Fed’s Beige Book Portends Slowdown for Main Street Retail Mainstays

Modest growth is in the cards, and for Main Street stalwarts among smaller businesses — namely in retail — the pressure is mounting.

The Federal Reserve’s latest Beige Book shows that, across the dozen district banks surveyed, economic growth is seeing some headwinds, and a number of key qualitative indicators are decelerating, at best.

The majority of reporting districts, as the Fed said, are seeing slowdowns in pricing — which indicates inflation is abating, though this means that the businesses surveyed are not realizing heady gains at the register.

“Most Districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors … contacts in several Districts indicated input price growth slowed less than selling prices, as businesses struggled to pass along cost pressures,” the Fed reported. “As a result, profit margins reportedly fell in several Districts.”

And elsewhere, “consumer spending on tourism was stronger than expected, surging during what most contacts considered the last stage of pent-up demand for leisure travel from the pandemic era.”

Services, then, may have seen their peak season has come and gone. And as for the retailers, the Fed stated that retail spending “continued to slow, especially on non-essential items.” Consumers have apparently “exhausted their savings” and are relying on borrowing so that they can keep spending — but delinquencies are rising in at least some of the reporting regions. Fed data from earlier in the summer found that American consumers’ saving, peaking at $2 trillion, may run out as soon as this quarter, according to the Federal Reserve Bank of San Francisco.

“Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June,” Hamza Abdelrahman and Luiz Oliveira, researchers for the bank, wrote in a blog entry.

Demand for manufactured goods also waned, as the Beige Book noted. As PYMNTS reported earlier in the week, end customer demand is volatile. The U.S. Commerce Department said Tuesday (Sept. 5) that orders for U.S. manufactured goods were down in July, by 2.1%, a reversal from four straight monthly gains. In the meantime, shipments were up 0.5% in July, and inventories were 0.1% higher, where the latter metric had declined through the previous two months.

Capital Is Tough to Come By

Elsewhere, as PYMNTS Intelligence has shown, the environment of pinched margins may lead smaller firms to seek capital to shore up operations. Forty percent of small and medium-sized businesses (SMBs) remain more worried about inflation than one year ago, and roughly half of smaller companies state that they are likely to seek financing in the months ahead.

And as recently as this past spring, 57% of Main Street SMBs say they have funding, “but only enough to operate for 60 days or fewer, underscoring a widespread need for new routes to funding their businesses in the near term.”

Only about a quarter of retail trade and a bit more than a third of personal and consumer-service firms said the same, in terms of operating cash.