Fed’s Beige Book: Modest Optimism When Looking Ahead

By at 2 September, 2020, 4:02 pm

by Raymond J. Keating-

The Federal Reserve’s Beige Book serves up an assessment of the economy based on information gathered from assorted sources outside the Fed. It would have been nice to see some kind of upside surprise in the latest edition, released on September 2, but alas, that was not the case. However, there was some modest optimism when looking ahead.

The unsurprising take was summed up in the opening sentence of the report: “Economic activity increased among most Districts, but gains were generally modest and activity remained well below levels prior to the COVID-19 pandemic.”

Consider points on key areas of the economy:

● On manufacturing and consumer spending: “Manufacturing rose in most Districts, which coincided with increased activity at ports and among transportation and distribution firms. Consumer spending continued to pick up, sparked by strong vehicle sales and some improvements in tourism and retail sectors. But many Districts noted a slowing pace of growth in these areas, and total spending was still far below pre-pandemic levels.”

● As for jobs: “Employment increased overall among Districts, with gains in manufacturing cited most often. However, some Districts also reported slowing job growth and increased hiring volatility, particularly in service industries, with rising instances of furloughed workers being laid off permanently as demand remained soft.”

● “Commercial construction was down widely, and commercial real estate remained in contraction.”

● “Agricultural conditions continued to suffer from low prices, and energy activity was subdued at low levels, with little expectation of near-term improvement for either sector.”

● “In the banking sector, overall loan demand increased slightly, led by solid residential mortgage activity.”

That last point on residential mortgages reflected one sector of the economy doing well, that is, residential housing. It was noted, “Conversely, residential construction was a bright spot, showing growth and resilience in many Districts. Residential real estate sales were also notably higher, with prices continuing to rise along with demand and a shortage of inventory.”

That, of course, is at least one bright spot for small businesses, given that in the residential building construction industry, for example, 99.7 percent of employer firms have fewer than 100 workers, and 92.6 percent fewer than 10 employees.

Looking ahead, some optimism at least was highlighted. Specifically, the Fed reported, “While the overall outlook among contacts was modestly optimistic, a few Districts noted some pessimism. Continued uncertainty and volatility related to the pandemic, and its negative effect on consumer and business activity, was a theme echoed across the country.”

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


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