Bloomberg News/Landov
Federal workers waited in line at a food bank in Washington D.C. during the partial government shutdown. The government’s closure led to slower economic activity in many regions of the country, the Fed said.
The description: Ten of the Federal Reserve’s 12 districts saw “slight-to-moderate” growth in late January and February, while St. Louis and Philadelphia reported “flat economic conditions,” according to the Fed’s Beige Book report released Wednesday.
What happened: The tone of the Beige Book report was somber. The partial government led to slower activity in about six Fed districts. The impact hit a wide range of sectors, including retail, auto sales, tourism, real estate, restaurants, manufacturing and staffing services.
Consumer spending was “mixed” and several districts said retail and auto sales were lower due to harsh winter weather and higher costs of credit.
Manufacturing activity strengthened but firms conveyed a wall of worry about weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty.
Several districts reported faster growth for input prices than selling prices. The ability to pass along these higher input costs to consumers “varied by region and industry.” The trade tariffs were leading to upward price pressures in a few districts.
The labor market remained a bright spot. The majority of districts reported higher wages. Contacts complained about labor shortages.
The big picture: Fed officials have been forecasting an economic slowdown in 2019 and the process underway. The big unknown is whether this slowdown will be moderate or gathers steam. Inflation doesn’t seem so quiet in this report either.
The Fed has said it won’t adjust interest rates again until it is more certain about the economic outlook. As a result, the central bank is universally seen as holding its benchmark interest rate steady at its meeting later this month. Boston Fed President Eric Rosengren said there might be “several” meetings where rates are left unchanged.
Market reaction: Stocks were weaker Wednesday with the Dow Jones Industrial Average DJIA, -0.42% down about 100 points. This would mark the third straight day of declines in stock prices.
