Please see the below article from EPIC Investment Partners outlining the key takeaways from the Beige Book that gathers anecdotal information on current economic conditions. Received this morning 08/09/2023.
The Beige Book gathers “anecdotal information on current economic conditions” from each Federal reserve Bank. The key takeaways from the edition released on Wednesday were: Modest growth in July and August; strong consumer spending on tourism, but other retail spending, particularly non-essential, slowed; new auto sales expanded, however, this appeared to result from increased inventory rather than higher consumer demand; improvement in supply chain delays reported by manufacturing contacts across several districts; stable or declining new orders, with shorter backlogs; there remains a shortage of homes for sale; higher consumer credit line delinquencies; and subdued job growth across the country.
As we have discussed, the report suggested that consumers have exhausted their savings and are relying evermore on borrowing to support spending. Nearly all Districts indicated businesses renewed their previously unfulfilled expectations that wage growth will slow broadly in the near term. Finally, most Districts reported a slowdown in price growth, with a faster decline in manufacturing and the consumer-goods sector.
The report followed a strong ISM Services Index print. Prices paid, employment and new orders all jumped higher in August. Markets appeared jittery over the figures, which they interpreted as interest rates may have to remain elevated for an extended period. Unlike the manufacturing sector which has contracted for 10 consecutive months, the services sector has expanded during 38 of the last 39 months. The boost in services is most likely due to the summer spending on entertainment and ancillary activities; for inflation to fall further, the services sector needs to contract.
As we approach the 19-20 FOMC meeting, we heard from the Fed’s Waller, who is amongst the most hawkish members, who intimated that the Fed may hold rates this month. He said recent economic prints are “going to allow us to proceed carefully,” adding that “there’s nothing that is saying we need to do anything imminent anytime soon, so we can just sit there, wait for the data, see if things continue” on their current trajectory. Meanwhile, Boston Fed president Collins, said she expects the Fed will hold rates at restrictive levels for some time. She added that “we may be near, or even at peak for policy rates”, however, further tightening may be necessary depending on incoming data such as too tight a labour market or inflation that is not slowing enough towards target.
It appears financial markets are not poised for upside risks to inflation, a concern given that oil is trading at year highs, following a collaborative supply cut by Saudi Arabia and Russia. Be prepared for further volatility.
Please check our blog content for advice, planning issues and the latest investment, market and economic updates from leading investment houses.
Alex Clare
08/09/2023