Fed's Beige Book Downgrades Growth To Slight-To-Moderate

Modest-to-moderate has been downgraded one notch to slight-to-moderate. This is the Beige Book's current verdict that reflects wide softness as well as the effects of the government shutdown and fits right in with general concerns over risks to growth and the FOMC's cautious wait-and-see approach. Ten of the Fed's districts are reporting slight-to-moderate growth while two are reporting flat conditions, Philadelphia and St. Louis. The report says about half of the districts noted that the shutdown in late December and most of January hurt growth.

The report's assessment of consumer spending, which is in sharp focus given the downturn in December retail sales and vehicle sales early in both January and February, is mixed noting that harsh winter weather may have hurt spending as may higher costs of credit may have. Manufacturing is also in focus given uneven signs in the sector including this report which cites concerns over weakening global demand, tariff-related costs, and uncertainty over trade policy. Housing is also in focus and also mixed, with residential construction said to be steady to slightly higher but with home sales lower. Agriculture once again gets the outright weak verdict with the energy sector described as mixed.

Employment, despite the 304,000 surge in January payrolls, gets no better than a modest-to-mixed score though labor shortages continue to hold down employment growth in some areas. The report also hints that demand for labor may be drawing students immediately into the workforce and out of higher education. Wages across skill levels are said to be increasing.

Inflation in general also gets the modest-to-moderate verdict with pass through to consumers varying by region. The report notes that tariff pressures on steel prices have eased, that energy costs are down in some areas and that agricultural prices are mixed except for soybeans and dairy which it said are "notably weak".

The headline downgrade to slight-to-moderate and general softness throughout together with limited price pressures will seal expectations for no change at the coming FOMC meeting, set for March 19 and 20. Cut-off date was February 25 for today's report which was compiled by the Kansas City Fed.