Fed Beige Book Reveals Economic Slowdown Amid Rising Consumer Price Sensitivity

BY Benzinga | ECONOMIC | 11/29/23 03:14 PM EST

The Federal Reserve’s latest Beige Book, a collection of economic information collected by each Federal Reserve District up to Nov. 17, paints a picture of a slowing U.S. economy, with consumers displaying increasing price sensitivity.

The report also highlighted a diminishing economic outlook for the next six to 12 months, reflecting growing uncertainty and concerns about future economic conditions.

Consumers Become Price Sensitive

Consumers appear to be more sensitive to prices, affecting their purchasing decisions, the latest Fed Beige Book report revealed.

Retail sales, including the auto sector, showed mixed results.

There was a notable decline in the purchase of discretionary items and durable goods such as furniture and appliances. This trend underscores a growing price sensitivity among consumers, a shift that could have significant implications for retailers, especially with the holiday season approaching.

In contrast, travel and tourism activities remained generally healthy, indicating some resilience in this sector. However, the demand for transportation services was sluggish, reflecting ongoing challenges in this industry.

Consumer credit remains relatively healthy, but there is an uptick in consumer delinquencies, a potential red flag.

The demand for labor is cooling, with most districts reporting flat to modest increases in overall employment. However, several districts continued to describe labor markets as tight, particularly for skilled workers who remain in short supply.

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Manufacturing Activity And Business Outlooks Vary

Manufacturing activity exhibited a mixed performance, with manufacturers’ outlooks weakening in some areas.

The demand for business loans decreased slightly, particularly for real estate loans, suggesting caution among businesses in taking on new debt.

Agriculture conditions remained steady to slightly improved, with farmers benefiting from higher selling prices, although yields were mixed.

Commercial real estate activity continues its downward trajectory, with particular weakness in the office segment and a softening in multifamily activity.

Additionally, there was a slight decrease in residential sales, leading to higher inventories of available homes.

Two districts noted that the increased cost of debt was impeding business growth, potentially signaling concerns about financing conditions.

Market Reactions

The U.S. dollar index (DXY) fell, reversing its earlier gains achieved after a stronger-than-expected Q3 GDP data.

Bonds rallied further as Treasury yields saw a significant decline, with the 10-year yield falling to 4.26%, its lowest level since mid-September.

The iShares 20+ Year Treasury Bond ETF surged by 1.2%. November 2023 has marked the strongest month for long-dated Treasuries since September 2011, with the TLT ETF up by an impressive 10.8%.

Meanwhile, stocks maintained a slightly positive performance for the day, with the SPDR S&P 500 ETF Trust (SPY) rising by 0.2%, and blue-chip stocks in the SPDR Dow Jones Industrial Average ETF (DIA) outperforming, up by 0.5%.

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.