Fed: Beige Book reported little change in prices on balance - Nomura

The research team at Nomura explains that the Fed Beige Book, prepared for the upcoming FOMC meeting, reported little change in prices on balance, which appears in line with recent weak CPI inflation data.

Key Quotes

“Increasing commodity prices such as lumber and steel pushed input costs higher for manufacturers and constructors which have been reflected in recent prints of many regional manufacturing surveys. Moreover, recognizing low inventories of homes for sale, the Fed reported upward pressure on house prices in many districts. However, some districts noted falling prices for certain final goods, including groceries, apparel, and autos.”

“Employment and wages improved at a modest or moderate pace in many Fed districts, consistent with what we have been seeing in recent prints of the employment report. In April, unemployment rate fell to 4.4% with healthy job gains. Incoming labor market data suggest continued strength in May. Most districts reported shortages of labor across a broadening range of occupations and regions, pointing to tightening labor markets. However, most firms across districts noted little change to the recent trend of modest to moderate growth in wage. Interestingly, the San Francisco Fed reported that recent changes in immigration policy created substantial labor supply shortages in the agriculture sector and reduced international arrivals markedly. Strict enforcement of immigration laws under the Trump administration may have started to affect labor markets and the tourism industry in the region.”

“Overall, the assessment of economic conditions remained favorable with most Fed districts reporting modest or moderate growth. Yet, the Fed acknowledged that consumer spending softened in many districts with little change in non-auto retail sales. The Fed also noted that auto sales receded from highs in 2016. This judgment appears in line with incoming spending data, which suggested continued improvement despite a lack of notable acceleration.”