Fed's Beige Book reviewed: sluggish growth in spending without notable acceleration - Nomura

Analysts at Nomura offered a review of the Fed's Beige Book.

Key Quotes:

"The economy continued to expand at a pace “equally split between modest and moderate,” states the Fed Beige Book for the 2-3 May FOMC meeting. This report highlights the sluggish growth in spending without notable acceleration, the trend that has not changed since the previous print of Beige Book. The Fed indicated consumer spending growth was varied across the regions and on balance, non-auto retail spending was soft. Interestingly, there were not many mentions of materially negative weather impacts.

The exception was residential and commercial activity in New York, which was adversely affected as the weather was closer to normal in March following two unusually warm months. In addition, the Fed reported that growth in the manufacturing sector continued at a modest to moderate pace, which is in line with continued recovery in the manufacturing sector. Employment improved steadily across the nation at paces “from modest to moderate.” This assessment is unchanged from the previous print of Beige Book. In Q1, nonfarm payroll increased by 178k per month on average, which is a steady pace only slightly below the pace in 2016. The Fed indicated that, “the labor market remained tight," given increased difficulty filling low-skilled positions and stronger demand for higher skilled workers. 

Moreover, a large number of contacts reported high turnover rates and more difficulty retaining workers, pointing to tight labor market conditions. In line with this development, the wage gains broadened across regions. As for inflation, Beige Book stated that prices increased only "modestly." In the previous print, the Fed said that the prices were unchanged. The latest Beige Book reports input prices increased modestly while selling prices increased "only slightly." Also, energy prices were flat or trended lower while home prices generally moved slightly higher."