The Fed’s Grim Beige Book Story and What’s Lies Ahead for the Economy

By at 17 April, 2020, 4:51 am


by Raymond J. Keating-

The latest edition of the Federal Reserve’s Beige Book provides additional information regarding the grim story that is the current U.S. coronavirus economy. Of course, big questions stand out regarding the economy. How long will this last? And what about the subsequent recovery?

There are no neat-and-tidy answers – except for what will be needed eventually to get back on a path of strong economic growth.

Indeed, the list of woes is considerable, including:

●  “Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic,” with the “hardest-hit industries” being “leisure and hospitality, and retail aside from essential goods.”

●  “Most Districts reported declines in manufacturing, but cited significant variation across industries. Producers of food and medical products reported strong demand but faced both production delays, due to infection-prevention measures, and supply chain disruptions. Some other manufacturing industries, such as autos, mostly shut down.”

●  “The energy sector, suffering from low prices, reduced investment and output.”

●  “Employment declined in all Districts, steeply in many cases, as the COVID-19 pandemic affected firms in many sectors… Contacts in several Districts noted they were cutting employment via temporary layoffs and furloughs that they hoped to reverse once business activity resumes.”

As for what lies ahead, the re-opening of those parts of the economy shutdown will come (or should come) after the coronavirus has become manageable from a health and safety perspective, and likely will proceed in a gradual manner not only in terms of what government does, but in terms of what individuals and businesses are comfortable and confident in doing.

As for the post-pandemic recovery, government will need to take a dramatic step back from the largely necessary aid efforts it’s currently undertaking due to the economic shutdown. Our elected officials will need to pledge to take steps that expand the economic freedom needed to spur economic, income and employment growth. That means, for example, incentivizing the entrepreneurship and private investment that are central to growth.

Policymaking will need to include an extended moratorium on new regulations and efforts to reduce unnecessary, costly regulations; no tax increases; making the 2017 tax relief measures permanent; tax cuts targeted at spurring growth, such as eliminating the capital gains tax; stepping back from trade wars and removing governmental barriers to trade; and undertaking a comprehensive effort to reel in government spending and debt.

In the end, these steps will constitute the minimum needed to get the U.S. economy back on a growth track after this pandemic is brought under control.

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


News and Media Releases