The latest survey conducted by the Federal Reserve, known as the “Beige Book,” reveals that the U.S. economy experienced modest growth during July and August. This growth was mainly driven by the release of pent-up demand for leisure activities.
Mixed Performance in Retail and Auto Sales
While there was an increase in leisure travel, nonessential retail sales experienced a slowdown during this period. Interestingly, the rise in auto sales was not due to consumer demand but rather a result of improved inventory levels.
Subdued Job Growth and Moderating Wage Increases
Across the country, job growth remained subdued. Although wage growth continued to be elevated, industry experts predict that these gains will likely moderate in the coming months.
Consumer Goods Prices Falling, Business Inputs Costs Remain High
Consumer goods sectors saw a faster decline in prices compared to other sectors. However, businesses still faced challenges as costs for inputs remained high, putting pressure on profit margins. Property insurance costs have also experienced significant increases in recent months.
The Big Picture: Measuring Economic Conditions
The Beige Book, conducted by the Kansas City Fed this time, is released eight times a year. It provides policymakers with valuable insight into the “on-the-ground” economic conditions across the country. The latest data indicates that the economy is generally strengthening in the current quarter. Economists at BMO Capital Markets have revised their forecast for Q3 GDP growth to 2.9% annualized, up from the previously projected 2.5%.
However, comments within the Beige Book suggest that this acceleration may falter as we head into autumn.
Market Response: Concerns about Economic Resilience
Following the release of the Beige Book, U.S. stocks, including DJIA and SPX, experienced a decline on Wednesday. Additionally, the 10-year Treasury yield BX:TMUBMUSD10Y rose to 4.30%. Wall Street expressed concerns that the strength of the economy could result in further interest rate hikes by the Federal Reserve.
