Beige Book: Growth Slows Since Beginning of Year; Increased Inflation Pressures
The FED’s Beige Book shows that in general growth has slowed between the beginning of the year and Feb. 25, the date the survey ended. The report was generally downbeat, mostly stemming from the subprime mess/credit availability problems. Some members indicated less demand overall but others had found ways to deal with lower demand and/or higher input prices.
In short, the report pointed to an extremely weak economy that is not in dire straits.
The FED reported that the majority of Districts characterized retail sales growth as weak or softening. Districts reporting on auto sales described them as slow or sluggish. Tourism was still a positive area but softened in some areas.
The other areas of non-financial services were mixed. Health care services continued to expand in several regions but St. Louis reported plans to lay off workers. Software and IT respondents in the Boston area reported modest growth, but several regions reported mixed demand for temporary labor.
Reports on manufacturing activity were subdued with several districts reporting production as sluggish or declining. Boston, Cleveland and Chicago indicated stable trends and St. Louis indicated some strengthening. Exports continued to increase but trucking and shipping respondents indicated that declining import volumes were more than offsetting increased growth in transportation demand for exports.
All districts that commented on the near-term outlook indicated caution or concern on the part of at least some segments of manufacturing. Several districts reported robust activity in the energy sector, although Dallas noted that drilling had flattened domestically.
Residential real estate activity continued to be weak across the board, and most Districts reported falling home prices. However, slowing real estate activity also spread to the office and retail markets in some districts. Several districts reported weaker sales in the nonresidential markets and cited tight credit conditions as a major factor. Tight credit standards were reported in several districts, and Kansas City, Chicago and Cleveland reported a worsening in loan quality.
Several Districts reported increased inflationary pressures, especially from energy costs and other inputs. Businesses had mixed success in raising their prices to offset the input price pressures. However, half of the manufacturers contacted in the Cleveland district had raised prices or added surcharges since the previous report. Wage pressures were modest with labor markets loosening somewhat as layoffs, hiring freezes and work hour reductions increased. A few areas did report a continued shortage of selected skilled workers.