Federal Reserve report on economy shows signs of a slowdown
The Federal Reserve’s latest report on regional economic activity shows that the U.S. recovery continued in June and early July, but that signs of a slowdown were evident.
The Fed’s “beige book” report, issued Wednesday, said two of the central bank’s 12 districts — Atlanta and Chicago — said that “the pace of economic activity had slowed recently,” while the Cleveland and Kansas City districts said that “activity generally held steady.”
The other eight districts — including San Francisco, which covers California and other Western states — reported “improvements in economic activity” from the spring, the Fed said. But it added that “a number of them noted that the increases were modest.”
By contrast, the beige book report issued June 9, covering April and May, said that economic activity had risen in all 12 Fed districts.
On Wall Street, blue-chip stock indexes ended modestly lower on the beige book news. The Dow industrials slipped 39.81 points, or 0.4%, to 10,497.88.
The new Fed report is consistent with other data pointing to slower growth this summer, but not a collapse of activity, analysts said.
In a separate report, the government said orders for big-ticket manufactured goods fell 1% in June from May. But a key measure of business spending — orders for non-defense capital goods excluding aircraft — was up 0.6%. And the May increase in those orders was revised up to 4.6% from an initial estimate of 2.1%.
“The strong trend in orders suggests business capital investment should continue to grow in the third quarter,” economists at Nomura Securities in New York said in a note Wednesday.
The Fed’s beige book report also pointed to continued growth in the manufacturing sector.
“Manufacturing activity continued to expand in most districts, although several districts reported that activity had slowed or leveled off during the reporting period,” the Fed said. “Districts also noted improved conditions in the services sector.”
Consumer spending, the driving force of economic growth, was a mixed picture in June and early July, the Fed said.
“Reports on retail sales during the early summer months were generally positive, although in most districts the increases were modest,” the report said. “Several districts noted that necessities continued to be strong sellers, while big-ticket items moved more slowly. However, most districts that reported on auto sales noted declines in recent weeks.”
The San Francisco Fed district reported that retail sales were “characterized as largely flat for grocers, as well as furniture and household appliance retailers.”
There was a bright spot in the West: “Conditions in the district’s travel and tourism sector continued to improve,” the report said. “Business travel and convention activity picked up further, and visitor volumes and hotel occupancy rates rose in several of the district’s major markets, particularly Hawaii.”
As for the labor market, the San Francisco Fed district said contacts in most industries in the West “characterized wages as largely flat, although some pointed to significant increases in the costs of employee benefits, especially for health insurance.
“Reports throughout the district indicated that most businesses expect to remain cautious in hiring for the foreseeable future. Contacts noted that their reliance on temporary workers over permanent hires will continue above historical norms.”
