In addition to noticing the diminishing impact of the weather (there were 26 instances of "weather" in the January beige book, down to 17 in March), one thing that caught our eyes about the Fed's March Beige Book was three odd mentions of the "stock market"(compared to zero in January) which was blamed for everything from concerning business responses, to slowing new leasing activity, to lack of activity, to wit:
- Some contacts mention concerns about business response to stock market fluctuations, the strong dollar, and political uncertainty due to the upcoming elections.
- In Providence, new leasing activity slowed somewhat and deals in progress proceeded at a slower pace, developments attributed to heightened uncertainty stemming from stock market volatility and the national election cycle.
- Some suggested that uncertainty and stock market volatility may have contributed to the lack of activity.
Another thing that the Fed was confused by was the mixed response to lower gas prices:
- There were mixed reports about the effects of lower gasoline prices on consumer spending, with contacts in Cleveland, Philadelphia, and St. Louis attributing some increased spending to lower gas prices and contacts from Boston and Chicago expressing disappointment about the extent to which lower gas prices were increasing other spending.
- Contacts expressed disappointment in the extent to which lower gas prices and improvements in the labor market were translating into sales growth.
But what was most notable is that while the Fed clearly is focusing on the stock market and the gas pump, it may have run out of "data dependent" hedges to use to avoid hiking rates. Recall this from the January beige book, when the Fed clearly was worried about "subdued" wage pressures:
Overall, wage pressures remained relatively subdued, as evidenced by reports from Philadelphia, Atlanta, Chicago, and Kansas City. Just two Districts--New York and San Francisco--indicated some acceleration in upward wage pressures. Cleveland, Richmond, and Dallas cited mixed reports, ranging from flat to moderate wage pressures. Seven Districts mentioned greater wage pressures for skilled workers in a variety of industries, including construction, manufacturing, financial, professional, technology, and health-care sectors. However, wage pressures among low-skilled positions were almost as pervasive, with six Districts citing pressure stemming from state minimum wage increases and from labor shortages or turnover among entry-level positions in banking, retail, and hospitality.
This has now become the following:
Wages generally increased, as most Districts experienced slight to strong wage growth. However, the Kansas City, Richmond and Atlanta Districts reported flat wage growth. St. Louis noted strong wage growth as fifty-six percent of contacts, the highest in two years, reported that wages were above year-ago levels. Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, and San Francisco reported positive wage growth among high-skilled workers, especially for occupations in the technology, high-skilled manufacturing, aerospace and defense, financial services, and professional technical sectors. Furthermore, Cleveland, Richmond, Atlanta, Chicago, and Kansas City reported wage growth among low-skill and entry-level positions. A contact in Chicago attributed the rise of entry-level wages in Michigan to an increase in the minimum wage. Staffing firms in the Boston District reported single-digit wage increases, but staffing services contacts in Dallas cited easing wage pressures, especially in Houston. Wage pressures moderated in the service sector in Richmond but continued upward pressure was cited in New York. Wages in the retail sector declined in the Kansas City District but increased in Cleveland.
In other words, while the Fed realizes that its actions are impacting the market, and that plunging gas prices are not the "unambiguously good" thing oil tourists expected one year ago, it now has to deal with not only the highest core inflation in years, but rising wages.
Said otherwise, the March FOMC meeting just went "rate hike" hot again.