The Beige Book prepared for the June 21-22 FOMC meeting added to the view that the economy is experiencing a temporary slowing. Importantly, there are no signs of a sharp deceleration or pending drop in activity. According to the Beige Book some Districts reported moderate deceleration in growth. Only one District-Dallas-reported an acceleration of growth. Manufacturing activity is still up in ten of twelve Districts but slowing in some areas. Parts shortages from Japan are one factor behind the softening. Some contacts reported the expectation that auto production lost during the first half will be made up during the second half.
The consumer sector continues to support growth despite headwinds from headline inflation.
"Consumer spending was mixed, with most Districts indicating steady to modestly increasing activity. Elevated food and energy prices, as well as unfavorable weather in some parts of the country, were said to be weighing on consumers' propensity to spend. Auto sales were mixed but fairly robust in most of the country, though some slowing was noted in the Northeastern regions. Widespread supply disruptions--primarily related to the disaster in Japan--were reported to have substantially reduced the flow of new automobiles into dealers' inventories, which in turn held down sales in some Districts."
As was not a surprise, residential construction and real estate remained quite weak. However, the rental component has picked up strength. Commercial and industrial real estate markets have generally been steady since the last report, though there have been scattered signs of a pickup.
For the good news, most Districts indicated that labor markets continued to improve gradually. Wage growth is rising modestly. Also, financial conditions are headed in the right direction with loan demand mixed to slightly improved.
Inflation remains generally subdued outside of food and energy. Manufacturers have been somewhat more successful than retail or construction firms in passing along higher costs. In general, selling prices increased only modestly, except for food and energy prices, which continued to escalate.
Overall, the Beige Book supports the view that the economy is in a soft patch-one that is temporary. Equities rose somewhat on the news.