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Beige Book Shows Suppressed Sentiment

Despite the gradual reopening of the economy in several states, sentiment on Main Street remains suppressed, as the effects of COVID-19 appear to be keeping a lid on American optimism in the most recent Federal Reserve (Fed) 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). 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 Chart of the Day, the Beige Book Barometer dipped into negative territory for the first time since 2011, after falling 26 points since the April update. Strong words fell by 10—though most readings were in reference to strong demand for groceries and other “stay-at-home” themed purchases—while weak words rose by 16 points.

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Perhaps to the surprise of no one, a primary concern for business contacts in the report was the potential pace of the economic recovery following a period of record claims for unemployment insurance. However, as devastating as the job losses in April were, the Fed noted that securing Payroll Protection Program (PPP) loans—a key provision of the CARES Act—helped many businesses limit or avoid layoffs.

Now that lockdown restrictions are beginning to ease across most of the country, consumer and business behavior will be closely monitored for clues to the pace of the recovery. Health concerns, limited access to childcare and generous unemployment insurance benefits may provide headwinds for workers returning to the workforce.