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Fed Beige Book: US Economy Expands Modestly but Trade Concerns Linger

There was nothing in the Beige Book to suggest a change in Fed policy. Even with the signing of the trade deal between the United States and China on Wednesday, Fed policymakers are likely to maintain their wait and see approach.
James Hyerczyk
Fed Beige Book

The New York Federal Reserve released it so-called “Beige Book” late Wednesday for information collected on or before January 6. While the data didn’t shock the markets like a Federal Reserve monetary policy statement or interest rate decision, it did over some valuable inside into the strength of the economy that could influence near-term policy decisions.

This month’s survey showed the U.S. economy expanded at a modest pace through the final six weeks of 2019 but uncertainty over U.S. trade policy continued to hurt firms.

“In many districts, tariffs and trade uncertainty continued to weigh on some businesses,” the Fed said in its report, compiled from anecdotal evidence derived from business contracts across the country.

Tight labor markets, slow price increases and a solid holiday season – particularly among online shoppers – offset weakness in manufacturing, the central bank said.

“Expectations in the near-term outlook remained modestly favorable across the nation,” the Fed said.

On a positive note, the Beige Book suggested businesses are confident in their prospects. Banks reported loan volumes were steady or growing moderately. Housing construction was expanding. Vehicle sales were showing moderate growth. And agriculture and energy firms reported little change over the period.

On the negative side of the ledger, manufacturing remained weakened by trade uncertainties, with some areas reporting job cuts or hiring slowdowns. Some manufacturers also reported declining prices for their products.

Inflation pressures remained modest overall, the report said. “A number of districts reported that retail selling prices rose at a slightly faster, but still subdued, pace,” the Fed said. Some restaurants also said they were feeling pressure from rising food prices.

Trends in real estate were mixed. In the Boston region, for example, a severe shortage of housing inventory weighed on sales. “Many potential sellers are concerned about having nothing to buy after a sale because inventories are so low.”

In New York City, by contrast, prices are weakening because of oversupply.

“The steepest declines have continued to be at the high end of the market,” the report said. “The inventory of existing homes has risen further, reaching fairly high levels in Manhattan and moderate levels in Brooklyn and Queens.”

Nothing to Suggest Change in Fed Policy

There was nothing in the Beige Book to suggest a change in Fed policy. Even with the signing of the trade deal between the United States and China on Wednesday, Fed policymakers are likely to maintain their wait and see approach.

In December, Fed policymakers made it clear that they intend to keep interest rates unchanged for the foreseeable future, citing a boost to the economy from last year’s three rate cuts and the easing of tensions in the U.S.-China trade war.

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