Fed Beige Book: A Slowing Economy

By at 17 October, 2019, 11:50 am

by Raymond J. Keating-

The Federal Reserve’s Beige Book released on October 16 did not paint a pretty picture on the economy.

Most striking was the opening statement:

“The U.S. economy expanded at a slight to modest pace since the prior report as business activity varied across the country.”

That term “slight” is a downgrade from what the Fed seems to have been saying for years, that is, that the economy was growing at a “modest” and/or “moderate” pace.

(As noted by the Fed, the Beige Book “gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors, plus phone and in-person interviews with and online questionnaires completed by businesses, community contacts, economists, market experts, and other sources.”)

In terms of a geographic breakdown, it was reported:

“Districts representing states in the southern and western U.S. generally were more upbeat than Districts representing the Midwest and Great Plains.”

The Fed noted that while household spending was “solid,” the business story was far more mixed. Manufacturing “continued to edge lower,” while “nonresidential construction increased at a slightly slower yet still modest pace.”

In addition, it was reported:

“Freight shipments stabilized after falling during the previous reporting period. Bankers in many Districts reported moderately rising loan volumes, while activity in nonfinancial services increased solidly. Agricultural conditions deteriorated further due to the ongoing impacts of adverse weather, weak commodity prices, and trade disruptions. Business contacts mostly expect the economic expansion to continue; however, many lowered their outlooks for growth in the coming 6 to 12 months.”

On the jobs front, the report added that “employment rose slightly amid reports of persistent worker shortages. Labor market tightness across skill levels and occupations was widely cited as a factor restraining hiring.”

It also was pointed out that “employers continued to use non-wage approaches such as bonuses and benefits to attract and retain talent.”

Of the 12 Federal Reserve districts, two reported a slowing economy; four noted slight economic growth; four reported modest growth; one said activity was stable; and one district saw the economy growing moderately.

Finally, it was noted:

“Contacts in some Districts suggested that persistent trade tensions and slower global growth weighed on activity.”

Indeed, a recent analysis, I noted that ongoing uncertainty and increased costs on the trade policy front are serving as a drag on the economy.

As always, it is crucial to get public policy pointed in a pro-growth, pro-entrepreneur, pro-investment directions – namely, reducing tax and regulatory burdens, expanding free trade, reining in the size and growth of government, and sound monetary policy focused on price stability.

If those policies are pursued and enacted, the economy will have a sound foundation upon which it can flourish.

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


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