Extending the dismal pace of US economy growth (if not outright contraction) observed in last month’s Beige Book, which was validated by the sharp drop in Q1 GDP growth which tumbled to just 1.6% from more than 3% in Q4 and is expected to slide further to 1.3% tomorrow, moments ago the Fed published its latest Beige Book, which found that while economic activity expanded from early April to mid-May “as conditions varied across industries and Districts”, just like last month, most Districts reported “slight or modest growth”, while “two noted no change in activity.”

That’s the good news. The bad news was far more extensive and worrisome and can be summarized as follows: “Negligible Job Gains”, “Lower Discretionary Spending”, “More Pessimistic Outlook.” Here are the highlights:

Retail spending was flat to up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers.
Auto sales were roughly flat, with a few Districts noting that manufacturers were offering incentives to spur sales.
Travel and tourism strengthened across much of the country, boosted by increased leisure and business travel, but hospitality contacts were mixed in their outlooks for the summer season.
Demand for nonfinancial services rose, and activity in transportation services was mixed, as port and rail activity increased whereas reports of trucking and freight demand varied.

Elsewhere, nonprofits and community organizations cited continued solid demand for their services, and manufacturing activity was widely characterized as flat to up, though two Districts cited declines.

Meanwhile, tight credit standards and high interest rates continued to constrain lending growth. And while housing demand rose modestly, and single-family construction increased, there were reports of rising rates impacting sales activity.

Even uglier, the Beige book warns that conditions in the commercial real estate sector softened amid supply concerns, tight credit conditions, and elevated borrowing costs.

There was more cheer in the energy sector, where activity was largely stable, whereas agricultural reports were mixed, as drought conditions eased in some Districts, but farm finances/incomes remained a concern.

Taking a closer look at the two key Fed mandates, jobs and inflation, we first turn to labor markets where the Beige Book made the following downbeat observations:

Employment rose at a slight pace overall, as eight Districts reported negligible to modest job gains, and the remaining four Districts reported no changes in employment.
A majority of Districts noted better labor availability, though some shortages remained in select industries or areas. Multiple Districts said employee turnover has decreased, and one noted that employers’ bargaining power has increased. 
Hiring plans were mixed—a couple of Districts expect a continuation of modest job gains, while others noted a pullback in hiring expectations amid weaker business demand and reluctance due to the uncertain economic environment.
Wage growth remained mostly moderate, though some Districts reported more modest increases. Several Districts reported that wage growth was at pre-pandemic historical averages or was normalizing toward those rates.

As for prices, it appears that we are on the edge of disinflation if not outright deflation:

Contacts in most Districts noted consumers pushed back against additional price increases, which led to smaller profit margins as input prices rose on average.
Retail contacts reported offering discounts to entice customers.
Many Districts observed a continued increase in input costs, particularly insurance, while some noted price declines in certain construction materials.
Some Districts observed declines in manufacturing raw material costs. Price growth is expected to continue at a modest pace in the near term.

Finally, and this is probably not a shock to anyone, the report concludes that “overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.“

For those curious what individual regional Fed had to say, here is a snapshot:

Boston: Economic activity was about flat on balance. Prices increased modestly, and wage growth was slow-to-moderate amid stable employment levels. Real estate activity, for both commercial and residential properties, weakened slightly after showing signs of improvement earlier in the year. The outlook became more uncertain for some contacts but remained cautiously optimistic overall.
New York: On balance, regional economic activity grew slightly. Labor market conditions remained solid, and labor demand and labor supply continued to come into better balance. Consumer spending picked up slightly after slow sales in the spring. Housing markets remained solid, though low inventory continued to restrain sales. Selling price increases remained modest.
Philadelphia: Business activity grew slightly in the current Beige Book period, up from no change last period. Employment edged up slightly, owing to increased demand and supply of labor. Wage and firm price inflation were up modestly. Existing home sales grew slightly, and new-home sales held steady at high levels. Expectations for future growth edged down and were less widespread for nonmanufacturers but remained positive overall.
Cleveland: District business activity increased slightly but somewhat more slowly than it had in the prior reporting period. Some contacts attributed the slowdown to interest rates staying higher for longer than anticipated. Consumer spending declined modestly, which some manufacturers said dampened demand for their goods. The majority of contacts indicated that wages, input costs, and selling prices continued to stabilize in recent weeks.
Richmond: Economic activity in the region expanded modestly this period. Consumer spending rose moderately, overall, which was driven by individuals with discretionary income as lower income individuals pulled back or traded down to lower priced goods. Import activity increased and the port of Baltimore was able to reopen one channel into the port. Manufacturing and nonfinancial services firms reported no change in demand in recent weeks.
Atlanta: The Sixth District economy grew slightly. Labor markets continued to stabilize; wage pressures eased. Growth of some nonlabor costs slowed. Consumer demand was generally healthy. Tourism remained strong. Commercial real estate conditions were mixed. Transportation activity varied. Loan demand was flat. Energy activity was robust. Agricultural conditions softened.
Chicago: Economic activity increased slightly. Employment and construction and real estate activity increased modestly; business and consumer spending rose slightly; nonbusiness contacts saw little change in activity; and manufacturing activity edged down. Prices and wages rose moderately, while financial conditions tightened a bit. Prospects for 2024 farm income increased slightly.
St. Louis: Economic activity across the Eighth District continued to increase slightly since our previous report. The outlook among contacts was slightly pessimistic, which is weaker than our previous report but better than one year ago.
Minneapolis: District economic activity grew slightly. Employment grew but labor demand softened. Wage pressures were present but eased, while prices ticked up. Consumer spending rose but contacts were cautious, and manufacturing rose slightly. Commercial and residential construction improved slightly, and home sales grew strongly. Agricultural conditions remained weak but saw some positive developments.
Kansas City: The Tenth District economy expanded at a moderate pace. Household spending rose moderately, driven by increases in hotel stays, outings to restaurants, and auto maintenance. Job gains were modest, yet contacts indicated their employment outlooks were less vulnerable to a deterioration in conditions compared to six months ago. Prices grew slightly with broad reports that strategies regarding price changes were shifting.
Dallas: Economic activity was flat to up slightly over the reporting period. Some growth was seen in the manufacturing, banking, and energy sectors, while activity in nonfinancial services was flat, and declines were seen in retail sales. Employment levels held mostly steady overall, according to contacts. Outlooks were generally stable to slightly more pessimistic compared with the prior reporting period.
San Francisco: Economic activity and employment levels were largely unchanged. Prices, wages, and retail sales grew slightly. Activity in services sectors and residential real estate markets weakened a bit. Commercial real estate activity and financial sector conditions were largely unchanged. Demand for manufactured products picked up slightly, and conditions in agriculture were mixed.

More in the full beige book