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Beige Book: National Summary

March 6, 2019

This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before February 25, 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 continued to expand in late January and February, with ten Districts reporting slight-to-moderate growth, and Philadelphia and St. Louis reporting flat economic conditions. About half of the Districts noted that the government shutdown had led to slower economic activity in some sectors including retail, auto sales, tourism, real estate, restaurants, manufacturing, and staffing services. Consumer spending activity was mixed across the country, with contacts from several Districts attributing lower retail and auto sales to harsh winter weather and to higher costs of credit. Manufacturing activity strengthened on balance, but numerous manufacturing contacts conveyed concerns about weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty. Activity in the nonfinancial services sector increased at a modest-to-moderate pace in most Districts, driven in part by growth in the professional, scientific, and technical services sub-sector. Residential construction activity was steady or slightly higher across most of the U.S., but residential home sales were generally lower. Several real estate contacts noted that inventories had risen slightly but remained historically low, while home prices continued to appreciate but at a slightly slower pace. Agricultural conditions remained weak, and energy activity was mixed across Districts.

Employment and Wages
Employment increased in most Districts, with modest-to-moderate gains in a majority of Districts and steady to slightly higher employment in the rest. Labor markets remained tight for all skill levels, including notable worker shortages for positions relating to information technology, manufacturing, trucking, restaurants, and construction. Contacts reported labor shortages were restricting employment growth in some areas. Contacts in the higher education sector from the St. Louis District indicated falling enrollment as potential students were increasingly choosing to enter the labor market. Wages continued to increase for both low- and high-skilled positions across the nation, and a majority of Districts reported moderately higher wages. In addition, contacts in about half of the Districts noted rising non-wage forms of employee compensation, including bonuses, relocation assistance, vacation time, and flexible work arrangements.

Prices
Prices continued to increase at a modest-to-moderate pace, with several Districts noting faster growth for input prices than selling prices. The ability to pass on higher input costs to consumers varied by region and industry, and a few Districts noted that demand and the level of industry competition played a role in this variance. A few Districts continued to report upward price pressures from tariffs on certain goods and services. However, several Districts noted that the price of steel, which has been impacted by tariffs, had stabilized or fallen recently. In addition, energy costs, including fuel, declined in some areas. Agriculture commodity prices were mixed, though soybeans and dairy prices were notably weak.

Highlights by Federal Reserve District

Boston
Retailers and the restaurant industry reported continued growth in sales. Most manufacturers cited sales increases, but some said sales were down from a year earlier. Staffing firms also reported revenue declines, which they attributed to tight labor markets. Some retailers reported price increases. Aside from manufacturers, outlooks remained positive.

New York
Regional economic activity increased slightly in the latest reporting period, while labor markets remained tight and wage growth picked up further. Input costs rose at a steady pace, while selling prices accelerated slightly. Consumer spending weakened, while housing markets were steady to slightly softer. Most sectors saw modest growth in activity. Banks reported weaker loan demand and a modest pickup in delinquency rates.

Philadelphia
On balance, growth of aggregate Third District business activity appeared to pause during the current Beige Book period. Most sectors showed little or no change from the prior period. Lack of qualified labor continued to constrain hiring and raise wage pressures, while price increases remained modest. Nevertheless, the firms remained generally positive about the six-month outlook.

Cleveland
The District economy grew at a modest pace, with services driving much of that growth. Seasonal factors temporarily weighed on growth in construction and freight. Employment increased modestly in many sectors. Wages grew moderately across the board. Selling prices rose moderately, as companies passed through cost increases to their customers. A drop in mortgage rates spurred slight improvement in home sales.

Richmond
On balance, the regional economy expanded at a modest pace. Port activity, trucking, and tourism were generally increasing at a moderate to robust rate. Labor demand strengthened moderately, overall. Manufacturers, retailers, and nonfinancial services firms gave mixed accounts. Some retail and professional business services in and around D.C. cited delays and lost activity due to the partial federal government shutdown.

Atlanta
Economic activity moderately expanded. The District’s labor market remained tight and wages increased, on average. Nonlabor input costs continued to rise. Retail sales were flat, and tourism was robust. Home sales continued to slow, and commercial real estate was steady. Manufacturers noted that new orders were flat, but production and inventories increased. Bankers noted steady activity.

Chicago
Economic activity increased slightly on balance. Employment and business spending increased slightly; manufacturing and construction and real estate activity were little changed; and consumer spending fell modestly. Wages rose modestly, prices rose slightly, and financial conditions improved modestly. Contacts expected crop incomes to be lower in 2019 than in 2018.

St. Louis
Economic activity was unchanged from the previous report. Manufacturing activity continued to improve at a moderate pace. District bankers reported a slight decrease in loan volumes in the first quarter. Residential real estate contacts reported that recent sales have fallen below expectations. Local farmers expressed concerns regarding the near-term status of the industry.

Minneapolis
Ninth District economic activity grew modestly. Labor demand remained healthy, but signs of weakness surfaced. Price and wage pressures were moderate. Consumer spending offered mixed signals on economic activity. Manufacturing, energy, and mining activity grew, but agricultural financial conditions continued to deteriorate and no change was expected in the coming months.

Kansas City
Economic activity expanded slightly, and additional gains were expected in the months ahead. Consumer spending increased slightly, with gains in retail, restaurant, auto and tourism sales. Manufacturing, wholesale trade, transportation, and professional and high-tech firms also reported rising activity. However, residential real estate activity fell modestly, and agricultural conditions remained weak.

Dallas
Economic activity expanded moderately, with a slight pickup in demand seen across the manufacturing, services, and housing sectors. Drilling activity dipped. Hiring continued at a moderate pace, and employment outlooks were bullish. Input price pressures moderated but wage pressures remained elevated. Outlooks were more 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 unchanged. Sales of retail goods expanded modestly, and activity in the consumer and business services sectors was strong. Conditions in the manufacturing sector strengthened moderately. Activity in real estate markets expanded moderately on balance. Overall lending activity was flat.