Economic Mild Expansion, Pessimistic Outlook

On Wednesday local time, the Federal Reserve released the latest Economic Conditions Beige Book compiled by the Dallas Fed. The report indicated that the U.S. economy experienced slight growth during the survey period, with labor supply conditions remaining essentially stable. The data was collected from all 12 regional Federal Reserve Banks, with a cutoff date of May 20th this year.

Uncertainty Sparks Concerns for the Future Outlook

The Federal Reserve stated that since early April, overall economic activity has expanded slightly. Conditions varied across different industries and regions. Most regions reported slight or moderate growth, while two regions saw no change in activity.

Retail spending remained flat or slightly increased, reflecting a decrease in consumers' discretionary spending and an increased sensitivity to prices. Automobile sales were largely stable, with some regions noting that manufacturers are offering incentives to stimulate sales. Tourism strengthened in most parts of the country, driven by increased leisure and business travel, although outlooks for the summer vary.

In terms of transportation, port and rail activities expanded, while trucking and freight demand diverged. Tightened credit standards and high interest rates continued to constrain loan growth. Housing demand grew moderately, with an increase in single-family construction. Commercial real estate softened due to supply concerns, credit tightening, and rising costs. Energy activities remained essentially stable, with some regions experiencing relief from drought conditions, and agriculture reports were mixed.

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As feedback from increased uncertainty and heightened downside risks, respondents perceived the overall outlook as becoming more pessimistic.

Labor Market Remains Essentially Stable

The Federal Reserve stated that employment experienced a slight overall increase. Eight regions saw minor improvements, while the remaining four regions remained unchanged. Most regions reported good labor supply conditions, but some shortages still existed in specific industries or regions. Several regions indicated a decrease in employee turnover, with one region noting an increase in employers' bargaining power. Regarding hiring plans, some regions anticipate a continued slight increase in job positions, while others point to a retreat in hiring expectations due to weak business demand and an uncertain economic environment.

Wage growth remained essentially moderate, with some regions experiencing relatively faster growth. A few regions reported that wage growth was at pre-pandemic historical averages or moving towards these normalized levels.

Inflation Expected to Continue Moderate IncreaseThe Federal Reserve reported that overall prices experienced a slight increase during the reporting period. Most regional contacts noted that consumers opposed additional price increases, leading to a decline in corporate profit margins due to the average rise in input prices.

Retailers reported offering discounts to attract customers. Many regions observed a continuous rise in input costs, particularly insurance costs. Some regions noted a decrease in the prices of certain building materials, and some regions saw a reduction in the cost of raw materials for manufacturing. Respondents expected price growth to continue at a moderate pace in the short term.

Selected Regional Federal Reserve Highlights:

Boston: Economic activity remained essentially flat. With stable employment levels, prices increased moderately, and wage growth was slow. Real estate activity in commercial and residential properties showed a slight weakening after signs of improvement earlier in the year. The outlook has become more uncertain but remains cautiously optimistic overall.

New York: Economic activity saw a slight increase. Labor market conditions remained solid, with demand and labor supply maintaining a good balance. Consumer spending rebounded slightly after a slowdown in spring sales. Despite low inventory continuing to suppress sales, the real estate market remained stable with modest increases in sales prices.

Cleveland: Regional business activity saw a slight increase, but at a slightly slower pace. Some contacts attributed the economic slowdown to interest rates remaining higher than expected for a prolonged period. Consumer spending decreased slightly, and some manufacturers indicated that this suppressed demand for their products. Most contacts reported that wages, input costs, and selling prices continued to stabilize in recent weeks.

Richmond: Economic activity slightly expanded. Consumer spending grew moderately, driven by individuals with discretionary income, as lower-income individuals reduced consumption or turned to lower-priced goods. Import activity increased, and the Port of Baltimore was able to reopen a passage to the port. Manufacturing and non-financial service companies reported no change in demand in recent weeks.

Atlanta: The economy experienced slight growth. The labor market continued to stabilize, with wage pressures easing. Overall consumer demand remained healthy. The tourism industry remained strong. Commercial real estate conditions were mixed. Loan demand was flat. Energy activity was robust. Agricultural conditions moderated.

Kansas City: The economy developed at a moderate pace. Household spending grew moderately, driven by increases in hotel stays, dining out, and car repairs. Job growth was minimal, and employment prospects were less susceptible to deteriorating conditions compared to six months prior. Prices increased slightly, with widespread reports of shifting strategies regarding price changes.