Beige Book Still Saying “Modest” and “Moderate” A Lot

Modest and moderate are filtered throughout the Fed’s Beige Book, more of the same notwithstanding the more ebullient emotional response to the election. And, the last sentence of the 1^st paragraph was this:

“Businesses were generally optimistic about the near-term outlook but to a somewhat lesser degree than in the prior report.”

The Fed is raising rates in two weeks (their credibility will be completely shot if they don’t) so these comments in their Beige Book shouldn’t move the needle. But here are some key comments from it:

“Reports from all twelve Federal Reserve Districts indicated that the economy expanded at a modest to moderate pace from early January through mid-February.”

More of the same.

“Consumer spending expanded modestly since the last report. Retail sales increased at a subdued pace across most of the nation, with a number of Districts noting an ongoing shift from in-store to internet purchasing.”

“Auto sales varied widely, but were said to be up in most Districts…One contact noted that a risk in the coming year was that a plateauing of sales in the auto industry would lead to discounting of new cars and resulting pricing pressure on suppliers.”

“Manufacturing activity accelerated somewhat, with most Districts characterizing the pace of growth as moderate.”

“The energy sector showed modest growth in early 2017, and transportation activity was steady to somewhat higher across the nation.”

“Home construction and sales continued to expand modestly in most Districts, while residential rental markets were mixed. Home prices were steady to up modestly in most Districts, and a number of Districts noted low inventories of existing homes. Commercial real estate construction grew modestly, and sales and leasing activity grew moderately.”

“Lending activity was steady to somewhat higher.”

“Labor markets remained tight in early 2017, with some Districts noting widening labor shortages. Employment grew moderately in most of the nation.”

“In general, wages in most Districts rose modestly or moderately, with a few reporting some pickup in the pace of wage growth. A number of Districts noted that shortages of skilled workers–particularly engineers and IT workers–were driving up their wages, and there were also some reports of labor shortages in the leisure and hospitality, construction and manufacturing industries.”

“Pricing pressures were little changed from the prior report. Most Districts reported that selling prices were up modestly or moderately, though four indicated that prices had largely leveled off. Input prices were up modestly, on balance.”

Here was a paragraph on Manufacturing and Related Services which gets to my point that companies need certainty quickly on what will be passed by Congress:

“Although contacts were generally positive about the near-term outlook, many expressed concerns about policy changes from the new administration. Three mentioned that the border adjustment tax would present a problem for them. A manufacturer of semiconductor equipment said that restrictions on the H1B visa program would affect its ability to staff positions. Another said that uncertainty about policy was the problem; for example, a border adjustment tax would have a big effect on where they located future production facilities and they would be reluctant to commit to new investment without some resolution of the issue.”