USA: Weighing On Tourism

Consumer spending increased in most Districts led by strength in automotive sales. Nonautomotive sales also advanced at a modest to moderate pace. Tourism activity was mixed, with strength in some Districts (Chicago, Philly, Atlanta) offset by weakness in New York, Minneapolis and Dallas Districts which are suffering from a high dollar and/or a slump in the energy industry.

Manufacturing activity was quantified as sluggish, aside for the strength in transportation equipment industries. Some Districts quoted outright declines in activity resulting from a high dollar and falling demand from energy investment.

Housing was generally seen as improving across the country with prices and transactions up broadly. Credit conditions were generally positive with declining delinquencies and improving loan quality broadly reported.

The most recent Beige Book corroborates the theme of domestic strength versus external weakness that's come across in many of the other reports over recent weeks. Mining and energy firms continue to struggle in the face of slumping commodity prices.

Moreover, these declines are spreading to manufacturers and transport firms, which already remain under pressure given the high U.S. dollar and lackluster global growth – both of which appear to be affecting tourism activity also.

Perhaps the most encouraging elements of the report have to do with credit quality and wage growth, which are showing signs of improvement alongside the healing labor market.

While the current lack of robust wage and price pressures is likely to keep the Federal Reserve on the sidelines this year as far as rate hikes are concerned, we remain optimistic that the conditions for improved wage and price dynamics are gradually developing.