Federal Reserve officials spend a lot of time poring over economic data sets, but sometimes it pays to take a more hands-on approach, and Beige book is designed exactly for this.
Published eight times a year, the Beige Book, named for the color of its cover, compiles information on the current state of the economy through on-site interviews, reports and surveys conducted by each of the Fed’s 12 district banks. Former Fed vice chairman Alan Blinder once described it as “ask your uncle“approach to economics.
While forecasters’ opinions have varied wildly over the past year—from recession to a soft landing to the current favorite: a no-landing scenario with higher growth and higher inflation—the anecdotal details of April’s beige book were closely tied between yourself. analyzed by many experts. Its release this week follows strong consumer spending data and the third hot inflation report of the year. The combination caused even Chairman Jerome Powell to dismiss the prospect of a widely expected and market-exciting interest rate cut at a recent policy forum in Washington. , COLUMBIA REGION
But rather than showing evidence that the economy is overheating, the latest Beige Book suggests the opposite, revealing signs of slowing economic growth. “The Beige Book indicates a larger slowdown in hiring and economic activity than reported in ‘hard’ indicators of the U.S. economy such as the jobs report or real GDP,” said Bill Adams, chief economist at Comerica Bank. Luck by email.
Worse, Fed surveys and interviews have shown that many Americans are still struggling with the high cost of living; some sectors of the economy are experiencing a painful correction; and there is evidence that national charities are failing to meet the growing demand for their services. If you asked your uncle, here’s what he’d tell you about the US economy right now – and it’s not as good as hard data suggests.
1. It’s painful for low- and middle-income households.
First, low- and middle-income households are still struggling with inflation. The Cleveland Federal Reserve noted that two-thirds of nonprofits in its district reported that low- and moderate-income Americans have experienced a decline in their financial well-being over the past six months.
“Furthermore, nearly three-quarters said the availability of affordable housing has declined amid rising rents, loss of housing due to demolition, and insufficient housing supply,” the Cleveland Fed wrote.
The Federal Reserve Bank of Philadelphia also reported that “contacts across many sectors noted that low-income households are struggling with high prices and high interest rates.” According to the Federal Reserve Bank of Philadelphia, repossessions and delinquencies on auto loans are rising due to higher interest rates and car prices, especially for low-income households.
The pain, it seems, is also national. The Dallas Federal Reserve Bank said its members are seeing “persistently strong demand” for nonprofit services, including food distribution services, health insurance assistance and basic clothing donations. “The cost of living was an ongoing concern, and more people were looking for second jobs to make ends meet,” Dallas Fed officials added.
The Chicago Fed also noted that for low-income consumers, inflation, especially rising home costs, “remains a challenge to household budgets.” Despite efforts to increase the county’s affordable housing supply, “high materials and labor costs” have slowed progress, officials said.
2. Inflation hits non-profit organizations
While more Americans are turning to charities for help due to the impact of inflation, many nonprofits are facing crises themselves. Nonprofits in New York are under “strain,” according to the Federal Reserve Bank of New York. “Inflation has increased the cost of providing services, but there has not been a corresponding increase in funding,” officials explained.
Nonprofits also face high staff turnover and persistent vacancies in New York State, according to the Fed.
“Due to funding and staffing shortages, recipients of social services such as child care, mental health, housing and ambulances for seniors have seen longer wait times and reduced services,” the New York Fed added.
San Francisco Fed officials also reported high demand for support services and “strained” resources. “Households and community members sought assistance as they faced challenges with the cost of housing, utilities, food and health care,” they wrote. The news follows a 10.5% drop in charitable giving nationwide in 2022, according to Giving USA. report.
3. Profit margins are shrinking.
After years of booming corporate profits, both small and large businesses across the country reported declining profits in the Fed’s April Beige Book. St. Louis Federal Reserve Bank officials said that while inflation in their district has risen only “modestly,” “firms continue to see higher costs cutting into profit margins as they are unable or unwilling to raise prices for customers.”
Examples include: a boat retailer cutting profits to boost sales amid slowing demand; and a restaurant and textile manufacturer that reported higher food and labor costs but said they could not raise prices to offset it.
Chicago Fed officials even saw evidence of falling demand weighing on profits in the relatively resilient manufacturing space, explaining that “some manufacturers have indicated that raising prices has become more difficult in recent months and that their margins have squeezed.”
Finally, the Federal Reserve Bank of Kansas City reported that several business contacts said they experienced “significant increases in operating expenses” that impacted earnings. “Contacts expect there will be greater difficulty passing on these operating costs to customers, further reducing profit margins,” they added.
4. Expensive insurance puts pressure on consumers
The Fed’s Beige Book provided a small glimpse into how rising insurance costs are affecting consumers and businesses across the country.
Auto insurance prices rose 22% in March compared to last year, according to the agency. Consumer price index. Nearly three-quarters of homeowners said their home insurance rates were increased in 2023, according to a February ValuePenguin survey. But Federal Reserve surveys show how much home insurance rates rose in some areas last year. The Federal Reserve Bank of St. Louis said one insurance agent reported that homeowners have seen insurance premiums increase by 20% to 25% annually in the area.
According to the Beige Book, many large counties have seen “sharp increases in insurance rates for both businesses and homeowners.” Businesses have also seen rising insurance costs, with one St. Louis Fed retail contact reporting premiums doubling.
The Atlanta Fed said “insurance premium increases have been notable” in recent months in that district as well. “Rising insurance premiums and HOA fees in coastal markets remain a challenge for homeowners on fixed incomes,” officials explained. And the Federal Reserve Bank of Kansas City noted rising business operating costs, with “noticeable increases in business insurance costs” being a key issue in its region.
5. Problems with office real estate continue
Rising borrowing costs and the trend toward hybrid work have combined to hit the U.S. office market in recent years. According to the company, since the beginning of 2022, the cost of office real estate across the country has fallen by 15%. data from CoStar, and some cities, including New York and San Francisco, are seeing much steeper drops. With office vacancies reaching record levels in the first quarter, forecasters expect even tougher times ahead.
The Beige Book provided even more evidence of the April office real estate fiasco. The Federal Reserve Bank of New York said the region’s commercial real estate market has weakened markedly, with demand for office space falling and vacancy rates rising sharply.
“Overall, financial stress among New York City property owners continued to increase as debt service payments mounted,” they wrote.
The Boston Fed said that while the commercial real estate sector has “reinvigorated somewhat” and the outlook is now improving, “the risk of financial distress for large office buildings remains elevated.” And the Philadelphia Fed noted that deals in the office sector continue to fall as “investors look for discounts on distressed properties.”
However, the real estate market in the US is very regional, and this is also reflected in the Beige Book. Minneapolis Federal Reserve Bank officials said their commercial real estate sector has “improved slightly” and demand remains strong. “According to one source, the office sector has “stabilised”; subletting decreased slightly and workers gradually returned to the office,” they wrote.
What does this mean for interest rates?
Overall, the Fed’s Beige Book paints a much more pessimistic picture of the US economy than recent data suggests. But for investors panicking at the prospect of smaller interest rate cuts this year due to persistent inflation, the report’s evidence of slowing growth and inflation could be good news. As Comerica Bank’s Adams explained, “The Fed will be pleased to hear from Beige Book officials that they expect slow inflation in their forecasts.” Ultimately, this means the central bank has less work to do to achieve price stability.
However, Adams noted that field surveys like those included in the Beige Book tend to be more pessimistic about the state of the economy, meaning they will not “outweigh” hard economic data from recent inflation or economic reports. growth, which demonstrated significant price pressure. However, he argues that the Fed will at least see this as “a reason to exclude this message from the hard data.”
As Brian Rose, senior US economist at UBS Global Wealth Management, explained on Wednesday: “In our view, the Fed can’t cut rates until the inflation data cools, but the dovishness expressed by their contacts will make them more reluctant to cut rates.” , until the inflation data cools down. consider the possibility of additional rate increases.”
Rose argues that the Beige Book data will force the Fed to keep rates steady for now before cutting them in September. But while the Beige Book’s evidence of slowing economic growth and falling inflation may be good news for investors hoping for a market-stimulating rate cut, it’s certainly not what most Americans would like to see.