Connect the data dots and a story emerges — where the Fed’s Beige Book hints at what to come.
And what’s to come looks to be a slowdown in consumer spending.
The central bank’s latest offering covers March, and states that “overall economic activity was little changed in recent weeks.”
As per usual, there are 12 federal bank districts surveyed, offering up qualitative assessments of business and consumer sentiment and the lending landscape. Nine districts reported either no change or only a slight change in economic activity this period, while three said there had been only “modest” growth. Consumer spending was “flat to down slightly” in tandem with continued reports of moderate price increases.
Perhaps no surprise given the banking sector tumult last month: “Lending volumes and loan demand generally declined across consumer and business loan types. Several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity,” said the Fed.
A survey of the labor market shows that employment growth “moderated somewhat … a small number of firms reported mass layoffs, and those were centered at a subset of the largest companies. Some other firms opted to allow for natural attrition to occur, and to hire only for critically important roles,” the Beige Book noted.
If consumer spending — the engine of economic activity — was flat to down, it makes sense that economic growth would stall. And if companies have been moderating their hiring pace (and the Fed surveys take Main Street businesses into account), then wage growth might see some pressure. If wages are pressured, then consumers would be incentivized to rein in spending. If banks are less inclined to lend, then businesses are less likely to get the funding they need to grow — and consumers might be less able to tap into the credit they need to keep spending.
PYMNTS’ data underscores the triaging that’s already been showing up in other March data reports. As we noted last week the Census Bureau showed that spending declined 1% month over month on a seasonally adjusted basis. That follows a 0.2% decline seen in February versus January.
PYMNTS research shows that 67% of retail customers expect significant price increases in the next 12 months. The average consumer does not expect inflation to return to normal until the end of 2024.
Elsewhere, with the Federal Reserve of New York’s survey of consumer expectations in hand, the share of households that said credit is harder to get than it was only a year ago stood at 58.2%, the highest ever reading. The Fed reported that the “average perceived probability” of missing a minimum debt payment over the next three months increased by 0.3% to 10.9% in March. The median inflation expectation, as noted in the survey of consumer expectations, stands at 4.7% — up for the first time since October of last year. That outpaces the median expectation of household income growth, which stands at 3.3%.
The Beige Book, the expectations data, and the lending sentiment all point towards a more muted environment when it comes to opening up the wallet or the purse in the weeks and months ahead. Fear may have been hallmark amid the banking crisis that is only a few weeks in the rearview mirror — and now caution’s here to stay.