Fed’s Beige Book reveals economic activity decline in recent weeks

The US economic activity showed “little or no change” in recent weeks for most of the Federal Reserve’s 12 districts, amid signs that the labour market was cooling in most of the country’s regions, the central bank said on Wednesday in its Beige Book survey of regional business contacts.

Consumer spending expectations were met in most districts thanks to seasonal demand. Contacts from virtually all districts did report decreases in manufacturing activity, with elevated interest rates limiting auto sales and real estate deals. “However, the prospect of falling interest rates was cited by numerous contacts in various sectors as a source of optimism.”

Going forward, the majority of districts signaled that expectations of their firms for future growth were positive, had improved, or both, the document said.

The Beige Book was compiled by the Federal Reserve Bank of Philadelphia based on information collected on or before Jan. 8, 2024. The labour market still appears strong, although gradually cooling. Seven districts observed little or no net change in overall employment levels, while the pace of hiring was described as modest to moderate in four districts. Just two districts continued to report a tight labour market.

Nearly all districts cited one or more signs of an easing labour market, from large applicant pools to lower turnover rates to cooling wage pressures.

Inflation was roughly lopsided, with six noting slight or modest price increases, two reporting moderate increases, five observing subsiding price increases to some degree, and three indicating no significant shift in price pressures.

Most districts noted that their firms had cited examples of steady or falling input prices, particularly in the manufacturing and construction sectors.

“Three Districts noted that their firms were expecting price increases to ease further over the next year, while four Districts’ firms anticipated little change,” according to the report.

Districts reporting economic expansion for the period include Cleveland, Richmond, Atlanta, Chicago and Dallas. Meanwhile, Boston, New York, Minneapolis and Kansas City reported weaker activity. Among those posting stable activity were: Philadelphia, St. Louis and San Francisco.

The previous report released on Nov. 29 showed “no change to slight declines” in economic activity.