What was notable in the Fed's Beige Book released December 5, 2018

Tariffs were an overriding theme in the latest Beige Book but there were fewer mentions in this edition (39) than in the previous one (51).

That may imply less worry or simply reflect the changing emphasis of a different author.

Here are several passages that stood out:

1) Under nonfinancial services

"There was some concern that seasonal patterns may be unusual this year as firms try to import goods before additional tariffs on Chinese goods take effect on January 1."

This is something that's could really be an x-factor in the months ahead. We don't know how much economic activity is real, and how much is related to stockpiling and fears about tariffs.

2) Overall activity

"Most of the twelve Federal Reserve Districts reported that their economies expanded at a modest or moderate pace from mid-October through late November, though both Dallas and Philadelphia noted slower growth compared with the prior Beige Book period. St. Louis and Kansas City noted just slight growth. On balance, consumer spending held steady."

The picture here is solid activity with no meaningful changes in the short term. The dip in Dallas wasn't a reflection of oil, but rather manufacturing, retail and housing.

3) Employment

"Labor markets tightened further across a broad range of occupations. Over half of the Districts cited firms for which employment, production, and sometimes capacity expansion had been constrained by an inability to attract and retain qualified workers."

This is the crux of the Fed's problem. Employment seems to be tight everywhere and the economy continues to add jobs. Even Fed doves concede that it's a pretty good jobs market, even if they argue about the amount of workers who could be pulled in.

4) Prices

"Reports of tariff-induced cost increases have spread more broadly from manufacturers and contractors to retailers and restaurants."

Overall pricing, however, was modest. The ebb and flow of tariffs is an interesting and critical factor. There is talk in some sections about suppliers eating the increases while others have passed them on and some are planning to pass them on slowly.

5) Housing

Three districts -- New York, Dallas and Cleveland-- highlighted slowing demand for housing. Here's the report from Cleveland.

"Homebuilders reported that demand fell moderately and that they expect housing demand to soften in the near future. Homebuilders note that decreasing home affordability, because of rising construction costs and rising interest rates, drove this decrease in demand. Lower-priced homes continued to outsell higher-priced homes."

Many of the comments focus on rising costs due to lumber and steel tariffs, as well as workers.