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Comment: Fed’s Beige Book paints picture of the US economy slowing abruptly and severely as COVID-19 spread

The Fed’s Beige Book covered the period from late February through early April. Compared to the prior report which had 83% of the 12 Districts reporting at least some growth, the current edition has none. Comments from the Districts described economic activity as having declined (Atlanta, Chicago) or some variant that said that activity was down sharply, rapidly, severely, or markedly (Boston, New York, Philadelphia, Cleveland, St. Louis, Minneapolis, and Kansas City). In three cases outright contraction in activity was declared (Richmond, Dallas, San Francisco). There hasn’t been a Beige Book that was this downbeat since the October 2008-September 2009 period.


The Beige Book said, “Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic.” There were pockets of ongoing activity – like food production and medical products – but anything that might be considered nonessential was feeling the impact of social distancing and efforts to thwart the spread of the coronavirus. The Beige Book continued, “All Districts reported highly uncertain outlooks among business contacts, with most expecting conditions to worsen in the next several months.”

While the Beige Book occasionally has a one- or two-off downward tone – generally due to a natural disaster that affects a large area – it is usually short-term impacts followed by an immediate return to growth. This time around it looks to be more entrenched. A sharp decline in the tone of the Beige Book can signal the onset of a recession. I would say that is true this at this time. The Beige Book doesn’t signal how long or deep a recession will be, but it is an excellent coincident indicator of when one has arrived. The available hard economic data is certainly pointing that way. I anticipate further March and April data will confirm what the anecdotal evidence that the Beige Book is providing – the US is in a recession.

The Beige Book said, “Employment declined in all Districts, steeply in many cases.” Some of the layoffs were intended to be temporary and businesses “hoped to reverse once business activity resumes.” However, “The near-term outlook was for more job cuts in coming months. No District reported upward wage pressures. Most cited general wage softening and salary cuts except for high-demand sectors such as grocery stores that were awarding temporary “hardship” or “appreciation” pay increases.”

There was no sign of upward price pressures. In fact, the Beige Book said, “The general direction of price inflation was down for both selling prices and non-labor input prices, as Districts reported either slowing price growth, flat prices, or modest to moderate declines in prices on balance.” Price declines in the energy sector were particularly pronounced. There were a few commodities and services that had significant price increases, notably freight, some agricultural commodities, and consumer goods.

When the FOMC meets on April 28-29, their deliberations will start to move past the emergency measures implemented to shore up the financial system and ensure that credit is available as much and where it is needed. It is probably too soon for them to discuss in depth how monetary policy can aid in the recovery, but Fed policymakers will have more information than they did and will start to frame their forecasts for the coming months.

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