The U.S. central bank reported on Wednesday that while consumer spending decreased and employment was weaker in roughly half of the Federal Reserve's 12 districts, U.S. economic activity had not changed much in recent weeks. These developments are likely to exacerbate worries about the job market as the next interest rate decision approaches.
"Economic activity was little changed since the previous report, according to most of the 12 Federal Reserve districts, though two districts noted a modest decline and one reported modest growth," the Fed stated in its most recent "Beige Book" report, which is a compilation of qualitative data from its 12 regional banks, including survey results and interviews.
"Employment declined slightly over the current period with around half of districts noting weaker labor demand," according to the survey.
"Despite an uptick in layoff announcements, more districts reported contacts limiting headcounts using hiring freezes, replacement only hiring, and attrition than through layoffs."
The report, which is released two weeks prior to each Fed policy meeting, is intended to provide central bankers with more timely and frequently colourful information about the state of the economy than can be found in official statistics.
Following their decision last month to lower rates by a quarter of a percentage point for the second consecutive meeting, the Beige Book should receive more weight than usual in the discussions among sharply divided Fed policymakers due to the data void left by the record 43 day government shutdown that continued into mid November. Currently, the policy rate is between 3.75% to 4.00%.
Since the shutdown ended, the data flow has resumed, but the majority of the reports released in the last two weeks have been somewhat outdated, covering the time frame immediately prior to the closure's start on October 1, and they have provided virtually no new information about the state of the economy.
However, according to one of the most recent measures, the job market is still stable and steadily decreasing. While the number of people receiving unemployment benefits after the first week of assistance has plateaued close to the greatest level in about four years, new claims for benefits decreased last week to the lowest level since April.
Despite a surge of job-cut announcements from large firms like Amazon.com, the numbers collectively show no discernible increase in layoffs, however individuals who are unemployed are having more difficulty obtaining new employment.
The likelihood of another quarter-percentage-point cut in borrowing costs during the Fed's December 9-10 meeting is reflected in interest rate futures markets.
Up until last week, the decision was viewed as a coin toss due to strong disagreements among Fed officials on whether additional easing is necessary to safeguard the labor market or is too dangerous given that inflation is still higher than the central bank's 2% target.
However, the likelihood of a rate decrease drastically changed after New York Fed President John Williams stated last week that he believed rates may be lowered "in the near term."
Regardless of the outcome of the meeting next month, it is expected to be made in spite of the protests of a number of policymakers and will be accompanied by a new set of forecasts from Fed officials that will demonstrate their inclination to lower rates even more in the coming year.
There wasn't enough solid evidence in the report to convince members of either Fed camp to alter their stance. Although it was a little more noticeable than in the October data, the employment market softening in the most recent survey did not indicate a substantial decline.
Although the pass through to consumers was varied, commentary from Fed company contacts revealed that input price pressures continued to climb, particularly for companies impacted by President Donald Trump's tariffs.
The government shutdown harmed demand from lower income households who rely on aid programs like the Supplemental Nutrition Assistance Program (SNAP), which were disrupted by the closure, and hindered consumer spending in multiple districts.
"Contacts reported that the government shutdown placed additional pressure on retail and food service firms, with many noting a visible slowdown in foot traffic," the Federal Reserve Bank of Kansas City stated.
Additionally, the data supported signs that lower-income consumers were feeling squeezed while wealthier households were carrying the burden of expenditure.
"A New Jersey based cafe noted that sales had been particularly weak, with the average order size shrinking, and a small restaurant chain reported declining sales," the Federal Reserve Bank of New York stated. "Still, a department store reported that sales have remained strong, especially for bedding as well as fine jewelry and watches."
In certain places, Trump's immigration crackdown is also affecting hiring and demand. "A food distributor noted a decrease in Hispanic shoppers due to immigration enforcement," the Dallas Federal Reserve stated.
Additionally, the San Francisco Fed reported: "One contact in agriculture highlighted increased difficulties in hiring workers due to immigration visa revocations."
