The outlook: The U.S. economy expanded “modestly” from October through mid-November and the outlook “generally remained positive,” according to the Federal Reserve’s latest findings.
The Fed’s Beige Book was slightly more upbeat compared to its previous assessment last month, when the central bank said the economy was expanding at a “slight to modest pace.”
Since then the stock market has surged to record highs, reflecting fresh optimism that the U.S. and China will soon agree to a so-called “skinny” trade deal that reduces tensions between the world’s two largest economies.
The Beige Book is basically a summary of anecdotes collected by the central bank from business contacts across the country to get a sense of how the economy is performing.
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What happened: The Fed found evidence of a small pickup in the downtrodden manufacturing side of the economy, though overall conditions are still fairly weak. The dispute with China has hurt exports and made businesses reluctant to invest.
Auto sales, tourism and housing all showed improvement over the past month and a half.
Home sales have benefited from a drop in mortgage rates, the Fed said, though a shortage of properties for sales continued to act as a brake on the industry.
Skilled labor remained in short supply, most companies said. Hiring has slowed in large part due to weaker economy, but those seeking to add workers complained about a persistent “lack of qualified applicants.”
The tight labor market has pushed up wages, but for the most part companies haven’t been able to pass on those higher costs to their customers.
“Firms’s ability to raise prices to cover higher costs remain limited,” the Beige Book said.
The latest Beige Book covers the period of October through Nov. 18.
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Big picture: The U.S. has slowed since the spring, but it’s growing fast enough to keep the economy out of recession and extend a record expansion now in its 11th year. A trio of interest-rate cuts by the Fed since July are also helping to support growth by reducing the cost of borrowing.
The economy can’t grow much faster than 2%, however, so long as the U.S. trade war with China remains on the front-burner. The dispute has hurt the world’s two largest economies and the negative effects have spread around the world.
Interesting anecdotes:
• “Sales expectations were optimistic for the holiday season and beyond,” the Boston Fed said based on information gleaned from retailers.
• Fewer customers are paying cash to buy high-end houses and apartments in New York City, perhaps ‘a signal that investors have largely left the market,’ ” the New York Fed said.
• “Construction contractors indicated that typical winter layoffs have been delayed this year,” the Cleveland Fed said. Builders are trying to finish more projects to take advantage of the spike in demand caused by falling mortgage rates.
• “A food retailer said that while tariffs had increased costs, the company ‘cannot raise prices on a whim’ because of fierce competition,” the Cleveland Fed said.
• “Some small trucking companies that had opened to meet high demand in recent years went out of business, easing pressures on driver availability and wages,” the Minneapolis Fed said.
• “”Manufacturers facing slow demand again reported cutting hours rather than laying off workers because they were worried the tight labor market would make it too difficult to hire when demand recovered,” the Chicago Fed said.
•”A lack of qualified applicants was cited as the number one reason for not filling open positions over the last three months,” the Kansas City Fed said.
• “A few businesses in higher cost urban areas noted efforts to relocate jobs to lower cost areas of the district in order to contain labor compensation,” the San Francisco Fed said.
Market reaction: The Dow Jones Industrial Average DJIA, +0.15% and S&P 500 SPX, +0.42% were little changed in Wednesday trades, but stock prices remain at or near record highs. The 10-year Treasury yield TMUBMUSD10Y, +1.38% edged up to 1.77%.