The Federal Reserve isn’t directly impacted by the government shutdown, and they have just released their Beige Book report, which is an anecdotal survey on the state of the US economy. It suggests there has been a slight loss of momentum in activity over the past eight weeks, which supports the messaging from Fed Chair Jerome Powell yesterday that the economic situation hasn’t improved since the Fed cut rates 25bp on 17 September.
The report suggests that, on balance “economic activity changed little” since the last report, with 3 of 12 Fed districts reporting slight to modest growth, five reporting no change and four reporting a slight softening. This is a loss of momentum relative to the August report, which had indicated 4 of 12 Fed districts reporting “modest growth” with the other eight indicating “little or no change in economic activity”. In terms of the jobs market, it was suggested that “demand for labour was muted across districts and sectors”. The August report had stated 11 of 12 districts reported flat employment with the other one reporting a “modest decline”. More specifically on jobs “in most Districts, more employers reported lowering headcounts through layoffs and attrition, with contacts citing weaker demand, elevated economic uncertainty, and, in some cases, increased investment in artificial intelligence technologies”.
With regard to prices, the August Beige Book indicated all 12 Fed regions saw “moderate or modest” price growth, but in two that growth was less than the rising input cost, suggesting squeezed profit margins. The assessment that corporate profits were bearing the brunt of higher costs was reaffirmed in today’s report with “several Districts” indicating that input costs rose at a faster pace than selling prices, with tariffs, insurance, health care and technology all cited as pressure points.