October 17, 2019
Elevated uncertainty has persisted on Main Street, according to the Federal Reserve’s (Fed) latest Beige Book.
In the Beige Book, the Fed presents qualitative observations made by community bankers and business owners—or “Main Street”—about economic (housing, labor market, manufacturing, nonresidential construction, prices, tourism, wages) and banking conditions (lending conditions, loan demand, loan quality). At LPL Research, we maintain an indicator called the Beige Book Barometer (BBB) to gauge Main Street’s sentiment by looking at how frequently key words and phrases appear in the text.
As shown in the LPL Chart of the Day, the BBB fell to 40 based on the latest edition of the Fed’s Beige Book, released October 16. Strong words fell to 69 (from 72 in September), while weak words remained unchanged at 29. Since March, the BBB has hovered around its lowest level in seven years as signs of an economic slowdown have emerged.
Overall, the Beige Book noted that the U.S. economy likely expanded at a slight to moderate pace recently, but many respondents said they’ve lowered their growth outlooks for the next 6 to 12 months.
The count of trade-related words remained high at 66. There were 32 mentions of uncertainty, around the highest number since we began tracking those mentions in 2015. Capital expenditures (capex) growth has ground to a halt, and U.S. manufacturing has dropped into contractionary territory recently, partially due to declining corporate demand amid elevated trade uncertainty.
“Even though Main Street sentiment has stabilized lately, there are still signs of uneasiness over trade tensions,” said LPL Senior Market Strategist Ryan Detrick. “High uncertainty among U.S. businesses may not bode well for capex prospects and manufacturing health.”
It’s tough to say how recent developments have impacted small business confidence, though. The October Beige Book was compiled in the weeks before October 7, before the United States and China announced a verbal agreement on trade. As trade tensions thaw a little, we’re hoping to see some increased optimism among companies in the next edition of the Beige Book, which will be published November 27.
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