The Fed Beige Book and Small Business “Realistic Optimism”

By at 7 September, 2017, 9:30 am

by Raymond J. Keating-

In the Federal Reserve’s Beige Book released on September 6, it was reported, “Economic activity expanded at a modest to moderate pace across all twelve Federal Reserve Districts in July and August.” On jobs, the Fed found, “Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts.”

In terms of changes in activity by region, it appears that economic growth picked up some in New York and Cleveland, and slowed some in Chicago.

(The Beige Book is based, as noted by the Fed, on “reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources.”)

The real story from the latest Beige Book survey is that the story remains unchanged. That is, the U.S. economy continues to under-perform, with economic growth running in the neighborhood of 2 percent.

For policymakers, it’s critical to understand why this is happening. It’s not about some new, inevitable slow-growth trend that has engulfed the U.S. economy. It’s also not about the age of the workforce.

Rather, it’s about a policy agenda during the Obama years of increased taxes, hyper-activity in terms of regulation, expanded government spending and reach, a lack of leadership on trade, and monetary policy that fed uncertainty. That agenda has resulted in lost private investment and lost businesses. (See SBE Council’s report Gap Analysis #2: A Lost Decade for Private Investment,” “Small Business Week 2017: The State of Entrepreneurship and Small Business). As a result, economic growth, income growth, and job growth have suffered.

No doubt, it will take some time to turn this around. But the U.S. economy is not going to shift into robust, sustainable economic growth just because the Obama administration has left town. Yes, it’s positive that adding to the abuses is, for the most part, off the table. But that’s not enough. Real relief is needed. And that means, for example, implementing tax and regulatory relief and reform, reining in government, and expanding free trade.

Surveys of small businesses continue to show strong optimism, especially when compared to the pre-2016-election levels. But entrepreneurs check their optimism with realism. Call it small business “realistic optimism,” and it demands that real policy changes be made to incentivize entrepreneurship and investment.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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