U.S. economic activity was mostly flat, while some regions showed a decline with low spending following interest-rate hikes, said a recent report from the Federal Reserve, indicating an overall pessimistic outlook underlined by weekend demand.
“Four districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions,” said a summary of the Fed’s “Beige Book” (which is a report of anecdotal information on economic conditions throughout the nation). Inflation, the highest in 40 years, is expected to continue in all districts covered in the report, even though there were signs of easing.
Retail spending reflected lower discretionary spending, an indication of lower real wages. The Fed calculates that 53.4 percent of the American workforce saw their real wages decline between the second quarter of 2021 and the second quarter of 2022. Three in five U.S. consumers were found to be living paycheck to paycheck in August, with almost a fifth saying that they found it difficult to pay bills.
According to the Beige Book, “auto dealers noted sustained sluggishness in sales stemming from limited inventories, high vehicle prices, and rising interest rates.”
Tour activities, especially business travel, picked up, which could be attributed to be part of the pandemic-recovery process. Resolving supply-chain issues were also responsible for manufacturing activity to hold steady or expand in most districts, “though there were a few reports of output declines.”
As for the housing market, rising mortgage rates and elevated home prices kept out buyers, weakening single-family starts and sales, but lending strength to apartment leasing and rents.
“Commercial real estate slowed in both construction and sales amid supply shortages and elevated construction and borrowing costs, and there were scattered reports of declining property prices.”
Effects of Persistent Inflation
Around the nation inflation changes everything.In Boston, for example, capital and technology spending is expected to remain flat in coming months, but some companies have “raised concerns about external downside risk factors such as inflation, financial market instability, labor cost pressures, and rising COVID-19 cases.”
Further, residents nationally will have difficulty affording heat and other utilities during the winter season, according to the Federal Reserve Bank of New York. There also are concerns about housing affordability and food insecurities, while people find it difficult to make bill payments as utility costs go up and real wages decline.
High input costs remain a challenge in Philadelphia’s construction sector, even if price hikes have slowed down recently. High interest rates have affected multifamily projects and long-term land development. The city, like many others across the country, is facing an affordable-housing crisis.
Cleveland faces a similar situation, with affordable housing with persistently high prices causing “families to make different decisions regarding expenses, particularly food and travel,” and a general decline in financial well-being.
In Atlanta, manufacturers noted a softening of demand of certain discretionary consumer products, although sales remain robust and profit margins widened somewhat.
Workers in Chicago are requesting wage increases as inflation continued to put pressure on household budgets, while customers are changing shopping patterns in St. Louis owing to price hikes.
“Access to affordable child care and reliable transportation have worsened recently due to inflationary pressures, particularly for low- to moderate-income households” in Kansas City, with many people turning to gig work to remain financially afloat.
Services firms in Dallas said they were finding it harder to pass on cost increases to customers. “A restaurant said their biggest concern was customer pushback on menu price increases. Retailers also said customers were starting to push back on pricing.” Moreover, nonprofits reported a rise in demand for food assistance in the communities they serve.
The Beige Book is published eight times a year, two weeks before each meeting of the Federal Open Market Committee (FOMC). The report reflects current economic conditions across the 12 Federal Reserve districts. The latest report displays data collected on or before Oct. 7, 2022.
