The Federal Reserve recently released its Beige Book report, which provides insights into the state of the economy based on business contacts nationwide. According to the report, economic activity experienced only a slight increase in late May and June, and this slow growth is expected to continue.
The Beige Book report is a collection of anecdotes from various contacts and serves as a resource for policymakers as they prepare for an upcoming meeting to discuss interest-rate policy. Of the 12 districts surveyed, five reported slight or modest growth, five noted flat activity, and two reported slight or modest declines.
Although labor markets were described as healthy, there is a growing sense that hiring has become more targeted and selective. This shift may be necessary to cool down the labor market and bring inflation closer to the Federal Reserve’s 2% target. While workers’ wages continued to rise, the pace was more moderate compared to previous periods.
In terms of prices, there was a slight slowdown in June, with some consumers becoming more sensitive to higher prices. This sensitivity has limited which firms can pass along input cost increases. However, other districts reported solid demand, which allowed businesses to maintain their margins.
The report also highlighted differences in price pressures between service firms and manufacturers. Service firms faced higher input cost pressures, while manufacturers experienced some relief from price pressures.
On the lending front, activity continued to soften, and transportation activity remained either flat or declined in most regions.
Despite these findings, stock markets experienced a positive response to a soft consumer inflation reading for June, with the DJIA (+0.43%) and SPX (+0.92%) showing gains. Additionally, the yield on the 10-year Treasury note TMUBMUSD10Y (3.864%) fell to 3.87%.
In conclusion, the Beige Book report reveals the current state of the economy, indicating slow growth and some concerns regarding inflation and prices. These insights will inform the Federal Reserve’s decision-making process regarding interest-rate policy in the coming weeks.