Fed’s Beige Book Paints Mixed Picture on Recovery

By at 13 January, 2021, 10:05 pm

by Raymond J. Keating-

The latest edition of the Federal Reserve’s Beige Book offers a decidedly mixed take on the struggle for economic recovery.

Modest Increase in Growth

Based on information from interviews with “key business contacts, economists, market experts, and other sources,” the Beige Book started off at least somewhat encouraging by noting, “Most Federal Reserve Districts reported that economic activity increased modestly since the previous Beige Book period…” Now, “modestly” is far from “strong” or “robust,” but it’s better than nothing.

However, the follow-up information was less than encouraging. It was pointed out that “conditions remained varied: two Districts reported little or no change in activity, while two others noted a decline.”

“Mixed” Consumer Spending and Other Reports

Consumer spending was called “mixed,” with declines in retail sales and demand for leisure and hospitality services in some districts. Auto sales also were off from the previous report. And the shift from in-person retail to online further intensified.

However, there was expansion in the energy sector “for the first time since the onset of the pandemic,” and manufacturing continued to expand subject to “supply chain challenges.”

Residential real estate continued to chug along, while banks saw loan volume unchanged.

Job Growth Uneven

The story on jobs also was uneven. It was noted in the report, “A majority of Districts reported that employment rose, although the pace was slow, and the recovery remained incomplete. However, a growing number of Districts reported a drop in employment levels relative to the previous reporting period.”

For good measure, COVID-19 continued to cause labor disruptions, with some industries actually facing “staffing shortages and difficulty attracting qualified workers.” In fact, it was reported, “Employers in some Districts reported raising wages or offering more generous benefits, such as year-end bonuses and flexible work arrangements, to limit employee turnover.”

The Outlook Moving Forward: Hope and Uncertainty

As for the outlook on where the economy might be headed, everything must be taken with a grain of salt, but the Beige Book captured both the hope and uncertainty that most of us are probably experiencing:

“Although the prospect of COVID-19 vaccines has bolstered business optimism for 2021 growth, this has been tempered by concern over the recent virus resurgence and the implications for near-term business conditions.”

Indeed, our economic future depends upon COVID-19 vaccines, but it also will depend upon getting the policy mix right to allow small business recovery and successful startup activity. An agenda of tax and regulatory relief, free trade, restrained government spending, and sound money will provide a foundation for recovery and growth.

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


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