Slowing Economic Activity, According to Fed’s Beige Book

By at 7 March, 2019, 12:13 pm

by Raymond J. Keating-

The latest take on economic activity via the Fed’s Beige Book pointed to continued, but slowing growth in late January and February.

As noted in this latest survey of contacts outside the Federal Reserve system, “Economic activity continued to expand in late January and February, with ten Districts reporting slight-to-moderate growth, and Philadelphia and St. Louis reporting flat economic conditions.”

As for a few underlying specifics, it was reported that:

●  the government shutdown came into play in half of the districts;

●  consumer spending overall was mixed;

●  “the nonfinancial services sector increased at a modest-to-moderate pace in most Districts”;

●  residential construction was steady or slightly higher while residential home sales were down but inventories still historically low;

●  “Manufacturing activity strengthened on balance, but numerous manufacturing contacts conveyed concerns about weakening global demand, higher costs due to tariffs, and ongoing trade policy uncertainty”;

●  and “Employment increased in most Districts, with modest-to-moderate gains in a majority of Districts and steady to slightly higher employment in the rest. Labor markets remained tight for all skill levels…”

Taking a step back and looking at other recent reports on economic activity, some indicators show strength, others are mixed, and some raise concerns. This lines up with the recent data on economic growth, namely, the slowing experienced in real GDP growth over the past two quarters, from 4.2 percent in the second quarter 2018 to 3.4 percent in the third quarter and then 2.6 percent in the fourth quarter of last year.

When growth slows and/or under performs, conflicting signals from across the economy are not unusual. In fact, that’s largely what we’ve experienced during the under-performing recovery/expansion period since the end of the Great Recession.

Looking ahead, among the reasons for optimism include strong business investment since the start of 2017, and among the concerns are counter-productive trade policies, stagnation during the current Congress on positive developments in terms of tax and regulatory reforms, and increased political risks.

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

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