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
“That’s how recessions start.”
Exactly.
Recession starts are NEVER called in real time. The NBER (official caller for US recessions) last go round did not publicly announce US in recession till first of December 2008 … and they stated US entered a recession December 2007. A YEAR in arrears!
With the multitude of revisions very hard to determine recession start in real time.
Rule of Thumb – when ardent bullz (finally) throw in the towel … economy at (or close) to trough of recession.
You seem to know your stuff about the economy my friend, thanks for the sharing.
Mish,
“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.”
As you know, I live in Rockford, economically the worst city, in the worse state. We were a major manufacturing center following WW2 and my business prospered—until the internet opened us to global wage competition.
I first saw off-shoring begin in the late 1980s, when a client which made screws, nuts and bolts, told me. “It’s the only way to get our prices cheap enough to sell to Walmart.” I told him, “You are going to kill our middle class.” During the 1990s our city of 150,000 lost more than 10,000 well-paying jobs with good benefits. My business evaporated too. Fortunately, I was only two years from Social Security.
My business and Illinois set the pattern for our nation, which now has approximately half our population living on a monthly government check.
The job losses left our state with $billions in pension debt and countless other unfunded mandates. Increasing fees and taxes have driven away employers and now citizens are fleeing too. There are many vacant, unsalable houses, stores, and of course, factories.
Without products to sell in international markets we are now a nation in a closed economy, competing against each other like kids playing Monopoly and waiting for the rain to stop.
Without the US consumer as an economic driver, the global economy is facing slower demand and a deflationary storm with no sign the sun will come out any time soon.
“Without products to sell in international markets we are now a nation in a closed economy, competing against each other like kids playing Monopoly and waiting for the rain to stop.”
Except that we have open borders, due to BOTH political parties. H1B, H2B visas and illegal immigration are handing jobs of born Americans, over to foreigners. H2B’s were just quadrupled and i read a claim yesterday that there is what seemed to be a back door attempt to allegedly triple the number of H1B’s. I just don’t know how valid the claim is, having read it on only one site.
The other day, someone, i forget who, said American workers can’t cut it. The truth is that they want to cut American workers and that comment is a flimsy excuse as to why.
Allegedly, companies don’t have to provide health care benefits to foreign workers. If true, companies have an incentive to get rid of, or not hire American workers, on top of those who have been shifted to part time because of the ACA.
On top of the H1B and H2B’s, Obama wants to allow foreigners graduating in America, to stay and compete for American jobs.
The American worker is under assault from outside and within the country.
Ask yourself why the republican establishment is so anti Trump.
This was posted by Denninger this morning. If true, it will upset apple carts. http://market-ticker.org/akcs-www?post=231180
“Trump has just released his health care reform proposal. “
A few years ago Bill Gates was reported to be seeking a big increase in HiB visas.
There has been little national loyalty among US corporations in recent years. Some of my former clients told me their first loyalty was to the shareholders. They were, of course, major shareholders.
These guys had replaced those managers I had done work for who were WW2 vets and held a much different view of what was most important.
“Wednesday’s Beige Book shows defined weakening in some Fed regions.”
It always starts in some. “It is confined to subprime”. Nothing occurs in a vacuum, however. Follow on effects occur.