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Beige Book: National Summary

January 16, 2019

This report was prepared at the Federal Reserve Bank of Chicago based on information collected on or before January 7, 2019. This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.

Overall Economic Activity
Economic activity increased in most of the U.S., with eight of twelve Federal Reserve Districts reporting modest to moderate growth. Nonauto retail sales grew modestly, as several Districts reported more holiday traffic compared with last year. Auto sales were flat on balance. The majority of Districts indicated that manufacturing expanded, but that growth had slowed, particularly in the auto and energy sectors. New home construction and existing home sales were little changed, with several Districts reporting that sales were limited by rising prices and low inventory. Commercial real estate activity was also little changed on balance. Most Districts reported modest to moderate growth in activity in the nonfinancial services sector, though a few Districts noted that growth there had slowed. The energy sector expanded at a slower pace, and lower energy prices contributed to a pullback in the industry's capital spending expectations. The agriculture sector struggled as prices generally remained low despite recent increases. Overall, lending volumes grew modestly, though a few Districts noted that growth had slowed. Outlooks generally remained positive, but many Districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty.

Employment and Wages
Employment increased in most of the country, with a plurality of Districts reporting modest growth. All Districts noted that labor markets were tight and that firms were struggling to find workers at any skill level. Minneapolis indicated that construction firms had turned down business because they could not find workers, and Atlanta reported that a few contacts were either actively overstaffing or retaining employees through lulls in demand in anticipation of future growth. Wages grew throughout the country, with the majority of Districts reporting moderate gains. Wages increased across skill levels, and numerous Districts highlighted rising entry-level wages as firms sought to attract and retain workers and as new minimum wage laws came into effect.

Prices
The majority of Districts reported modest to moderate increases in prices. Most Districts indicated that firms' input costs had risen, but reports were mixed on whether they could pass the higher costs on to customers. Reports often cited rising materials and freight prices as sources of cost increases, and a number of Districts said that higher tariffs were also a factor. While prices of most inputs were up, several Districts noted that fuel costs had gone down. A number of Districts reported rising home prices, while prices for commercial and industrial space either increased or were flat. Prices for agricultural commodities were generally somewhat higher.

Highlights by Federal Reserve District

Boston
Business contacts reported continued year-over-year growth in revenues even as they cited signs of a some-what slower pace. Selected labor markets (occupations, locations) remained tight and wage increases were moderate. Some retailers and manufacturers raised selling prices. Most respondents said their outlook was positive, although somewhat less certain than earlier.

New York
Regional economic activity leveled off in the latest reporting period, while labor markets remained tight and wage growth picked up somewhat. Input costs and selling prices rose at a steady pace. Holiday season sales were a bit on the sluggish side but still up from a year ago. Tourism remained brisk, but most other sectors saw activity flatten out or decline slightly. Banks reported a dip in loan demand.

Philadelphia
Economic activity maintained a modest pace of growth, although further slowing occurred among service sectors and some real estate activity declined. Lack of qualified labor continued to constrain hiring and raise wage pressures. Price increases remained modest. Nevertheless, firms remained generally positive about the six-month outlook.

Cleveland
Economic activity in the Fourth District increased slightly. Hiring increased at a moderate pace. Upward pressure on costs and selling prices continued. Retailers reported slightly increased demand. Manufacturing and banking contacts noted a seasonal slowdown. Nonresidential construction continued to be strong and housing demand stabilized. Professional services firms reported increased activity driven by demand for information technologies.

Richmond
The regional economy expanded at a modest rate, on balance, in recent weeks. While many service sector industries saw positive growth, manufacturers reported a decline in shipments and orders and faced higher input costs due to tariffs. Loan demand increased and Fifth District ports experienced robust growth. Overall, labor demand and wages increased modestly while price growth remained moderate.

Atlanta
Economic activity improved at a moderate pace. The District's labor market remained tight and wages in-creased, on average. Nonlabor input costs picked up; however, reports of firms' ability to pass along increases were mixed. Holiday sales were solid. Home sales were subdued. Manufacturers noted a decrease in new orders and production. Bankers noted steady activity.

Chicago
Economic activity grew at a modest pace. Employment, consumer spending, and business spending increased modestly; manufacturing increased slightly; and construction and real estate activity was little changed. Wages and prices rose modestly and financial conditions deteriorated slightly. Prospects for farm income improved as corn, soybean, and wheat prices moved higher.

St. Louis
Reports from contacts indicate that economic conditions have continued to improve, although the pace of growth has slowed since our previous report. District banking contacts reported positive but slower growth in loan volumes during the fourth quarter.

Minneapolis
Ninth District economic activity grew moderately. Labor demand has ebbed slightly but remained healthy overall, while labor markets remained very tight. Price pressures were modest. District manufacturers indicated that business conditions were strong and generally expected to continue, with upbeat outlooks for the year to come. Holiday retail spending was strong.

Kansas City
Economic activity was flat since the previous survey, but expectations were generally positive. District agricultural conditions remained weak, and activity in the energy sector eased slightly as the outlook for oil prices declined. However, retail sales were strongly above year-ago levels, and manufacturing, wholesale trade, and professional and high-tech sectors continued to expand.

Dallas
While economic activity remained healthy, growth abated to a more modest pace. A broad-based deceleration was seen across manufacturing, services, retail, and energy. Hiring continued, and widespread labor shortages further elevated wages. Price pressures eased slightly. Outlooks were markedly less optimistic than the previous report.

San Francisco
Economic activity in the Twelfth District continued to expand at a moderate pace. Labor market conditions remained tight, and price inflation was flat. Sales of retail goods expanded moderately, and activity in the consumer and business services sectors was solid. Conditions in the manufacturing sector strengthened modestly. Activity in real estate markets was solid on balance. Lending activity ticked down.