Another Disappointing Fed Beige Book, Labor And Property Markets, And Myopic Ossification In American Macroeconomics

The U.S. Federal Reserve’s Beige Book came out this week, with a fresh cover but the contents increasingly tired and dog-eared.

Fedsters want you to know this: Labor markets are “tight,” and have “shortages,” but housing markets are “strong.”

In what is becoming a laughably recurrent refrain, the Fed continuously contends labor markets have been drum-tight to the ripping point and are getting tighter and tighter (but oddly wages are flat).

From the Fed’s Oct. 18 rendition: “Labor markets were widely described as tight. Many Districts noted that employers were having difficulty finding qualified workers, particularly in construction, transportation, skilled manufacturing, and some health care and service positions. These shortages were also restraining business growth.”

Here is what the Fed said in January 2017:

“District reports cited widespread difficulties in finding workers for skilled positions; several also noted problems recruiting for less-skilled jobs.”

And in September 2016: “In many Districts, businesses reported trouble filling job vacancies for high-skilled positions, especially those aimed at technology specialists, engineers, and selected construction workers.”

And in March 2016: “Contacts in New York, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City reported difficulty in finding skilled workers including information technology, engineering, specialty healthcare, construction, manufacturing, and transportation employees. Contacts in Cleveland and Richmond noted that low-skilled positions were becoming increasingly difficult to fill….”

And in January 2016 the Fed found “labor shortages or turnover among entry-level positions in banking, retail, and hospitality.”

You would never know from reading the Fed Beige Book that there are about 1.2 unemployed people seeking a job for every job opening in the U.S.


As we can see from the Atlanta Fed’s Oct. 12 Wage Growth Tracker, the most favorable to wage growth, wages are still rising more slowly than before the Great Recession and well below rates of the 1990s.  Moreover, of late wage growth is stalling at under 4% annually.

Furthermore, there´s no uptick in inflation.


Yet, when the Fed Beige Books describes housing markets, there is no reference to inflationary pressures, or “shortages.”

Amazingly, the latest Beige Book describes its San Francisco District, where straitjackets on new housing supply have famously driven rents relentlessly higher, this way: “Activity in the residential real estate market was strong.”

BTW, we have this nugget from the website rentjungle: “As of September, 2017, average apartment rent within 10 miles of San Francisco, CA is $3,684.” Rent levels are actually cooling off a bit in the Bay Area, having topped $4,000 last year. By way of comparison, median household income in the U.S. is near $60,000.

Shelter costs consume about one-third of typical household outlays, but obviously more in many regions of the country.

Housing in general is appreciating much faster than the rate of inflation. The median price of a home sold in the U.S rose to $317,200 in Q2 2017, from a nadir of $208,400 Q1 2009, a more than 50% jump.


The Fed, and the bulk of macroeconomics profession, is resolutely determined to look for inflation in labor markets…but to wear blinders when passing by housing markets.

Warning—the Fed should not become alarmed by asset bubbles. Quite the contrary, given efficient markets, asset prices are probably where they should be at any time.

With housing, the problem is not monetary policy, or labor markets, but rather property zoning.

It is time for the Fed and the macroeconomics profession to begin to address property zoning and shelter costs as prominent macroeconomic issues, and to stop fixating on labor and minute rates of inflation.

This problem of sharply rising housing costs is related to urbanizing economies, property zoning, and international capital flows, and is rapidly becoming a global problem, from Sydney to San Francisco, to New York to London to Hong Kong. In general, propertied-financial classes in major cities are restricting the supply of new housing.

Telling voters that free trade, open immigration and capitalism works, but sorry, rents are near $4,000 a month and rent control is bad—well, you might not win many elections that way.


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