U.S. economy, employment grew modestly in final weeks of 2021: Fed Beige Book

Yahoo Finance Live’s Brian Cheung discusses the Fed Beige Book and Consumer Price Index (CPI) data.

Video Transcript

- I want to turn your attention to the headlines from the Beige Book and bring in our Brian Cheung for what he thinks has been making news. Brian?

BRIAN CHEUNG: Yeah. Well, for those that don't know what the Beige Book is, this is a release from the Federal Reserve, X amount of weeks in frequency, where they give updates on what economic conditions look like in different regions of the country. But overall, the Beige Book described conditions, which the survey period was as of the end of last year, really, as economic activity growing at a modest pace. It also noted that employment grew modestly. But, of course, this is the first Beige Book that we saw that really covered the omicron's variant hitting US shores and spreading as rapidly as it did during the holiday season.

Now, the Beige Book observed that there was a big pullback across the country in terms of leisure travel. Obviously, the hotel and the dining industry particularly impacted by omicron, but interesting to see some of the anecdotes as reported by some of the regions around the country. For example, in the mid-Atlantic, the Richmond Fed reported that restaurants had a lot of strong demand, but had to limit hours because of a lack of staffing because of people calling out sick. Again, this is a story that's not just happening in the mid-Atlantic but in other regions of the country as well.

The Philadelphia Fed reported there, though, that many companies still had pretty good margins, especially with the holiday shopping season. And even though they've had to raise wages and, maybe, pay a little bit more for input costs, the demand is there for them to be able to make their margins good. Philadelphia Fed noting that many firms, especially larger ones, noted strong profits, the best year ever for some.

And then going down South, in Atlanta, the Federal Reserve Bank there actually reported that, maybe we have seen the peak of inflation. Again, this is kind of anecdotal but, apparently, pricing power softened, somewhat, as contacts quote, "expressed worry that continued price increases would drive demand downwards." So within the context of inflation, very interesting to see how the Beige Book, at least in Atlanta, was reporting that pricing power might be weakening a little bit. As some producers say, you know what, if we raise prices even further people might not buy our stuff anymore, so maybe we've hit the ceiling so far.

Again, it's going to depend on where you are and what type of industry you're in. But, broadly, this does add a little bit of credence to the very interesting overall take away from the Beige Book. Which is that, overall, the report says quote, "prices saw solid growth" but, quote "decelerated a bit from the pace experienced in recent months." All interesting takeaways from the Fed Beige Book released just a few minutes ago.

- How do you think that jives, O'Brian, with the CPI report that we got out showing that inflation running hot late last year, now at 7%. I mean, does it seem like this Beige Book report seems to be a little more recent than that CPI, not as backward looking? How do you, sort of, reconcile the two?

BRIAN CHEUNG: Yeah. Well, the survey period-- and I'd have to look at exactly what week we're talking about here, because the beginning of December was very different than the end of December because of the omicron variant, obviously, having effects there. But, actually, the Beige Book, which was reported today, and the CPI, which was reported also today, might be covering very similar periods of time. So actually, it could, indeed, be the case that the CPI reporting, obviously, that 7% year over year headline growth, which is the fastest that we've seen in many decades, might be the top. Might be the top, depending on where you are, what region you're in, what type of industry, and what type of-- there's a lot of caveats, obviously.

But, again, when you see companies that responded to questions from the Atlanta Fed saying, we feel like even if we wanted to raise prices further to expand our margins a little bit, we couldn't because we fear that maybe our customers would turn away. Then, at least from that small anecdote, you might glean, well, maybe that 7% that we had seen in the month of December could be the top.

But again, your mileage is going to vary depending on where you're looking at. Especially because the numbers that we're looking at here are on an aggregate statistic. Now again, this Beige Book is not as scientific or as a large sample size as you might get from the Bureau of Labor Statistics Inflationary prints, so it just remains to be seen whether or not that's going to remain a story for other regions and other industries, or in the aggregate in the months to come. But at least there could be some sort of silver lining to be gleaned from this report.

- Hey, Brian, not much time left but I want to ask you really quickly-- So Jay Powell sitting for his reconfirmation hearing yesterday, not as many fiery exchanges as I thought there might have been, but more Fed excitement on the horizon, right? Lael Brainard set to sit for her confirmation hearing, does she get off as light?

BRIAN CHEUNG: Yeah. Well, I mean, I think what's interesting is that, maybe Jay Powell got a little bit lucky because the timing of it was such that he didn't have to answer to the CPI report that we had gotten today. Instead, Lael Brainard who's going to be facing the Senate Banking Committee for her confirmation hearing tomorrow morning will have to answer for that print.

And you might have some senators between Tuesday and Thursday getting a little bit angrier because of the new print that we had gotten showing prices still rapidly increasing between November and December. So it is, indeed, the case that she could be pressed on that tomorrow. Of course, that will happen at 10:00 AM you'll have to tune in to find out. We'll have the full coverage, at least on our side of things, right here on Yahoo Finance.

- All right. Well, thank you so much for breaking down those Beige Book headlines for us, Brian Cheung.