If investors are still questioning whether or not a recession is on the horizon, information in the Fed’s Beige Book, released on April 17th, ought to answer the question. Most indications in the Fed’s Beige Book are that the economy is moving up somewhat, not down. The book compiles reports detailing economic activity witnessed across all Federal Reserve Districts.
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What Is the Beige Book?
Think of the Beige Book as a collection of informed opinions from business contacts, economists, and other sources across the U.S., published eight times a year. The report, bound in a plain beige soft cover is a collection of subjective information on current economic conditions within each of the 12 Federal Reserve Districts. While not strictly hard data, the insights provide a feel for regional economic trends.
The Fed routinely analyzes mounds of quantitative data, this more qualitative snapshot balances the data with the anecdotal. The full report is distributed to policymakers two weeks before the Federal Open Market Committee (FOMC) meetings. The interest rate policy-making committee uses the report’s insights as part of its policy decision process.
What Did the Beige Book Reveal?
The Beige Book will be utilized by the FOMC during the April 30-May 1 meeting. Presently, it indicates that the U.S. economy may be experiencing uneven growth, challenging expectations of an imminent widespread economic slowdown. This is especially noteworthy given the increasing employment rates and moderately higher wages. While a robust economy typically demonstrates synchronized growth across the country, the current report highlights strength in some regions and stagnation in others.
Breaking it down further, the New York Fed reported a unique event on April 8th: hotels and restaurants in the northern part of the state saw increased tourism due to a total solar eclipse. In contrast, New York City, which did not witness the total eclipse, experienced a more moderate surge in tourism.
Furthermore, most districts reported an increase in both the number of people looking for work and the quality of job applicants. Many districts also observed improvements in employee retention, while others noted instances of companies reducing staff. However, the quality of labor was not consistent across the U.S. Many districts reported persistent shortages of qualified applicants for certain jobs, including machinists, hospitality workers, and trades workers.
Additionally, business owners and households in several districts reported large hikes in their insurance costs. It was reported that companies are finding it more difficult to pass along increased costs to end consumers. This could impact smaller business profit margins in the next quarter.
Interestingly, the St. Louis Fed, which covers portions of six states in the Midwest region, saw a modest uptick in consumer spending. It and the Chicago Fed attributed this increase to an earlier-than-usual Easter. The Philadelphia Fed reported that shoppers are finding less costly goods by trading down to compensate for higher prices. The same behavior was witnessed by the Atlanta Fed, where shoppers are ditching steak and buying hot dogs.
In the travel and tourism category, the Boston Fed reported high convention and tourism activity, while the Richmond Fed noted higher hotel occupancy with “strong” future bookings. The Atlanta Fed, which includes Florida in its region, observed an increase in appetites for cruising.
Key Takeaway
There was nothing in the Fed report on the 12 districts to suggest that a recession is looming. Moreover, the mixed nature of the reporting didn’t indicate an economy robust enough to warrant further tightening measures.
Now, the markets can divert their attention away from speculating on the Fed’s rate adjustments and focus instead on using information like that discovered about hospitality and lower-priced brands to adjust their stock watch lists.
The Beige Book was prepared for the Fed’s next meeting scheduled for April 30 to May 1.
