By David Pendered
The real-time snapshot of the Southeast regional economy released Wednesday by the Federal Reserve cites concerns over politics and trade. This notion of unease tracks comments in a speech the Fed’s vice chairman delivered last week, when he observed that patience is the watchword at the start of 2019.
But for starters, the comment by the New York District perhaps could speak for all the districts. New York’s observation seems to say the glass might be half full, could be half empty, or there might not even be a glass:
- “Manufacturing activity leveled off, while business was down slightly in a number of service industries. On the other hand, tourism has remained fairly robust. Holiday season sales were a bit on the sluggish side but still up from a year ago. Housing markets have shown some further signs of softening, while commercial real estate markets have been steady overall. Finally, banks reported some weakening in loan demand and little change in delinquency rates.”
This is the first Beige Book to be released since the Federal Reserve voted in December 2018 to raise the federal funds rate. It was the fourth rate hike in 2018 and the sixth since President Trump took office. Trump has harshly criticized the rate hikes; bloomberg.com summarized them in a Dec. 17, 2018 report.
The Beige Book’s opening remarks don’t present a pretty picture of the national economy:
- “Outlooks generally remained positive, but many Districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.”
A report by marketwatch.com, published by Dow Jones & Co., characterized this edition of the Beige Book as, “downbeat.” Such could be the case for the Atlanta District, depending on how readers interpret the remarks.
Here are three examples, taken from the Atlanta District’s summary. The comments show how the report shades various remarks:
- “Sixth District business contacts remained largely positive with a majority noting that economic activity grew at a moderate pace over the reporting period. Most contacts expect steady growth in the near-term; however, several contacts cited increased levels of uncertainty going into 2019, to include concerns over politics and trade. …
- “As labor markets remained tight, many firms noted increasing retention efforts. On balance, wages increased since the previous report, with pressure growing particularly among low-skill, hourly positions. Non-labor input costs increased and the ability to pass along the increases varied among firms. …
- “Contacts reported that residential real estate activity slowed and commercial real estate activity remained stable over the reporting period. Manufacturers indicated that new orders and production levels decreased since the previous report. Contacts indicated that banking conditions were stable. …”
Similar observations are scattered throughout the report. Here’s one from the Dallas District:
- “While the level of activity generally remained healthy, growth decelerated broadly across the manufacturing, services, retail, and energy sectors. Loan volumes declined slightly and new home sales fell modestly. Conversely, ample soil moisture has boosted crop conditions and improved prospects for the agricultural sector this year.”
The Jan. 10 speech by Fed Vice Chairman Richard Clarida, at the Money Marketeers of New York University, Inc. came just three weeks after the Fed’s Dec. 19 vote to raise interest rates. Clarida said he will be watching how the “crosswinds” of the global economy and markets affect the U.S. economy, suggesting in his final remarks that conditions will weigh on his outlook on rates:
- “Speaking for myself, I believe we can afford to be patient about assessing how to adjust our policy stance to achieve and sustain our dual-mandate objectives [of maximum employment and price stability]. We begin the year as close to our assigned objectives as we have in a very long time. In these circumstances, I believe patience is a virtue and is one we can today afford. Thank you.”