The latest Federal Reserve Board Beige Book said that “economic activity [has] increased at a modest to moderate pace since the previous report.” Consumer spending and housing activity continue to be positive, with most of the Federal Reserve Districts reporting increases in both. Motor vehicle sales, in particular, have remained somewhat strong, helping to boost the economy with “moderate” increases nationally.
Interestingly, the Fed says that manufacturing activity “expanded in most Districts,” and it specifically mentioned a number of regions where this was the case. It is important to note that the Beige Book says it uses data collected before May 24, however since that date, we have seen a number of sentiment surveys from the regional Federal Reserve Banks showing weaknesses. These include contracting levels of activity in Dallas, New York, Philadelphia, and Richmond, and slower output in Chicago. At least some of these data points are mentioned in this write-up, particularly the “softening” seen in Philadelphia and Richmond. In the sector analysis section, the report also singles out strengths in construction-related manufacturing sectors due to improvements in housing and challenges in the defense industry pertaining to sequestration.
Meanwhile, employment growth remains sluggish. Specifically, the Fed writes, “Hiring increased at a measured pace in several Districts, with some contacts noting difficulty finding qualified workers.” Many of the Fed Districts noted an easing in employment growth, with the Boston Fed saying that “with only a few exceptions, businesses were not hiring much beyond replacement.” Yet, there were also areas where labor market conditions were tightening. For instance, the Minneapolis District reports the shortage of labor in the “oil boom area” of North Dakota and Montana. However, overall, wage pressures continue to be held in check.
On the topic of inflation, “Districts reported level to mild price increases.” While some manufacturers have been able to increase prices and certain raw material costs, pricing pressures, in general, remain under control. We have seen this in other reports, as well, including the most recent data on consumer and producer prices. Year-over-year prices have grown by less than two percent, the desired level stated by the Federal Open Market Committee of the Fed.
Chad Moutray is chief economist, National Association of Manufacturers.