Economic Snapshot: Revised GDP and a Bleak Beige Book

By at 30 November, 2023, 10:38 am

by Raymond J. Keating –

Two reports related to the state of the economy were released on November 29. The latest GDP revision leaned positive, but the Fed’s Beige Book offered a rather bleak assessment on the economy.

Real GDP Revisions

While real GDP growth for the third quarter 2023 was revised up from 4.9 percent to 5.2 percent, which of course is welcome, the underlying data, as we noted in our analysis of the first estimate, offered some sobering points. That included:

● An initial estimate of a decline in real business (fixed nonresidential) investment (-0.1 percent).

● The second estimate shifted business investment growth into positive territory (+1.3 percent).

That is certainly an appreciated upgrade, but growth was still quite sluggish.

Also, we had noted that a substantial portion of the original 4.9 percent third quarter growth rate was attributed to changes in private inventories, which is a transitional measure that turns out to be a wash over the long run. That actually increased in the second estimate, accounting for 1.82 percentage points of the 5.2 percent growth rate (as compared to a first estimate of 1.47 percentage points of the 4.9 percent growth rate).

Third, and finally, government investment and consumption expanded at a faster rate than first estimated, being changed from 4.6 percent (and contributing 0.8 percentage points to the real GDP growth rate) to 5.5 percent (and contributing 0.94 percentage points to the 5.2 percent growth rate).

Real, substantive growth, of course, comes from the private sector.

Beige Book

Meanwhile, the latest edition of the Federal Reserve’s Beige Book – a summary of views on economic activity based on “comments received from contacts outside the Federal Reserve System” – painted a rather bleak picture of the economy based on information gathered on and before November 17.

The key point was: “On balance, economic activity slowed since the previous report, with four Districts reporting modest growth, two indicating conditions were flat to slightly down, and six noting slight declines in activity.”

That’s eight of 12 regions indicating stagnation or decline.

In addition, it was noted that retail sales were “mixed,” the demands for labor “continued to ease,” and manufacturing also ranked as “mixed,” with the outlook of manufacturers weakening.

Looking ahead, it noted, “The economic outlook for the next six to twelve months diminished over the reporting period.”

There was nothing positive in this Fed report, other than price increases continuing to moderate.

This latest Beige Book indicates that the solid topline growth rate in the third quarter was an exception in the ongoing trend of an under-performing U.S. economy. The need to implement a pro-growth policy agenda is clear – that is, a policy mix of tax relief and certainty, regulatory relief, free trade, restrained government spending, a welcoming immigration agenda, and sound monetary policy focused exclusively on price stability.

Unfortunately, much of the prevailing policy agenda is pointed in the opposite direction.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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