We Read Today's Fed Beige Book. Here's Our Review.
This is what the report tells us about economic activity, the labor market and prices — and how it affects our thinking on several Pro Portfolio holdings.
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Because the government shutdown has hobbled the flow of economic data, we (and odds are many others) are going to review with an even finer comb this afternoon’s Beige Book report.
For folks unfamiliar with it, the Beige Book is a collection of anecdotal comments across regional Fed banks. This time around, the comments collected were aggregated on or before October 6, several days into the still ongoing government shutdown. With the expectations for the shutdown to extend past 30 days now, per prediction market Kalshi, upcoming data are likely to be more reflective of the economic speedbump the shutdown will be.
We will share the report's findings on the labor market, which reaffirms weaker footing, while those on prices reaffirm our thinking that margins will be a key topic as we move through the current earnings season.
Now let’s get to some of the highlights from this latest Beige Book:
Economic Activity
…spending by higher-income individuals on luxury travel and accommodation was reportedly strong.
This supports other recent data points, and is a nice table setter for quarterly results from American Express (AXP) on Friday. That said, initial comments on the Platinum card refresh and trends on average fee per card and cards in force will be a focal point for us. We’ll also be looking for more insight into Amex’s move into digital advertising.
Several reports highlighted that lower- and middle-income households continued to seek discounts and promotions in the face of rising prices and elevated economic uncertainty. Manufacturing activity varied by District, and most reports noted challenging conditions due to higher tariffs and waning overall demand.
More support for why we remain upbeat on Costco (COST) and TJX Companies (TJX) shares heading into the holiday shopping season. The longer the shutdown goes on, the more likely we will see those two companies and others like them benefit as impacted consumers tighten their belts.
Labor Markets
Employment levels were largely stable in recent weeks, and demand for labor was generally muted across Districts and sectors. In most Districts, more employers reported lowering head counts through layoffs and attrition, with contacts citing weaker demand, elevated economic uncertainty, and, in some cases, increased investment in artificial intelligence technologies.
"Stable" and "muted" suggest more of the same on the job creation side, but let’s remember what we shared above — data were collected on or before October 6. That means October initially started off somewhere between the contraction found in ADP’s September Employment Report and modest job creation depicted in September jobs data shared by Carlyle Group. We’ve seen the start of federal layoffs, and the longer the shutdown goes, the greater the probability we could see more.
Prices
Prices rose further during the reporting period. Several District reports indicated that input costs increased at a faster pace due to higher import costs and the higher cost of services such as insurance, health care, and technology solutions. Tariff-induced input cost increases were reported across many Districts, but the extent of those higher costs passing through to final prices varied. Some firms facing tariff-induced cost pressures kept their selling prices largely unchanged to preserve market share and, in response, to push back from price-sensitive clients.
This echoes the input-output price dynamic we flagged in the August and September ISM PMI data about margin pressure risk. The next data point to watch on this front will be next week’s Flash October PMI report from S&P Global and then ISM’s October PMI reports in early November.
At the time of publication, TheStreet Pro Portfolio was long AXP, COST and TJX.
