Green Shoots on Main Street

We’ve talked a lot about green shoots in the U.S. economy recently.

A slew of recent data is pointing to a rebound in growth from a disappointing first quarter hampered by global headwinds. This week we gathered more clues on a potential recovery from an uptick in small business sentiment in the Federal Reserve’s (Fed) Beige Book.

Economic reports are important for clues on economic health and macro trends, but the Beige Book hones in on Main Street’s perspectives, offering valuable color on how larger trends are affecting U.S. businesses. At LPL Research, we maintain an indicator called the Beige Book Barometer (BBB), which helps us gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the Beige Book.

The BBB has climbed to 33 in April, its biggest gain since October 2017, as shown in the LPL Chart of the Day.

Green Shoots on Main Street

In the previous edition, the BBB fell to its lowest level since October 2011 (the peak of the European debt crisis), a drop we attributed to businesses struggling with uncertainty more than definitive signs of sustained weakness.

“U.S. businesses are still struggling with a complicated economic environment, but the clouds may be breaking,” said LPL Chief Investment Strategist John Lynch. “We still think lower Beige Book sentiment is a temporary consequence of heightened uncertainty, one that can be removed with a U.S.-China trade agreement.”

This month’s BBB jump was entirely from a resurgence in strong words, as weak words were unchanged from the previous edition. Mentions of weakness centered on a drop in global demand, a trend that we think should improve with progress in trade negotiations. Raw material costs have also risen amid global trade disruption, and respondents cited difficulty raising prices to account for higher expenses. The latest Beige Book, which is published eight times a year, was compiled in the weeks before April 8 and published April 17.

For more analysis on the most recent Beige Book, check out next week’s Weekly Economic Commentary, which will be published on Monday, April 22.

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