woensdag 12 juli 2017

Fed's Beige Book Warns Of Declining Auto Sales, Sees Rising Benefit Costs Limiting Wages

While the Fed's traditionally drab Beige Book is routinely ignored by the market, especially on blockbuster days like today when Janet Yellen turns dovish again and then speaks for nearly 4 hours in the Senate, this time there were several notable highlights in the just released July edition, not least of all the apparent downgrade of the low end of overall economic activity, which for the first time described the pace of growth as "slight to moderate" versus its staple "modest to moderate." Of note, while the Fed described consumer spending as "rising across a majority of Districts, led by increases in non-auto retail sales and tourism" it did caution that there appears to be "some softening in consumer spending, particularly in auto sales which declined in half of the Districts." Ironically, contrary to what the Fed reports every week in its H.8 statement where C&I loan growth is virtually unchanged on an annual basis, it said that "loan demand was steady to increasing in most Districts." Perhaps in poke at Trump's plans to revitalize the coal industry, the Fed also remarked that "coal production remained sluggish although higher than year-ago levels."
Discussing the most sensitive topic for the Fed, employment and wages, the Beige Book noted that while "most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels." On the whole, however, labor markets tightened further, particularly in the construction and IT sectors. The Fed also observed that there were reports of a shortage of qualified workers across a broad range of industries "which had limited hiring." Apparently, it has still not dawned on anyone that one can overcome such shortages by raising wages. On the topic of prices, the Fed noted that several Districts reported higher construction materials costs and freight prices. It also warned that "low agricultural prices were causing stress for some farmers, although some food retailers reported improved margins due to lower commodity prices." Meanwhile, not surprisingly, "home prices continued to increase in most Districts" while "retail prices held steady or slightly increased"....

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