Fed's Beige Book Shows Tariff Concerns, Agricultural Weakness, Price Pressures
Mike Mish Shedlock
The Federal Reserve "Beige Book" is a compilation of economic activity produced by each of the Fed's 12 districts.
Despite the impressive-sounding name, there is typically not much in it that has not been reported elsewhere, earlier, either in the regional Fed reports from each district (e.g. Empire State Report, Philly Fed Report, Dallas Fed Report, etc.) or FOMC discussion minutes.
The book does provide an overall compilation and synopsis in one place.
Emphasis below is mine.
Overall Economic Activity
> Reports from the Federal Reserve Districts suggested that the economy expanded at a moderate pace through the end of August. Dallas reported relatively brisk growth, while Philadelphia, St. Louis, and Kansas City indicated somewhat below average growth. Consumer spending continued to grow at a modest pace since the last report, and tourism activity expanded, to varying degrees, across the nation. Manufacturing activity grew at a moderate rate in most Districts, though St. Louis described business as little changed and Richmond reported a decline in activity. Transportation activity expanded, with a few Districts characterizing growth as robust. Home construction activity was mixed but up modestly, on balance. However, home sales were somewhat softer, on balance—in some cases due to reduced demand, in others due more to low inventories. Commercial real estate construction was also mixed, while both sales and leasing activity expanded modestly. Lending activity grew throughout the nation. Some Districts noted weakness in agricultural conditions. Businesses generally remained optimistic about the near-term outlook, though most Districts noted concern and uncertainty about trade tensions—particularly though not only among manufacturers. A number of Districts noted that such concerns had prompted some businesses to scale back or postpone capital investment.
Employment and Wages
> Labor markets continued to be characterized as tight throughout the country, with most Districts reporting widespread shortages. While construction workers, truck drivers, engineers, and other high-skill workers remained in short supply, a number of Districts also noted shortages of lower-skill workers at restaurants, retailers, and other types of firms. Employment grew modestly or moderately across most of the nation, though Dallas noted robust job growth, while three Districts reported little change that partly reflected a dearth of applicants. Six of the twelve Districts cited instances in which labor shortages were constraining sales or delaying projects. Wage growth was mostly characterized as modest or moderate, though a number of Districts cited steep wage hikes for construction workers. Some Districts indicated that businesses were increasingly using benefits—such as vacation time, flexible schedules, and bonuses— to attract and retain workers, as well as putting more resources into training.
> Prices of final goods and services continued to rise at a modest to moderate pace in most Districts, though there were some signs of a deceleration. All Districts noted fairly widespread input price pressures, particularly for construction materials and freight transportation. Tariffs were reported to be contributing to rising input costs, mainly for manufacturers.Businesses’ input costs have generally been rising more rapidly than selling prices, though there have been increased efforts to pass along cost hikes to customers. A few Districts noted some increase in inflation expectations.
Those three paragraphs contain all of the essential information. However, the book is 32 pages long, including individual summations from each of the regions.
Word of the Day: Tariff
The word tariff appeared 37 times. Here are 28 of them.
- Tariffs were reported to be contributing to rising input costs, mainly for manufacturers. Businesses’ input costs have generally been rising more rapidly than selling prices, though there have been increased efforts to pass along cost hikes to customers.
- Commercial real estate contacts said that construction costs had increased moderately-to-steeply in recent months, and the increases were attributed in part to rising materials costs—stemming partly from tariffs on imported goods.
- Contacts in almost all sectors anticipated further increases in the months ahead, with a sizable number of contacts indicating that tariffs were driving up costs, particularly in the manufacturing sector.
- A sizable number of contacts in manufacturing and distribution sectors noted that recent hikes in tariffs have raised their overall input costs, and some have expressed concern about the effects of changes in trade policy on various aspects of their business.
- One utility firm noted that tariffs on some construction materials may force them to scale back capital investment a bit.
- Philadelphia Fed: While manufacturers reported paying higher prices, other contacts reported no current shift in inflation trends, but many worried that tariffs would trigger future inflation.
- Philadelphia Fed: Bankers and other contacts cited labor shortages, wage pressures, and tariffs as concerns for spurring inflation, but none reported evidence of current inflation.
- Philadelphia Fed: Nearly two-thirds of the firms that offered general comments noted that price hikes and/or supply disruptions had already occurred or were anticipated because of tariffs and the threat of tariffs.
- Philadelphia Fed: For those firms already impacted, contacts often cited double-digit price increases; some typical responses were that tariffs “have put us out of business” on certain products and “are a cloud on every facet of our business planning.”
- Cleveland Fed: There was some concern that the impact of tariffs would soon filter through the supply chain in the form of higher prices of new transportation equipment, including trucks and trailers. Also, one retailer pointed out that the firm was beginning to see an increase in the firm’s costs because of import tariffs.
- Richmond Fed: ... other firms gave more negative reports as they were unable to pass through to customers rising materials costs as a result of recent tariffs. A Maryland can manufacturer feared price increases would lead to permanent business losses as customers would look for alternative forms of packaging.
- Richmond Fed: . A District airport reported seeing strong growth but was cautious about making capital expenditures over concerns that business might soften as a result of new tariffs.
- Richmond Fed: While some port contacts have not yet seen any effects from the tariffs, they expressed concerns, noting that the effects may be delayed since shipments are often planned well in advance.
- Richmond Fed: Some retailers attributed higher input prices to recent tariffs and were hesitant to make long-term business decisions.
- Atlanta Fed: Anticipation of rising costs related to tariffs continued to contribute to vendor price increases for commodities.
- Atlanta Fed: Uncertainty regarding tariffs and trade policy continued to weigh heavily on manufacturers’ sentiment as expectations for future production levels decreased from the previous period.
- Atlanta Fed: Some contacts expressed concern that tariffs on steel and aluminum may influence the viability of planned industrial construction and plant expansion projects in Louisiana.
- Chicago Fed: Auto dealers noted that the steel and aluminum tariffs had not yet boosted retail prices for light vehicles, but expected them to do so eventually.
- Chicago Fed: One contact noted that threats of new tariffs had led to spikes in freight traffic as businesses sought to move goods before the tariffs might take effect.
- Chicago Fed: Hog prices were down, as tariffs led to a drop in exports.
- Chicago Fed: Contacts throughout the District continued to express concerns about the impact of trade disputes and tariffs on the agricultural industry.
- St. Louis Fed: Multiple manufacturers reported facing elevated input prices linked to steel and aluminum tariffs as well as increased freight costs.
- St. Louis Fed: A Kentucky rail transporter voiced concerns that tariffs may reduce demand in the upcoming grain season.
- Dallas Fed: Overall, outlooks among manufacturers remained positive, although tariffs have increased uncertainty in expectations. While outlooks stayed positive, concern over tariffs and rising interest rates was noted.
- Dallas Fed: Contacts remained optimistic, although they cited flattening of the yield curve, tariffs, and regulatory compliance as top concerns.
- Dallas Fed: There is also concern among the agricultural community about tariffs and trade wars.
- San Francisco Fed: An industry contact in Oregon noted that the price of steel continued to increase, due in part to the implementation of tariffs and to unrelated declines in global competition.
- San Francisco Fed: Lumber exporters in the Pacific Northwest noted a modest decline in demand from China after that country announced tariffs on American lumber.
Kansas City Fed
Curiously, the Kansas City Fed did not mention tariffs but it did offer this synopsis of agriculture.
- Prolonged weaknesses in the agricultural sector were increasingly impacting farm borrower finances.
- Farm income and credit conditions in the Tenth District weakened, and crop prices remained relatively steady following sharp declines in June and early July. The price of corn and soybeans increased modestly in late July, but declined in August to a level similar to the previous reporting period.
- With agricultural commodity prices generally lower than a year ago, District contacts reported a decrease in farm income in addition to stronger demand for farm loans. Loan repayment problems also worsened slightly throughout the District and were most significant in Nebraska, Colorado, Wyoming and New Mexico.
- District contacts reported that uncertainty surrounding trade was a primary concern, and the prolonged weaknesses in the agricultural economy were increasingly impacting farm borrower finances.
- Although interest rates on farm loans continued to increase alongside weakening agricultural credit conditions, farmland values declined only modestly.
Ain't Seen Nothin' Yet
So far, despite the anecdotes, the overall assessment seems to be there has been little overall impact yet.
But smaller companies, unable to pass on price hikes and the agricultural sectors have been hit hardest.
The problem is, tariffs are just getting started. Trump plans another $200 billion on China with another $267 billion on top of that. China promises to retaliate.
If Trump does follow through with his threats, the impact will be significant.
- Trump Eyes Another $267 Billion in Tariffs (And He's Foolish Enough to Do It)
- Canada, the Petroyuan Thesis, and Balance of Trade Issues in Pictures
- Lagarde Warns of Emerging Market and Low-Income Shocks by Trade War With China
Mike "Mish" Shedlock