The FOMC will be meeting on May 2–3 and will be facing largely stale news on the state of the economy because of the lags in producing major economic data. For example, only the first of three releases of GDP for Q1 will be available for the committee, and only March data regarding personal income and outlays will have been released.
The CES employment report for April will not be out until after the FOMC meeting, meaning that only March data will be in hand. That is the last month of the first quarter, and we are already one third of the way into Q2. Similarly, only the March data for both the FOMC’s preferred inflation index of personal consumption expenditures and CPI will be available by meeting time. All of these data, including much of what will come out between now and the meeting, are less than current and reflect what was happening in March as the SVB bank failure and related events were unfolding.
Fortunately, the Fed also produces its Beige Book, which is a bit more up to date on what is happening economically across the country, with the most recent Beige Book being released on April 19, reflecting data through April 10. While it may seem that there is not much more information reflected in the first week of April compared with March, the benefit is the granularity of the data by district, reflecting what is happening in the major economic centers and industry sectors, which can often provide some key insights as to what is really occurring in the economy. The most recent release is particularly informative, given the concerns expressed about the mini financial crisis we experienced in mid-March and the increased chances of a recession developing later in the year. Below is an approximate summary of the overall economic conditions in the districts, with a breakdown into key industry segments where comments were made. It is important to note that, in Fed-speak, words are important; so it is important to know that moderate is better than modest, which is, in turn, better than slightly.
Overall, the picture is one of a softening in economic activity with a slowing in the pace of price increases, moderating housing and construction markets, and mixed manufacturing and consumer sectors. However, it also pays to look at those districts that account for more than half of the country’s economic activity. There are four such districts — New York, Atlanta, Dallas, and San Francisco. Of these, only New York reported that economic activity was flat, whereas the other three all reported growing slightly.
The bottom line is that there are, as yet, no signs of a recession — the economy is slowing; prices continue to moderate; and there is little sign that the banking problems in March caused the significant negative response across the broader economy that some had feared.
Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
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