December 2020 Beige Book: Growth Now Seen As Modest Or Moderate

Written by Steven Hansen

The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated: “Most Federal Reserve Districts have characterized economic expansion as modest or moderate since the prior Beige Book period. However, four Districts described little or no growth, and five narratives noted that activity remained below pre-pandemic levels for at least some sectors.“. The previous report stated: “.. the pace of growth characterized as slight to modest in most Districts. Changes in activity varied greatly by sector“.

Please see the end of this post for words the Federal Reserve uses when the economy is entering a recession. The Beige Book completely missed the 2001 recession and was late in seeing the Great Recession.

This report was prepared at the Federal Reserve Bank of Philadelphia based on information collected on or before November 20, 2020.

Most Federal Reserve Districts have characterized economic expansion as modest or moderate since the prior Beige Book period. However, four Districts described little or no growth, and five narratives noted that activity remained below pre-pandemic levels for at least some sectors. Moreover, Philadelphia and three of the four Midwestern Districts observed that activity began to slow in early November as COVID-19 cases surged. Reports tended to indicate higher-than-average growth of manufacturing, distribution and logistics, homebuilding, and existing home sales, although not without disruptions. Banking contacts in numerous Districts reported some deterioration of loan portfolios, particularly for commercial lending into the retail and leisure and hospitality sectors. An increase in delinquencies in 2021 is more widely anticipated. Most Districts reported that firms’ outlooks remained positive; however, optimism has waned–many contacts cited concerns over the recent pandemic wave, mandated restrictions (recent and prospective), and the looming expiration dates for unemployment benefits and for moratoriums on evictions and foreclosures.

Employment and Wages
Nearly all Districts reported that employment rose, but for most, the pace was slow, at best, and the recovery remained incomplete. Firms that were hiring continued to report difficulties in attracting and retaining workers. Many contacts noted that the sharp rise in COVID-19 cases had precipitated more school and plant closings and renewed fears of infection, which have further aggravated labor supply problems, including absenteeism and attrition. Providing for childcare and virtual schooling needs was widely cited as a significant and growing issue for the workforce, especially for women—prompting some firms to extend greater accommodations for flexible work schedules. In several Districts, firms feared that employment levels would fall over the winter before recovering further. Despite hiring difficulties, firms in most Districts reported that wages grew at a slight or modest pace overall. However, many noted greater pressure to raise rates for low-skilled workers, especially in outlying areas. Staffing firms described greater placement success with competitive rates, and one firm instituted a minimum wage rate for its industrial clients.

Prices
In most Districts, firms reported modest to moderate increases of input prices, while the selling prices of final goods rose at a slight to modest pace. Contacts noted that COVID-19 cases have caused ongoing disruptions and delays among short-staffed producers and shippers—raising transportation costs, which are then passed through to buyers.

Highlights by Federal Reserve District
Boston
Manufacturers reported increased revenues from a year ago, including some strong gains. Retailers and staffing firms continued recovering toward pre-pandemic levels, while the hospitality and tourism sectors remained hard-hit. Uncertainty about the course of the pandemic, vaccines, and possible relief measures added caution to positive outlooks.

New York
The regional economy has been flat, and the labor market has remained weak. Manufacturing growth slowed, consumer spending and tourism were little changed, and a number of service industries saw declines in activity. Commercial real estate softened further, but most residential sales markets continued to show strength. Wages and other business input costs picked up modestly, while selling prices were little changed.

Philadelphia
Business activity held steady during the current Beige Book period and remained below levels attained prior to the onset of COVID-19. However, sharply rising COVID-19 cases triggered a downward trend in early November and heightened concerns over anticipated layoffs, foreclosures, evictions, and bankruptcies. Meanwhile, modest job growth, slight wage growth, and modest inflation continued.

Cleveland
Economic activity increased moderately, and staff levels increased slightly. Firms connected to IT, housing, and consumer durables fared better than those connected to travel, energy, and hospitality. Supply chain constraints boosted transportation costs and prices for certain construction and manufacturing inputs. Contacts expected a modest improvement in activity, but hiring plans were restrained because of the pandemic’s uncertain path.

Richmond
The regional economy grew moderately in recent weeks. Employment rose and demand for some professional business occupations was strong. Wage and price growth were modest. The housing market remained robust, and commercial real estate leasing improved somewhat. Port and trucking volumes reached robust levels and manufacturing activity picked up.

Atlanta
District economic activity modestly expanded. Labor markets continued to improve. Contacts noted some nonlabor costs rose. Retail activity and auto sales were mixed. Activity in tourism and hospitality picked up slightly. Residential real estate demand was strong and home prices rose. Commercial real estate conditions remained challenged. Manufacturing activity increased. Conditions at financial institutions stabilized.

Chicago
Economic activity increased moderately but remained below its pre-pandemic level. Employment, consumer spending, and manufacturing increased moderately; business spending increased modestly; and construction and real estate was flat. Wages rose slightly, as did prices. Financial conditions improved modestly. Strong harvests, government support, and higher prices boosted expectations for farm income.

St. Louis
Reports from District contacts suggest economic activity has continued to increase slightly since our previous report; however, conditions deteriorated toward the end of the reporting period. The overall outlook for business conditions over the next 12 months has improved but remains slightly pessimistic.

Minneapolis
District economic activity grew moderately. Employment rose modestly, but obstacles such as child care availability and virtual schooling for households with children impacted labor participation, particularly among women. Consumer spending grew slightly, with softening demand in some segments due to rising COVID-19 infections. Manufacturers generally saw brisk growth. Agricultural conditions improved slightly.

Kansas City
Economic activity continued to expand slightly. After rising in October, consumer spending fell slightly in November but was expected to bounce back in the coming months. Contacts in the manufacturing, residential real estate, wholesale trade, transportation, and professional and high-tech services sectors all reported increased levels of activity. In addition, the energy sector held steady, and the agriculture sector improved moderately.

Dallas
Economic activity expanded modestly. Growth moderated in the manufacturing, retail, and services sectors. The housing market continued to outperform expectations, but office leasing remained weak. Energy activity remained depressed though it showed further signs of improvement. Outlooks were positive, though highly uncertain due to looming concerns surrounding political uncertainty and the unknown course of the pandemic.

San Francisco
Economic activity in the District expanded modestly. Employment levels increased slightly, while price inflation showed little change. Sales of retail goods rose appreciably, but conditions in the services sector were unchanged. Manufacturing expanded moderately, and the agriculture sector improved slightly. Residential real estate activity continued to grow, while commercial markets changed little. Lending activity increased mildly.

Source

https://www.federalreserve.gov/monetarypolicy/beigebook202012.htm

Fed’s Words When Economy is entering a Recession

For the current recession which has not been announced yet:

• 04Mar2020 -“Economic activity expanded at a modest to moderate rate over the past several weeks”
• 15Apr2020 – “Economic activity contracted sharply and abruptly across all regions in the United States as a result of the COVID-19 pandemic”
• 27May2020 – “Economic activity declined in all Districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic”

For the recession starting December 2007, here is the lead-up summary words from the Beige Books:

• 28Nov2007 – “expanding”
• 16Jan2008 – “increasing moderately”
• 05Mar2008 – “growth slowed”
• 16Apr2008 – “weakened”

For the March 2001 recession which ended in November 2001, here are the Beige Book summary words:

• 17Jan2001 – “economic growth slowed”
• 07Mar2001 – “sluggish to modest economic growth”
• 02May2001 – “slow pace of economic activity”
• 13Jun2001 – “little changed or decelerating”
• 08Aug2001 – “slow growth or lateral movement”
• 19Sep2001 – “sluggish”
• 24Oct2001 – “weak economic activity”
• 28Nov2001 – “remained soft”
• 16Jan2002 – “remained weak”

Source: Federal Reserve

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