The Fed's Latest Beige Book: Economy Is Better Than the Numbers Suggest
Over the last 10 days, we’ve gotten all kinds of indications that the U.S. economy is beginning to fade after a fast start to the year. A disappointing jobs report, slumping consumer confidence, weakness in both manufacturing and the service sectors—the early data from March all point toward a slowdown.
But that’s not what the Fed is seeing, or hearing, as it may be. The latest Beige Book survey from the Federal Reserve shows no signs of a slowdown. From late February through April 5, the economy expanded at a “moderate” pace, mostly on the back of strong auto sales and a suddenly vibrant housing sector. Growth was strongest in the Cleveland, Richmond, St. Louis, Minneapolis, and Kansas City districts, indicating that the Midwest and Southeast are outpacing the rest of the country.
Of course, the Beige Book is mostly a game of semantics. It has no numbers, no hard data to back up its assertions that growth was “moderate,” as opposed to “modest.” It’s merely a compilation of anecdotal evidence gained through interviews with “contacts.” In other words, researchers at the Fed’s 12 branches talk to local businesses to get a sense of how they’re feeling. The answers then get sent to one of the 12 regional banks, which take turns interpreting the data and writing a behemoth of a report. This one, penned by the Dallas Fed, came in at 17,599 words. That’s less than the 17,963 words the Kansas City Fed needed for the last report.
Rather than bore through the entire thing, a lot of economists like to do a simple word count for positive or negative phrases. Though it sounds rudimentary, it’s a pretty effective way to capture the overall sentiment of a Beige Book survey. For example, in this month’s report, some iteration of the word “weak” or “slow” or “subdued” appears just 57 times, the lowest number since the recession ended in 2009. Last month, when the survey described the economy growing at a “modest to moderate pace,” those negative words appeared 108 times. “It’s all about the language they use,” says Neil Dutta, head of U.S. economics at Renaissance Macro Research. “And in this report, the language around employment and consumption signals somewhat better growth than the recent data implies.”
Digging through the report yields a few interesting, if not trivial, anecdotes:
A lumber and wood business in the Philly district reported the best growth prospects in five years. A sawmill in Montana said that it restarted after being idle for the past four years. Meanwhile, semiconductor companies in the Boston district said “sales continued to languish.” People bought fewer used cars in the New York and Cleveland districts. A handful of people in the St. Louis district are planning to open new car dealerships.
Someone in the Richmond district told the Fed that ships bound for Europe are leaving port with fewer goods. In the San Francisco district, defense-related manufacturers said they’re laying off workers and closing plants.
New home construction increased everywhere but the Philly district. Manhattan apartment rents are up 6-7 percent from a year ago and increased a bit more in Brooklyn. Someone in upstate New York said that mall sales were better than expected in March, and up from a year ago, thanks in part to Canadian shoppers.