Skip to content

PNC Chief Economist Gus Faucher: Federal Reserve Beige Book Shows Economy Flat in Early Spring, Tighter Lending Standards, Slowing Inflation

The labor market continued to expand, but at a slower pace.

PNC Chief Economist Gus Faucher (Courtesy of PNC Bank)

Subscribe to our email newsletter and follow us on social media.

This commentary is written by PNC Chief Economist Gus Faucher.

  • Economic conditions were unchanged in the early spring according to the Fed’s Beige Book.
  • The labor market continued to expand, but at a slower pace.
  • Inflation remained elevated but eased.
  • The early-March problems in the banking system weighed on credit and optimism.
  • The Beige Book supports PNC’s forecast for a mild recession starting later this year.

According to the latest Federal Reserve Beige Book, the U.S. economy was flat in the six weeks through mid-April. Conditions were unchanged in five districts (Boston, New York, Cleveland, Chicago, and St. Louis), down slightly in three (Philadelphia, Richmond, and Kansas City), and up slightly in four (Atlanta, Minneapolis, Dallas, and San Francisco).

The Beige Book is consistent is with a slowing in growth as the U.S. economy continues to respond to Federal Reserve tightening. Conditions were mixed nationally, with activity flat in some districts, up slightly in some, and down slightly in others. Higher interest rates are weighing on industries like housing and manufacturing.

The Beige Book is consistent with PNC’s forecast for a mild U.S. recession starting sometime in the second half of 2023 and lasting into the spring of 2024. The Beige Book also supports PNC’s forecast of a 25-basis point increase in the fed funds rate when the Federal Open Market Committee meets on May 3, to a range of 5.00% to 5.25%, but then no further rate hikes through the rest of 2023.

Consumer spending was flat to down nationally with moderate price growth, and auto sales were stable. Travel and tourism were up in most districts.

Manufacturing output was flat to down, as were transportation and freight, even as supply chains continued to improve.

There were modest declines in home sales and homebuilding. Nonresidential construction was flat, with sales and leasing flat to down.

Both consumer and business banking activity were weaker in early spring. Banks tightened credit in the wake of bank failures in early May, and lending and credit demand were lower. There were also increased concerns about bank liquidity.

Several districts reported a slowing in job growth, and there were reports of mass layoffs at a small number of firms. Respondents generally reported more labor market slack, and some reported an increase in labor supply. Quits were generally lower. Wage growth slowed with fewer off-cycle pay hikes but remained above its pre-pandemic pace.

Prices were higher but the rate of increase was slowing. Costs for non-labor inputs and transportation fell, in some cases dramatically. Manufacturers reported higher prices charged for finished goods, but at a slower pace. Consumer prices continued to increase with solid demand, but rents and house prices leveled off.