Bloomberg News/Landov
Floodwaters surround a farmstead in Iowa, in March. The Fed’s agricultural contacts expressed concern over the impact of current and future rainfall on the sector.
The description: Most of the Federal Reserve’s 12 district banks reported economic activity expanded at a “slight-to-moderate” pace in March and early April, according to the Federal Reserve’s Beige Book report, released Wednesday. A “few” districts reported some strengthening in activity.
What happened: Reports from the Fed’s contacts suggested sluggish sales for both general retailers and auto dealers into April. Home sales and tourism were bright spots. Agricultural conditions were weak and contacts in several Midwest districts expressed alarm about the heavy snow and subsequent widespread flooding.
The labor market remained tight, leading to upward wage pressures. The ability of firms to pass increased input costs to consumers was “mixed.” On balance, prices rose modestly, the Fed said.
Big picture: While perhaps not as downbeat as the prior report, the Beige Book does not describe an economy firing on all cylinders. Still, economists have been revising up their forecasts for first-quarter gross domestic product on the back of favorable data, including the narrowing of the trade deficit in February, reported earlier Wednesday. Fed officials will meet on April 30 and May 1 to set interest-rate policy. All-in-all, the report suggests inflation will remain muted, allowing the Fed time to wait-and-see how the economy develops over the summer before making any adjustments to interest rates.
Interesting anecdotes: There was some concern in the San Francisco district that the balance sheets of some agricultural producers “weakened notably” due to low market prices and weak export demand. There was optimism about the housing market in Dallas due to lower mortgage rates, after concerns last year. The Chicago Fed reported auto production remained at a solid level. Some firms in the Atlanta district reported they were setting up satellite locations in bigger cities or surrounding suburbs to find workers.
What are they saying? “Curiously, the tone and detail of the Beige Book are not entirely consistent with the tone of the overall economic data that has been released over the past couple of weeks. A variety of economic data points suggest that there is more upside risk to first quarter GDP than had previously been estimated, yet the Beige Book makes it sound as if growth continues to be sluggish,” said Tom Simons, senior money market economist at Jefferies.
Market reaction: The Dow Jones Industrial Average DJIA, +0.07% remained weak in mid-afternoon trading.
