Beige Book confirms that U.S. economy started off Q2 at a relatively soft pace

This Beige Book essentially confirms the view that the economy started off the second quarter at a relatively soft pace. Headwinds include primary and secondary impacts of lower energy-related activity, the strong dollar on certain sectors, the weather on housing activity, and the residual impact of West Coast port disruptions.

According to TD Economics, one bright spot from the report appears to be the housing market and overall construction activity. This is consistent with generally improving housing indicators, in terms of April housing starts, pending and new home sales. Some temporary factors appear to have weighed on activity, and positive outlooks suggest further strength ahead. This is one of the areas with the potential for upside surprise in the second quarter, and which could provide a nice tailwind for stronger economic activity going forward.

Notwithstanding the generally sluggish pace of economic activity, there are several signs pointing to stronger activity ahead. Some factors weighing on growth are temporary and will abate, while outlooks remain optimistic. Spending on big ticket items, such as vehicle sales, as well as strong bookings for tourism activity, point to confidence on the part of consumers.

For the Federal Reserve, it is hard to ignore the fact that the labor market continues to tighten, with some reports of labor shortages appearing in a sizable eight Districts. While economic growth has decelerated so far in 2015, continued headway is being made towards its dual objectives.