The Fed’s “beige Book” is a compilation of anecdotal evidence on economic
conditions from each of the 12 Federal Reserve districts two weeks before a
Fed interest rate policy meeting. Wednesday’s Beige Book shows defined
weakening in some Fed regions.
Bloomberg Econoday Comments on the Beige Book.
Weakness in exports and deepening contraction in the energy sector make
for a flat description of economic growth in today’s Beige Book, prepared for
the mid-month FOMC meeting. Most of the Fed’s 12 districts are reporting
moderate to modest growth with Kansas City, however, which is getting hit by
the energy sector, in modest decline. But other descriptions are solid with
the labor market continuing to improve and consumer spending continuing to
increase. Wage growth is described as varied, between flat to strong with the
latter a definite though isolated indication of strength. Otherwise, consumer
prices are described as steady. Positives are residential and commercial real
estate which are both described as growing. Today’s report won’t turn up the
heat for a March rate hike but neither does it point to a downgrade for the
economy.
Slowing is Obvious
Econoday says “The Beige Book does not point to a downgrade for the
economy.”
I disagree. The downshift is obvious. Construction was up primarily
because of government spending on road projects. Housing has stalled.
Seconding my opinion, albeit in a half-hearted way, the Wall Street
Journal reports Fed Beige Book: Economic Activity Slowed in Some Districts.
Economic activity downshifted in parts of the U.S. in recent months, the
Federal Reserve said, with a few areas reporting a hit to consumer spending
tied to recent market turmoil.
Just half of the Fed’s 12 districts reported modest or moderate growth
since early January, according to the central bank’s “beige book” summary of
regional economic conditions released Wednesday. The prior report showed nine
districts expanding at that pace.
The latest report “is further proof that the U.S. economy is growing
steadily, and not falling into recession,” PNC economists said in a note to
clients. “Consumer spending, the housing market, and commercial construction
continue to lead growth in early 2016.”
Domestically oriented sectors appeared stable as consumers continued to
spend and the labor market added jobs. But sectors with more overseas exposure
have taken a hit from low commodity prices, economic slowdown overseas and
the strength of the U.S. dollar.
Eight districts reported “significant headwinds” for manufacturing due to
weak demand from the energy sector, and many districts said “the strengthening
dollar and weakening global outlook” reduced demand for exports.
The latest Fed report “was marginally weaker in tone than January’s,” said
Dana Saporta, an economist at Credit Suisse. “But, in general, the weakness
could be found among the usual suspects” like energy and manufacturing.
The WSJ report was a step up from Bloomberg Econoday’s report, but neither
pointed out that jobs are a very lagging indicator and housing has slowed if
not stalled. Importantly, only half the regions show modest growth, down from
three-fourths. That’s how recessions start.
But don’t worry, it’s just the “usual culprits”.
Mike “Mish” Shedlock
