June Beige Book Notes Rising Wages

U.S. economic activity expanded at least slightly in eight Federal Reserve districts according to the latest version of the Beige Book released Wednesday afternoon. Chicago and Kansas City reported that growth slowed, while Dallas reported marginal growth and New York reported flat growth. Overall, economic growth was described as modest.

Consumer spending on new and used vehicles generally improved but the improvements varied from a rise in sales in Chicago, Cleveland and Richmond to a slight decline in sales in others (Philadelphia, Atlanta, and Kansas City).

Labor market growth continued on a modest growth path with tight labor markets reported in many Fed districts. Even low-skill jobs were getting hard to fill in Atlanta and Richmond. Wages rose modestly since the last Beige Book, with Atlanta, St. Louis, and San Francisco reporting upward pressure for certain highly skilled workers. Pressure on wages was minimal in Dallas where compensation is either steady or falling for energy industry workers lucky enough still to have jobs.

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Some other interesting notes from the report include this appraisal of the financial developments in the New York District:

Small to medium sized banks in the District report that overall loan demand has strengthened. There were widespread increases in demand for consumer loans, residential mortgages and commercial mortgages; demand for commercial & industrial loans, on the other hand, was reported to be little changed. Bankers report that credit standards were unchanged across all loan categories. Contacts indicate narrower spreads of loan rates over cost of funds across all categories except consumer loans, where spreads were reported to be unchanged. Respondents also report an increase in the average deposit rate. Finally, bankers report lower delinquency rates across all loan categories, particularly consumer loans.

The Minneapolis district reported that the slowdown in the energy and mining sectors goes on:

Conditions in the energy sector weakened, while mining activity held steady at low levels. The number of active drilling rigs in the District continued to fall through mid-May, reaching its lowest level in more than 10 years. North Dakota daily oil production as of March was down 7 percent from a year earlier.

The Dallas Fed underscored the troubles in the energy sector:

Demand for oilfield services remained depressed. Drilling continued to decline, with losses concentrated in oil-directed rigs. The financial positions of many firms, particularly smaller ones, remained weak. Some service firms were purchasing drilling or completion equipment at heavily discounted prices. Confidence continued to build that oil prices have found a bottom; however, firms want prices to remain at these levels for a while longer before making any changes to existing business plans. Outlooks remained somber for 2016, with little hope for growth before 2017.

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All in all, no big surprises either positive or negative. The U.S. economy continues to improve but, unfortunately, the pace of growth is near-glacial. Nothing in the latest Beige Book materially strengthens or weakens the case for a Fed interest rate hike at the FOMC meeting later this month.