The Beige Book offered its ubiquitous modest, moderate, mummified growth outlook but added a few points that provide The Fed more ammo for hiking rates.
The key higlights from the report:
- tight labor markets ‘widely noted’ amid modest growth
- U.S. employment, wages grew modestly since mid-april
- price pressures grew slightly in most districts
- contacts in several district ‘generally optimistic’
- consumer spending up modestly, manufacturing mixed
- construction, real estate grew, outlook remained positive
- loan demand up moderately except for Dallas district
- many Fed districts reported steady to good credit availability
- energy sector remained weak
- Chicago, Kansas city Fed districts saw slower growth pace
- Dallas Fed district grew ‘marginally,’ New York generally flat
Some key anecdotes from the regional feds:
- Consumer spending and tourism activity was up modestly in many Districts
- Boston: March closed sales of single-family homes increased year-over-year in all six New England states
- New York: Retailers report that inventories are on the high side, particularly for warm weather apparel
- Philadelphia: Auto dealers reported that light vehicle sales have slowed somewhat during the current period
- Cleveland: Only consumer spending segment reporting strong activity was restaurants
- Richmond: Natural gas extraction increased since the previous report, while coal production was unchanged
- Atlanta: Firms seeking employees for high-demand fields, such as information technology, healthcare, engineering, and construction continued to experience difficulty filling jobs
- Chicago: Contacts again reported an increase in the length of auto loans
- St. Louis: Even with a near-perfect year in the field, most row crop operations will struggle to break even unless a crop price rebound is sustained and significant
- Minneapolis: Number of active drilling rigs in the District continued to fall through mid-May, reaching its lowest level in more than 10 years
- Kansas City: Several retailers noted an increase in sales for lower-priced items and spring outdoor products, while luxury products sold poorly
- Dallas: Gulf Coast chemical producers said margins were higher compared with the first quarter
- San Francisco: Contacts reported that minimum wage increases pushed up wages for low-skilled workers in various service sectors, with diminishing ripple effects up the pay scale
On the all important topic of wage growth and employment:
Employment grew modestly since the last report, but tight labor markets were widely noted; wages grew modestly, and price pressure grew slightly in most Districts
And details:
Employment grew modestly since the last report, but tight labor markets were widely noted in most Districts. Demand for labor rose moderately in Richmond, and contacts noted continued difficulty finding workers in numerous occupations. In Boston, staffing industry contacts observed robust labor demand, particularly for specialized workers in high-skill fields. Contacts in Atlanta and Richmond said high-skill workers in high-demand fields continued to be hard to find, and low-skill jobs were also becoming harder to fill. In St. Louis, contacts that reported having trouble filling job vacancies primarily cited few applicants or candidates lacking the necessary skills. In New York, employment grew modestly, and manufacturing and services firms planned to add jobs in the months ahead. Soft labor markets were reported in energy sectors in Cleveland, Atlanta, Minneapolis, Kansas City, and Dallas.
Wages grew modestly since the last report, with increases concentrated in areas of labor tightness. Higher wages were reported for entry-level and lower-skill positions in Richmond and Atlanta. In San Francisco, minimum wage increases pushed up wages for low-skilled workers, with diminishing effects up the pay scale. Atlanta, St. Louis, and San Francisco reported wage pressure for certain high-skilled employees. In New York, a sizable share of service-sector contacts reported higher wages. In St. Louis, more than two-thirds of hiring managers reported increasing wages and salaries by more than they had in the past few years to retain employees and attract new ones. However, in Kansas City, contacts in several industries reported only slight increases in wages and expected similar increases going forward. Wage pressure was minimal in the Dallas District, due in part to compensation at energy services firms that was steady to lower for staff that have been retained.
The reaction was a further rise in July rate-hike odds (and easing of June and September).
Charts: Bloomberg