Half of the Federal Reserve districts reported some growth, according to the latest Federal Reserve’s Current Economic Conditions report, known as the Beige Book. The other half, however, noted problems and concerns.
“Over the last several months, reports from the Beige Book have been anywhere from flat to positive, with no region really experiencing a decidedly bad period,” said NACM Economist Chris Kuehl, Ph.D. “This has started to change as the latest report has some regions slumping due to the issues that have been affecting the overall economy since the start of the year. The good news is that growth in the domestic economy has been steady and that has allowed some expansion as far as the overall economy is concerned.”
The Beige Book, however, is not a detailed analysis, Kuehl pointed out. “It is something of a temperature taker for the moment and is based on the assessments and reports collected by the Fed’s staff and local board in each of the 12 Federal Reserve districts. These are somewhat anecdotal and designed to give a flavor of economic activity as opposed to providing some kind of detailed study.”
Three districts “asserted that they have been feeling the pinch from the struggles in the financial sector and note that investor unease has been at the top of the list of inhibitions,” he said. Eight districts reported a decline in manufacturing affected by the impact of the “strengthening dollar” and “weakening global outlook” on exports. “The dollar value has been a real drain on the export sector, but for those that are buying raw materials and parts from overseas, the strong dollar has been a boon of sorts,” Kuehl noted. Regions that include part of the oil sector also noted declines in manufacturing.
Pockets of positive manufacturing growth were connected to the automotive and aerospace industries. For example, 2015 auto production in Cleveland reported close to historically high levels. “The industries that were growing were those connected to the domestic economy as opposed to those that had more of a stake in the overseas market,” Kuehl said.
Although changes were not substantial compared with January’s report, “where there was difference, it was significant,” Kuehl said. The most notable shift came from the labor market. The majority of districts said businesses wanted to hire, but for the most part the business community was struggling to find appropriate workers. “This is not a new issue, but the lack of talent and skill is spreading to industries in the service sector as well as in manufacturing, transportation and construction,” he said.
The attitude of the overall business community remains upbeat as far as future growth is concerned, according to the Beige Book’s findings. Similarly, “The latest data from the Purchasing Managers’ Index and the Credit Managers’ Index show a certain level of faith in continued growth this year albeit at a slow pace,” Kuehl said. “The business community is indeed worried about the markets and the oil sector and the state of the export community, but it also reacting to some improved performance from the consumer. The big unknown is the election.”
- Nicholas Stern, NACM editorial associate, and Diana Mota, NACM associate editor