In its latest Beige Book released on Wednesday, the Federal Reserve reported that economic activity exhibited either flat trends or declines across the majority of its districts, while predictions indicate a tendency for conditions to either remain stable or experience a slight improvement in the upcoming months.
The report, prepared by the Cleveland Fed with data collected through August 26, showed that nine Fed districts noted either stagnant or decreasing economic activity, an increase from five districts in the previous reporting period. Only three districts reported modest growth during this time frame. This latest Beige Book update follows a previous report released on July 17, which indicated that economic activity across most districts had grown at a 'slight to modest' pace.
However, the outlook for growth in the near future seems to have dimmed, propelled by uncertainties surrounding inflation and the looming presidential election that could impact economic sentiments further. Recent trends in employment levels have been described as 'generally flat to slightly up,' as detailed in the latest Beige Book insights.
Wages have witnessed a modest increase, aligned with the gradual slowing trends noted in former reports. Five districts have reported slight or moderate growth in employment headcounts; however, layoff instances have been 'rare.' Employers have shown a growing preference for selective hiring, demonstrating hesitance in expanding their workforces due to concerns about demand and the ambiguous economic forecast. Concerns have also surfaced regarding the manufacturing sector, with most districts noting a decline in manufacturing activities.
Two districts specifically attributed their downturns to persistent contractions within the sector. Furthermore, consumer spending reflected a slight decrease across the majority of districts. According to data published earlier this week by the Institute for Supply Management alongside S&P Global (SPGI), the U.S.
manufacturing sector continued to operate within the contraction territory in August, primarily influenced by weak demand that impacted new order placements. The Beige Book also recorded that while prices increased at a 'modest' rate overall, three districts saw blunted gains in selling prices. Businesses indicated a general expectation that price and cost pressures would either stabilize or continue to ease in the coming months.
Notably, some districts reported increases in auto sales; however, others signaled a slowdown, attributed to elevated interest rates and high vehicle prices that discourage consumer spending. Additionally, reports from a majority of districts suggested a similar trend concerning 'softer' home sales. Looking ahead, the Beige Book states that 'district contacts generally expected economic activity to remain stable or improve somewhat in the forthcoming months.' However, contacts within three districts expressed anticipation of slight declines. Market participants currently perceive a 55% likelihood that the Federal Reserve will opt to reduce interest rates by 25 basis points on September 18, with remaining odds leaning towards a more drastic 50-basis-point cut, as illustrated by the CME FedWatch tool..