NEW YORK — Following an upbeat assessment in April 2016, today’s Beige Book report disappointed economists as most districts characterized growth as modest, RBC Economics reported. However, on the upside, contacts in several districts remained generally optimistic.
The Beige Book is a collection of reports from all Federal Reserve districts that is issued in advance of a Federal Open Market Committee meeting.
Today’s Beige Book indicated only modest improvement in economic activity during the reporting period. Most districts again noted modest growth in consumer spending, and four reported mixed or flat activity.
“That characterization contrasts with yesterday’s April personal consumption expenditure (PCE) report that showed a surge in consumer spending to start in the second quarter,” said Josh Nye, an RBC economist.
“After the previous Beige Book showed demand for non-financial services picking up to a moderate pace, today’s report indicated only modest services growth in many districts,” he explained.
Manufacturing activity was reportedly mixed, although some of the districts that saw declines also noted an improving outlook. Manufacturers in several districts again noted weak demand from the energy sector, which itself remained weak during the reporting period.
Both residential and commercial real estate activity continued to increase in most districts.
Employment growth was generally modest, but tighter labor markets were widely noted in many districts, said Nye. Wage growth was modest and concentrated in areas of labor market tightness, although some districts continued to note higher wages for lower-skilled positions.
Price pressure reportedly grew slightly in most districts, and the outlook for prices was described as moderate.
“The Fed has shifted its tone in recent weeks, leaving the door open to a rate hike as early as June if there is sufficient evidence of a second-quarter rebound and further progress toward the committee’s dual objectives,” said Nye.
“With today’s Beige Book providing limited support on that front, the Fed will be looking for hard data to confirm a pickup in activity,” he added. “The June meeting is just two weeks away, and we do not expect that there will be enough evidence by then to convince a majority of Federal Open Market Committee (FOMC) voters to raise rates.
“As well, uncertainty surrounding the outcome of the Brexit vote taking place in the following week should tip the committee toward staying the course,” said Nye. “However, if evidence of a rebound in growth continues to accumulate, market expectations will likely further gravitate toward a July hike.”
SOURCE: RBC Economics press release