The most recent Beige Book from the Federal Reserve, consisting of economic data gathered by each regional Federal Reserve District, provides insight into a slowing U.S. economy and increased consumer price sensitivity. The report also indicates a dimming economic outlook for the next six to 12 months due to growing uncertainty and concerns about future economic conditions.
According to the Beige Book, consumers are becoming more conscious of prices, which is affecting their purchasing decisions. Retail sales, including the auto sector, showed mixed results. Notably, there was a decline in the purchase of discretionary items and durable goods like furniture and appliances, highlighting consumers’ growing price sensitivity. This shift could have significant implications for retailers, especially with the holiday season approaching. On the other hand, travel and tourism activities remained generally healthy, demonstrating some resilience in that sector. However, there was sluggish demand for transportation services, reflecting ongoing challenges in that industry. Consumer credit remains relatively healthy overall, but there has been an increase in consumer delinquencies, which could be a cause for concern.
The demand for labor is cooling, with overall employment showing flat to modest increases in most districts. However, labor markets remain tight, particularly for skilled workers who are in short supply.
Concerning manufacturing activity, there was mixed performance, with manufacturers’ outlooks weakening in certain areas. Additionally, there was a slight decrease in the demand for business loans, particularly real estate loans, indicating caution among businesses in taking on new debt. Agriculture conditions remained steady to slightly improved, with farmers benefiting from higher selling prices, though yields varied. On the other hand, the commercial real estate industry continued its decline, especially in the office segment, and there was a softening in multifamily activity. Residential sales also experienced a slight decrease, leading to increased inventories of available homes. Some districts noted that the increased cost of debt was hindering business growth, potentially signaling concerns about financing conditions.
In terms of market reactions, the U.S. dollar index (DXY) fell, reversing earlier gains made after stronger-than-expected Q3 GDP data. Treasury yields saw significant declines, causing bonds to rally further, with the 10-year yield dropping to 4.26%, its lowest level since mid-September. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) surged by 1.2%, making November 2023 the strongest month for long-dated Treasuries since September 2011, with the TLT ETF up by an impressive 10.8%. Meanwhile, stocks had a slightly positive performance for the day, with the SPDR S&P 500 ETF Trust (NYSE:SPY) rising by 0.2%, and blue-chip stocks in the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) outperforming, up by 0.5%.