Wednesday, March 5, 2008

First reports of negative growth

The Board of Governors of the Federal Reserve System released the latest installment of its Beige Book, a summary of economic reports from the 12 districts that make up the system. The Beige Book gives an early look at economic conditions around the country. The current report is very downbeat:

Reports from the twelve Federal Reserve Districts suggest that economic growth has slowed since the beginning of the year. Two-thirds of the Districts cited softening or weakening in the pace of business activity, while the others referred to subdued, slow, or modest growth.

While the report avoids the "R" word, it should be noted that the last two reports have cited ever-slowing growth and GDP growth over the period covered by those reports was an anemic 0.6 percent. Further slowing strongly suggests that the country has tipped from net growth to net decline.

Other indicators from the economy are also downbeat. Indicators for manufacturing and service sector conditions showed declines last month, and two private job reports also showed declines.


Bubba said...

So where in the Beige Book is negative GDP growth mentioned?

Funny that Bloomburg didn't mention anything about it

And the Japanese don't seem to be buying into that sort of thing.


"In the U.S., the Institute for Supply Management's non- manufacturing index, which reflects almost 90 percent of the country's gross domestic product, rose to 49.3 in February, surpassing the median of economists' estimates."

Bubba said...

And here's what the FT has to say about this:

"Taken together, the beige book and the ISM survey suggest the economy is growing at a very weak pace if at all – but has not broken decisively in the direction of recession."

Dave Ribar said...


Some simple math would help here.

First, an ISM reading below 50 indicates contraction. The number may have surpassed estimates but only because it was less negative than forecast. Moreover, it follows an even lower January number. The ISM manufacturing index has also been below 50.

Second, the economy was barely growing in the 4th quarter (revised GDP estimates remained at 0.6 percent). January's Beige Book indicated that conditions at the beginning of the year were slower relative to previous months. And March's Beige Book similarly says that conditions are slowing further. The report indicates that the economy in eight districts is stagnant or declining in eight districts, and the economy in the four others is stagnant or growing sluggishly.

From the report:
-New York: The Second District's economy has softened since the last report.
-Philadelphia: Business activity appeared to be weakening slightly in the Third District in February.
-Cleveland: Economic activity in the Fourth District has slowed somewhat since early January.
-Richmond: Business contacts suggested that the Fifth District economy lost some additional momentum in late January and early February.
-Atlanta: On balance, Sixth District business contacts indicated that economic activity was subdued in January and early February.
-St. Louis: The pace of economic activity in the Eighth District has slowed since our previous report.
-Minneapolis: The Ninth District economy appears to have contracted slightly since the last report.
-Dallas: The Eleventh District economy continued to soften from January to late-February.

Note that for most of these districts, the Fed isn't saying that "growth" is slowing, it's saying that actual economy activity is slowing. Put it all together, and these indicators say that the economy is most likely declining.

It's also useful to go back and compare the Beige Book reports from the first half of 2001, when we were entering the last recession, to the reports now. You will see that they are very similar.

Recessions can only be called in hindsight. We don't get the GDP numbers until well after the quarter. It will be mid-Spring before we get the first reading on this quarter's numbers. However, the Beige Book report is very discouraging.