limited inventory.

Atlanta – The labor market and retention improved modestly in July and August. New auto sales were strong, while used auto sales tapered off. A healthy housing market was reported, while the commercial market had mixed results. Supply and demand for energy normalized due to high temperatures.

Chicago – Overall activity in Chicago increased slightly, with a moderate rise in employment. “Steel orders decreased modestly, in part due to weaker demand from the oil and gas and the machinery industries. Fabricated metals orders remained flat. Machinery sales decreased slightly, with contacts highlighting less demand from the auto industry. Auto industry contacts reported increased production despite supply chain disruptions at some plants. Several contacts expressed concerns about the potential for a UAW strike to put a hold on a large share of US auto production, the report said.

St. Louis – No changes were reported on the conditions of the eighth district. Tight labor markets continue to hold steady, and firms reported consumer sensitivity to price increases. The manufacturing sector saw a decrease and expects it to be an ongoing issue as firms struggle to find qualified workers. Residential construction was mixed, but industrial and commercial construction slightly improved.

Minneapolis – Despite no change in wage pressures, employment increased. However, the number of employers looking to add to their headcount fell. “Manufacturers that responded to the monthly business conditions survey indicated increased orders in July from the month prior and were expecting growing sales in the month ahead,” the report said. Manufacturing, commercial and residential real estate, and agricultural all weakened compared to the previous reporting period.

Kansas City – The 10th district stabilized over the past two months, especially with manufacturing and sales at service businesses. The uptick was attributed to the fulfillment of existing orders. Supply chain delays eased, and backlogs and inventories declined throughout July and August. Demand for residential real estate exceeded supply, but banks reported less demand for loans in the wake of elevated interest rates. Job growth was reportedly flat for the district and overall growth is expected to be slow for the coming months.

Dallas – Manufacturing activity contracted in July and August, with declines in new orders, output, and capital spending contributing to the slowdown. Food and fabricated metals manufacturing exhibited more strength than other segments, the report said. Housing demand and commercial construction continue to be strong in the 11th district. Drilling activity has slowed, with the active rig count falling due to increases in costs and declines in prices for crude oil and natural gas, according to the report. Employment growth picked up, especially in the manufacturing sector.

San Francisco – Activity in the 12th district improved slightly for this reporting period. Hiring was stable, apart from within the technology sector. Demand for single-family homes remained strong, though demand outweighed supply. Commercial activity slowed, with new projects being delayed or abandoned. Manufacturing normalized, though the availability of semiconductors remained problematic, the report said. Contacts generally expressed a slightly more positive outlook for the economy relative to the previous reporting period, according to Beige Book.