- All districts reported modest or moderate economic growth early this year with activity generally increasing across industries.
- Business contacts were optimistic about the near-term outlook, although slightly less so than in the previous report as some cited greater policy uncertainty under the new administration.
Consumer spending growth was characterized as modest while retail sales were more subdued as districts noted an ongoing shift to online sales. Manufacturing activity accelerated, building on an improved assessment in the previous report in which some districts noted conditions took a turn for the better relative to a year ago. Modest growth was reported in the energy sector, in contrast to declines that continued through last year. Housing indicators including construction, sales and prices were generally modestly higher. Commercial real estate activity also grew modestly.
Labour markets were once again characterized as tight and some districts noted greater shortages of labour, particularly for skilled workers. In some cases that was seen as contributing to a pickup in wage growth; otherwise wages generally rose modestly or moderately. Price pressures were little changed, with output prices rising modestly or moderately in most districts but flattening off in a few.
Our Take:
Today’s solid Beige Book won’t, on its own, convince policymakers to raise rates in March, but a generally positive assessment of economic conditions early this year and further evidence of a tight labour market support the Fed giving serious thought to another hike. There was already a growing consensus among Committee members that further tightening should come sooner rather than later, and a decent run of economic data―most notably upside surprises in the latest employment and inflation reports―and the potential for fiscal stimulus seems to have convinced a growing number that there is little cause for delay. Recent comments to that effect have boosted the odds of a rate hike in March as high as 80% according to Bloomberg. Chair Yellen’s remarks on Friday will help firm up expectations for the coming meeting, though at this stage there appear to be few barriers to raising rates.
