As the case throughout this whole economic recovery, the Fed’s Beige Book described the economic activity as having “expanded at a modest to moderate pace across all 12 Federal Reserve Districts in July and August.” Here are the other noteworthy bullet points:
“Consumer spending increased in most Districts, with gains reported for nonauto retail sales and tourism, but mixed results for vehicle sales.”
“Capital spending also increased in several Districts.”
“Manufacturing activity expanded modestly on balance. That said, reports were mixed regarding auto production, and contacts in many Districts expressed concerns about a prolonged slowdown in the auto industry.”
“Both residential and commercial construction increased slightly overall. Low inventories of homes for sale continued to weigh on residential real estate activity across the country, while commercial real estate activity increased slightly.”
“Business and consumer loan demand grew at a modest pace in most Districts, with a number of banks reporting rising competition from both other banks and non-bank lenders.”
“Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts.”
“Labor markets were widely characterized as tight. There were reports of worker shortages in numerous industries, most notably in manufacturing and construction. Firms in the Atlanta, St. Louis, and Minneapolis Districts said that they had turned down business because they could not find the necessary workers. Many Districts indicated that businesses were having difficulty filling openings at all skill levels.”
“In spite of the tight labor market, the majority of Districts reported limited wage pressures and modest to moderate wage growth. That said, there were reports from firms in the Dallas and San Francisco Districts that labor shortages were pushing up wages.”
These last 2 paragraphs are why the Fed may not be done raising interest rates.
Here is more on the difficulty in finding good help: In Boston, “Staffing firms…cited revenue declines, which they blamed on limited labor supplies.” In NY, “labor markets remained tight.” In Cleveland, “Manufacturers and construction contractors saw rising payrolls and wage pressures. Higher wages were attributed to growing employee turnover.” In Atlanta, “Labor markets remained tight but wage growth was unchanged.” In Minneapolis, “residential construction saw growth that likely would have been stronger if not for tight labor, which was holding back employment in general.” In San Fran, “Overall price inflation was flat, while upward wage pressures intensified and labor market conditions tightened further.”
“Prices rose modestly overall across the country. Input and materials costs generally increased, most notably for freight, lumber, and steel. In contrast, movements in energy and agricultural commodity prices were mixed. A number of Districts indicated that pass-through to downstream prices was limited, with increases in input prices exceeding gains in selling prices. Home prices moved up overall, as low inventories put upward pressure on prices in many regions.”
They actually acknowledged home price inflation.
The comments on the impact of Hurricane Harvey was as to be expected.
Bottom line, as market participants, we only care about what all this means for Fed policy. QT is on, we know that. As for another rate hike, the market is saying only one more through all of 2018. However, if we keep seeing those ‘labor market is tight’ type comments and now signs of it resulting in higher wages in 2 regions, we might get more than just one. I’ll say again, if the S&P 500 is around current levels come that December meeting, all else equal, I think the Fed hikes then.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.