The US central bank releases its Beige Book eight times each year, and it is a collection of data on economic activity and conditions from the various districts throughout the United States. The Beige Book is one of the factors that the FOMC takes into account when making monetary policy decisions. Different regions of the United States experience varying economic conditions for a variety of reasons. Therefore, it is critical for the Federal Reserve to understand and incorporate the trends around the nation when it comes to the path of short-term interest rates.
On Wednesday, March 6, the Fed released its latest Beige Book. Ten of twelve districts reported that economic activity increased, albeit at a slow to moderate pace. Two districts, St. Louis and Philadelphia said that conditions were flat. One-half of the districts reported that the government shutdown that lasted from December through January caused a slowdown in economic growth. The question going forward will be if the downturn is a temporary or ongoing phenomenon.
The overall tone of the Beige Book told markets that employment gains are moderate, but a labor shortage is a significant concern. One of the factors that I found most interesting as a commodities trader was that input prices are rising faster than sales prices, and it has become a challenge to pass along the increases to customers and remain competitive. I view this trend as a sign of inflationary pressures on the overall economy.
After seeing GDP growth rise to over 3 percent in 2018, it is likely that growth will moderate towards the 2 percent level in 2019.
The government shutdown and weather conditions across broad areas of the United States skewed the Beige Book data in the first quarter of 2019. It is likely that the news will be better when it comes to economic growth during the second quarter. However, some of the districts reported that the trade dispute between the US and China is causing uncertainty which means a trade deal by the end of this month could be critical for the next Beige Book which will come out on April 17. You can access the full text of the March Beige Book via this link.
When it comes to the market’s reaction to the central bank’s release, stocks moved lower, and bonds higher on Wednesday. Precious metals were stable, and crude oil slipped on the back of inventory increases at the end of last week according to both the API and EIA. The price of copper, a global economic barometer was above the $2.92 per pound level.
The bottom line on the Beige Book is that the Fed is likely to continue its pause on the back of a slowdown in economic growth during the first quarter of 2019.